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2009 (6) TMI 676 - AT - Income TaxTransactions in derivatives - set off of speculation loss, jobbing loss and brought forward speculation loss against the profit of future and option (F&O) income - Nature of F&O transaction ''speculative or derivatives'' - whether the provisions of clause (d) of section 43(5) are clarificative in nature and have retrospective application? - admittedly, the transactions in future entered into by the assessee are derivative transactions. AO held that F&O transactions were speculative transactions in terms of definition of such transaction in section 43(5) and amendment by the Finance Act, 2005 had only clarified the position. Thus the amended provisions were applicable to the assessment year 2004-05. Accordingly he disallowed the claim of the assessee. CIT(A) agreed with the submission of the assessee that F&O transactions were also without delivery and therefore such transactions were speculative in nature. CIT(A) also agreed that amended provisions of section 43(5)(d) had only prospective application from assessment year 2006-07. HELD THAT:- We find that the same issue has already been considered by the Jaipur Bench of the Tribunal in case of P.S. Kapur v. Asstt. CIT.[2008 (7) TMI 463 - ITAT JAIPUR-A], The Tribunal noted that in order that a transaction be speculative within the meaning of the definition in section 43(5), the following three ingredients should be satisfied : (a)It should be transaction in purchase/sale of commodity. Commodity would include stock and share. (b)The transaction envisages delivery/transfer. (c)The transaction is settled otherwise than by delivery or transfer. The transactions in derivative are thus not speculative as these lack the basic ingredients of speculative transactions. The Tribunal also held that clause (d) of section 43(5) inserted by the Finance Act, 2005 deeming the transactions in derivative as non-speculative was clarificatory in nature as it only clarified the existing position. It has therefore retrospective application. Thus transactions in derivative were held to be non-speculative. We therefore hold that the subject transactions are not speculative transactions and thus the income from such transactions cannot be set off against the speculation loss. The order of CIT(A) therefore cannot be sustained. The same is set aside and the order of AO is upheld.
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