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TMI Blog2011 (6) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... on-speculative within the meaning of clause (d) of proviso to section 43(5) - Since there is no dispute to the fact that the transactions in the present case in F&O segment are the eligible transactions carried out in a recognized stock exchange, loss in such transactions cannot be deemed to be transaction in speculation business - Appeal is dismissed - 3361 (AHD.) OF 2009 - - - Dated:- 17-6-2011 - BHAVNESH SAINI, D.C. AGRAWAL, JJ. Samir Tekriwala for the Appellant. Mehul K. Patel for the Respondent. ORDER D.C. Agrawal, Accountant Member. This is an appeal filed by the revenue raising following grounds : "1. The ld. CIT(A) Ahmedabad has erred in law and on facts in holding that the derivative transactions are business transactions which cannot be treated as speculative transaction and thereby directing the Assessing Officer to allow the set off of loss. In derivative transactions of Rs. 23,62,200 against the regular business Income without properly appreciating the facts of the case and the material brought on record by the Assessing Officer. 1.2 In doing so, the ld. CIT(A) has erred in law and on facts in not appreciating that the assessee could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the ld. Counsel for the appellant urged to allow the set off of loss in derivative transaction of Rs. 23,62,290 against the regular business income. 3.3 I have carefully considered the contentions of the ld. Counsel for the appellant and have also carefully gone through the assessment order. The case law relied upon by the ld. Counsel for the appellant has also been carefully considered. It is seen in this case that the Assessing Officer has not come with any adverse findings as regards the loss claimed by the appellant on derivative transactions. It is now very clear that derivative transactions are business transactions and cannot be treated as speculative transactions. In view of the facts and circumstances of the case and in the light of judicial pronouncements cited supra of the Hon'ble Ahmedabad and Jaipur Tribunals, the Assessing Officer is directed to allow the set off of loss in derivative transactions of Rs. 23,62,290 against regular business income as the same is to be treated as business loss only." 5. Before us, the ld. DR submitted that as per clause (ii) of Explanation below section 43(5) notification for declaring as to what are the recognized stock ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res through price fluctuations ; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member ; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (aa) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), carried out in a recognised stock exchange; shall not be deemed to be a speculative transaction ; Explanation. For the purposes of this clause, the expressions (i) "eligible transaction" means any transaction, (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or the Securities and Exchange Board of India Act, 1992, or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be effective from the date on which the Legislature made it effective, i.e., April 1, 2006 and will be applicable to the assessment year 2006-07 onwards." 8. This view was upheld by Hon'ble Bombay High Court in the case of CIT v. Shri Bharat R. Ruia (HUF) [2011] 199 Taxman 87/10 Taxmann.com 265 pronounced on 18-4-2011 while interpreting clause (d) to the proviso to section 43(5) (that it is effective from 1-4-2006) as under : "Plain reading of clause (d) to the proviso to section 43(5) makes it clear that with effect from 1-4-2006, only those eligible transaction in derivatives referred to under section 2(ac) of the 1956 Act, which are carried out in a recognized stock exchange, shall not be deemed to be a speculative transaction. It is only because the transactions in derivatives referred to under section 2(ac) of the 1956 Act carried out in a recognized stock exchange were covered under section 43(5), the Legislature could exclude those transactions from the purview of section 43(5) with effect from 1-4-2006. In other words, unless the transactions referred in clause (d) were not covered under section 43(5), there would be no question of excluding those transactions from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Exchange Board of India for trading in derivatives ; (ii) up-to-date rules, bye-laws and trading regulations of the stock exchange ; (iii) confirmation regarding fulfilling the conditions referred to in clause (ii) to clause (iv) of rule 6DDA ; (iv) such other information as the stock exchange may like to place before the Central Government. (3) The Central Government may call for such other information from the applicant as it deems necessary for taking a decision on the application. (4) The Central Government, after examining the information furnished by the stock exchange under sub-rule (2) or sub-rule (3), shall notify the stock exchange as a recognised stock exchange for the purposes of clause (d) of proviso to sub-section (5) of section 43 or issue an order rejecting the application before the expiry of four months from the end of the month in which the application is received. (5) The notification referred to in sub-rule (4) shall be effective until the approval granted by the Securities and Exchange Board of India is withdrawn or expired, or the notification is rescinded by the Central Government." *I.T. (20th Amend.) Rules, 2005, with effect from 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n CWT v. Man Bahadur Singh [1994] 208 ITR 658/74 Taxman 344 held that such procedural amendment in rule would be retrospective. Therefore, in our considered view if transactions are carried out through stock exchanges from 1-4-2005 to 25-1-2006 which are recognized by notification issued by CBDT on 25-1-2006 would be eligible for being treated as non-speculative within the meaning of clause (d) of proviso to section 43(5). The notification issued under rule 6DDB does not empower any right or create obligation but only recognizes what is already in existence. It is not a case that NSE or BSE were created after 25-1-2006 and, therefore, transactions could not have been carried out through them and, therefore, transactions carried out prior to this date would not be covered for being treated as non-speculative. In other words if transactions are derivatives and are carried out through stock exchange which are already in existence during assessment year 2006-07 i.e., financial year 1-4-2005 31-3-2006 onwards and which are subsequently recognized under rule 6DDB and there is no allegation that such transactions or the stock exchanges have violated any condition prescribed under rule 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be a speculative transaction". The phrases "eligible transaction" as also "recognized stock exchange" is defined in Explanation below the proviso to section 43(5). It was also noted that clause (d) is inserted in the proviso by Finance Act, 2005 with effect from 1st April, 2006. Accordingly, for assessment year 2006-07 the transaction in the derivatives in the form of future and option cannot be considered as speculative transaction and hence loss in such transaction cannot be classified as loss in speculation business." The Assessing Officer held, that the transactions are carried on at National Stock Exchange and Bombay Stock Exchange. Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd. are recognized stock exchanges as per notification dated 25th January, 2006. Therefore the transactions in F O segment prior to 25th January, 2006 are regarded as speculative loss. Section 43(5) defined 'speculative transaction' means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodical or ultimately settled otherwise than by the actual delivery or the transfer of commodity or scrips. Proviso below s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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