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TMI Blog2022 (6) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 was carried out in a recognized stock exchange. Explanation-1 to Section 43(5), in turn, defines 'eligible transaction' for the purposes of clause (d) to mean a transaction carried out electronically on screen based systems through a stock broker registered under SEBI Act 1992. In essence, an 'eligible transaction' [as defined in Explanation-I to Section 43(5)] in respect of derivatives transaction [as defined in clause (ac) to Section 2 of Securities Contract (Regulation) Act, 1956] carried out on a recognized Stock Exchange shall not be deemed as Speculative Transaction having regard to exception provided in clause (d) to proviso to Section 43(5) of the Act. We are of the considered view that the assessee in the instant case has complied with all the conditions of clause (d) and Explanation-1 to Section 43(5) of the Act cumulatively so as to treat such currency derivative transaction as eligible transaction for the purposes of exclusion from the ambit of speculative transaction defined under Section 43(5) - This being the position, the loss arising from deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income declared by the assessee. The Assessing Officer however opined that such losses arising from currency derivative do not fall with the exceptions stipulated in Section 43(5) of the Act which defines expression 'Speculative transaction'. The Assessing Officer accordingly held that the transaction currency derivatives would fall within the sweep of definition of Speculative transactions and consequently the losses arising from such transactions are speculative in nature and set off and carry forward of such loss would be governed by the restrictions provided in Section 73 of the Act. He accordingly denied the set off of loss arising from currency derivatives against income arising from non speculative activities and allowed the loss arising from currency derivatives amounting to Rs. 24,67,704/- be carried forward to the subsequent assessment year in terms of provisions of Section 73 of the Act and adjustable only against the speculative income in the subsequent assessment years. 3. Aggrieved, the assessee preferred appeal before the CIT(A) without any success. 4. Further aggrieved, the assessee preferred appeal before the Tribunal. 5. We have carefully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward of losses arising therefrom. The proviso to Section 43(5) provides for certain exceptions in varied situation and where the transactions executed fall within any of such exceptions, profit/loss arising from such transactions will not be regarded as derived from speculative business and consequently, will not be deemed to be speculative transaction for the purposes of the Act. 7. We are presently concerned with clause (d) of such exceptions annexed to Section 43(5) of the Act. In view of the clause (d) to Section 43(5), a transaction will not be regarded as 'speculative transaction' where an eligible transaction in respect of trading in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 was carried out in a recognized stock exchange. Explanation-1 to Section 43(5), in turn, defines 'eligible transaction' for the purposes of clause (d) to mean a transaction carried out electronically on screen based systems through a stock broker registered under SEBI Act 1992. 8. Clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 defines expression 'derivative' in an inclusive manner as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orex-derivatives included in the Profit and Loss Account and examine whether such transactions are 'eligible transaction' in terms of Sec. 43(5)(d). An adjustment to the taxable income may therefore be made, if necessary, keeping in view the provisions of law referred to above. 10. On facts and as per the contract notes, the assessee has entered into contract for transactions in currency derivatives segment of BSE Ltd. through registered share broker namely PEE AAR Securities Ltd. resulting in the impugned losses. 11. The definition of derivative under Securities Contract (Regulation) Act, 1956 reproduced hereinabove, defines the express 'derivative' in an inclusive manner and inter alia includes a security derived from a debt instrument, risk instrument and such other instruments as may be declared by the Central Government to be derivatives. The definition is thus very widely worded. The CBDT instruction no. 3/10 clearly provides in the context of proviso (d) below sub Section (5) of Section 43 inserted by Finance Act, 2005 w.e.f. 01.04.2006 relevant to Assessment Year 2006-07 onwards that any 'eligible transaction' in respect of trading in derivati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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