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2022 (5) TMI 682 - AT - Income TaxTrading in derivatives on recognised stock exchanges - Securities / shares derivative transactions treated as speculative transactions in terms of Sec.73 - set-off of the same has been denied from normal business income earned by the assessee - HELD THAT:- We find that Hon’ble Apex Court in Snowtex Investment Ltd. Vs Pr. CIT [2019 (5) TMI 1165 - SUPREME COURT] has observed that the provisions of Sec. 43(5) were amended by Finance Act, 2005. Prior to the amendment, Section 43(5) defined a 'speculative transaction' to mean a transaction in which a contract for the purchase or the sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips. The impact of the amendment by the Finance Act, 2005 was that an eligible transaction on a recognized stock exchange in respect of trading in derivatives was deemed not to be a speculative transaction. With effect from 01/04/2006, by deeming fiction, trading in derivatives was not to be regarded as speculative transaction when it was carried out on a recognized stock exchange.The CBDT Circular dated 27/02/2006 indicated that this amendment was occasioned by the changes which were introduced by SEBI both at the legal and technological level for bringing in greater transparency in the market for derivatives. In the present case before us, the assessee has incurred losses in derivative segment and claims the set-off of the same from normal business income. It is undisputed fact that the derivative transactions are eligible transactions carried out on recognized stock exchange and the same are eligible transactions which are deemed to be non-speculative in nature. This is as per amendment brought in by Sec.43(5) w.e.f. AY 2006-07 which provide that the derivative income / losses are to be deemed as non-speculative in nature. The trading in derivatives in shares could not be held to be at par with trading in shares since the legislatures has intended to treat them differently. The above case law of Hon’ble Supreme Court clearly supports the case of the assessee. Therefore, there is no hindrance for the assessee to claim the set-off of losses of impugned eligible transactions from normal business income. We direct Ld. AO to allow the set-off and re-compute assessee’s income.
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