2016 (9) TMI 1436 - AT - Income Tax

Loss in open market trading - speculative transaction - loss set off against the other income of the assessee - Held that - In this case, the assessee is trading in derivatives in the Multi Commodity Stock Exchange, which was recognized. Therefore, the same cannot be treated as speculative transaction within the meaning of Section 43(5) of the Act. The transaction made in derivatives through Multi Commodities Stock Exchange was exempted under proviso (d) to Section 43(5) of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. - Decided in favour of assessee.

Summary

Issues:
Interpretation of provisions of Section 43(5) and Section 73(4) of the Income-tax Act, 1961 regarding treatment of losses from trading in derivatives as speculative business or not.

Analysis:
The appeal involved a dispute regarding the addition of a specific sum claimed as a loss in open market trading by the assessee. The Departmental Representative argued that the transaction was speculative in nature as the assessee failed to provide sufficient evidence to prove it was carried out through a recognized stock exchange. The Departmental Representative also contended that the nature of the transaction, being in derivatives, should be considered speculative under Section 73(4) due to the main business of the assessee being in retail gold jewellery. The CIT(Appeals) supported this view by referencing a notification and excluding derivatives from the scope of Section 73(4). On the other hand, the counsel for the assessee argued that since the trading was done in derivatives through a recognized stock exchange, it should not be deemed speculative as per the proviso to Section 43(5), making Section 73(4) inapplicable.

The Tribunal analyzed the submissions and the relevant provisions of the Income-tax Act, 1961. It noted that the assessee traded in derivatives through a recognized Multi Commodity Stock Exchange, which exempted the transaction from being treated as speculative under proviso (d) to Section 43(5). The Tribunal concluded that the transaction in derivatives through the recognized exchange did not fall within the definition of speculative business under Section 43(5) and, therefore, upheld the lower authority's decision. Consequently, the appeal filed by the Revenue was dismissed, affirming the treatment of the transaction as non-speculative.

In summary, the judgment revolved around the interpretation of the provisions of Section 43(5) and Section 73(4) of the Income-tax Act, 1961 concerning the classification of losses from trading in derivatives as speculative or non-speculative business. The Tribunal clarified that trading in derivatives through a recognized stock exchange did not qualify as speculative under Section 43(5) and, therefore, the loss claimed by the assessee was deemed non-speculative.