9911796707
TMI Blog2015 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions.' The assessee had claimed the same as revenue expenditure, since according to the assessee, trading in futures and options is no longer speculative transactions as per proviso (d) to sec.43(5) inserted by the Finance Act, 2005 w.e.f. 1.4.2006. However, the AO held that loss incurred out of trading in futures and options is speculation loss and hence could not be allowed to be set off against brokerage income. Accordingly, he completed the assessment u/s.143(3) of the Act determining total income at Rs. 1,21,52,718/- making disallowances of Rs. 1,08,22,078/- on 'loss on purchase and sale in futures and options' and disallowance u/s.14A of Rs. 10,000/- on the dividend earned of Rs. 98,992/-. Aggrieved by this assessment order, the assessee went in appeal before the Commissioner of Incometax( Appeals). 4. On appeal, the Commissioner of Income-tax(Appeals) after going through the facts of the case observed that the AO is not justified in treating the loss of Rs. 1,08,22,078/- as speculation loss. Further, he observed that the assessee has traded in future and options in a recognized stock exchange i.e NSE and this was not disputed by the AO. In fact, the assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the prices, or index of prices, of underlying securities. As such, the explanation to sec. 73 cannot apply to derivatives, but only to purchase and sale of shares simpliciter. Further a speculative transaction as per sec.43(5) means a transaction in which the contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or scrip. A derivative can also be traded on the value of the underlying shares but is not a trade in any actual stock. It does not have a physical existence. Derivatives are not a contract for purchase or sale of any physical commodity as such. So, these are not speculative transactions in the strict sense of terms of s. 43(5), therefore the loss on I account of derivative cannot be treated as speculation loss. The dealings in derivative being a separate kind of transaction, without force of law, it is not possible to hold that the transaction was speculative in nature. 4.2 According to the CIT(A), the assessee has transacted in future and options and the loss incurred in this regard by the assessee should be allowed to be set off against its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and showing losses to be set off against business profits. The legislature decided to exempt the derivatives from the purview of 'speculative transactions' only after confirming that there were sufficient transparency in the transactions', i.e. only trading in derivatives carried out in a recognized stock exchange. The ld. AR has relied on the following decisions in support of its stand: 1. CIT v. First Securities P. Ltd. (370 ITR 72 - Kar.) 2. CIT v. Nirmal Trading Co. (82 ITR 782 -Cal) 6.1 He also relied on the following cases, which relate to companies, the transactions in derivatives are treated as regular business transactions and not speculative transactions: 1. Shree Capital Services Ltd. v. ACIT [124 TTJ 740-(Kol)( SB)] 2. DCIT v. Madanlal Limited [51 SOT 188 (Kol.)(URO)] 3. DCIT v. Paterson Securities (P) Ltd. [127 ITD 386-(Che)] 4. DCIT v. SSKI Investors Services (P) Ltd. [113 TTJ 511 (Mumbai)] 5. R.B. K. Securities (P) Ltd. v. ITO [118 TTJ 465-(Mumbai)]. 6.2 Further, on the issue of whether the Delhi High Court is a binding precedent, he submitted that the Karnataka High Court has taken a different view and where two views are possible, the one in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, it follows that both will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of CIT v. Concord Commercial Pvt. Ltd. (2005) 95 ITD 117 (Mum)(SB). In this case, the Special Bench held that : "Before considering whether the assessee's case is hit by the deeming provision of Explanation to Sec. 73 of the Act, the aggregate of the business profit / loss has to be worked out based on the non-speculative profits; either it is from share delivery or from share derivative." 8. From the above, it is concluded that both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of "speculative transaction" exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are nonspeculative as far as section 43(5) is concerned goes to confirm that both will have s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase. In order to resolve the issue before us, the section has to be read in the manner as follows: "Explanation : Where any part of the business of a company (... ... ... ... ... ... ... ... ... ... ... ... ... ... .... ... ... ... ... ... .... ... ... ... ... ... ... ... ... .... ... ... .. .. ... .. ... ... ... .. ... .. ... ... ... .. ... ... .. .... ... ... ... .. ... .. ... ... ... ... .... ... ... ...) consist in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares." It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
