TMI Blog2008 (7) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts (Regulation) Act, 1956, w.e.f. 22nd Feb., 2000. Therefore to remove the unintended misinterpretation where dealing in derivatives may be considered as speculative transaction, the amendment is made in s. 43(5) to clarify that derivative transactions are not speculative. Hence, the provisions so introduced are only explanatory and has retrospective application from the date the concept of derivatives is introduced in the Securities Contracts (Regulation) Act, 1956. We further agree with the submission of ld AR that as per provisions of s. 73, speculative loss can be adjusted only against speculative profit. If cl. (d) to s. 43(5) is considered as a prospective amendment and transaction in derivatives as 'speculative', then the losses in derivative prior to amendment would be taken as speculative loss and profit after amendment as business income. This would negate the adjustment of loss in derivative prior to AY 2006-07 from the profit in derivative in AY 2006-07 and subsequently - on a harmonious interpretation of law, the derivative transaction can't be considered as speculative transaction. In view of above it is clear that the transactions in derivative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso treated the share script advice expenses to the extent of Rs. 3,34,500 as related to speculative transactions and therefore, disallowed the same while computing the business income for other than loss from speculative transactions. The learned CIT(A) has upheld the same. 4. Considering the arguments advanced by the parties we however, find substance in the contention of the learned Authorised Representative that dealing in derivatives was not speculative and the newly inserted provision under section 43(5)(d) was clarificatory in nature and therefore, it has retrospective operation. The assessee has dealt in NIFTY (F O) Shares (F O) which are index based tradable securities, popularly known as derivatives having no any physical form in itself and therefore, these are not capable of delivery/transfer. By referring the memorandum explaining the provisions of Finance Bill, 2005, it was contented by the learned Authorised Representative that the amendment in section 43(5) has been brought in to remove the unintended misinterpretation where dealing in derivatives may be considered as speculative transactions and therefore, it needs to be considered as explanatory in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange shall not be deemed to be a speculative transaction would mean that before 1-4-2006 the transaction in respect of trading in derivatives was a speculative transaction. In other words as to whether the inserted clause (d) in section 43(5) is clarificatory in nature to be operative with retrospective effect to mitigate the hardship of assessee's dealing in such trading in derivatives. In this regard, an assistance can be taken from the very intention of the legislature in insertion of clause (d) in section 43(5) with effect from 1-4-2006. The inserted clause (d) reads as under : Provided that for the purpose of this clause. (d)an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contract (Regulation) Act, 1956, carried out in a recognized stock exchange; shall not be deemed to be a speculative transaction. The purpose and intention for introduction of section 43(5)(d) is explained in Memorandum explaining the provision of Finance Bill, 2005 as under : Measure to rationalise the tax treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artificially generated losses. Thus normal loss in derivatives can't be considered speculative. In fact, the concept of transaction in derivatives was introduced in the Securities Contracts (Regulation) Act, 1956, with effect from 22-2-2000. Therefore to remove the unintended misinterpretation where dealing in derivatives may be considered as speculative transaction, the amendment is made in section 43(5) to clarify that derivative transactions are not speculative. Hence, the provisions so introduced are only explanatory and has retrospective application from the date the concept of derivatives is introduced in the Securities Contracts (Regulation) Act, 1956. While going through the decisions relied upon by the parties, we find as : Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC) 8. This case relates of section 43B, which was inserted in the statute book from 1-4-1984. The proviso was added with effect from 1-4-1988. It was held that proviso is inserted to remove unintended consequences and therefore, has a retrospective effect. The Hon'ble Supreme Court at p. 686 (of 224 ITR) has been pleased to hold as : The rule of reasonable construction must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1973] 88 ITR 192 (SC) Concession provision should be liberally construed so as to subserve the purpose for which it is intended. 10. The observation of the Assessing Officer that insertion of clause (d) in proviso to section 43(5) with effect from 1-4-2006 shows that prior to this date the derivative transactions are speculative transactions is incorrect as this provision has been inserted only to clarify the doubt as is evident from the memorandum explaining the proviso. Hence, in the absence of any specific provision in the Act to the contrary, it can't be said that earlier derivative transactions were speculative transactions. 11. The CIT(A) has relied on the case of CIT v. Varas International (P.) Ltd. [2006] 283 ITR 484 (SC). In this case also it was held that in order that an amendment of statute is construed as being retrospective, the amended provision should itself indicate either in terms or by necessary implication that it is to operate retrospectively. In the present case clause (d) to section 43(5) is inserted with effect from 1-4-2006. Of course this section is not specifically made retrospective but considering the legislative intent its retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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