TMI Blog2015 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the learned Tribunal has done - Decided in favour of the assessee - ITA No.860/Mds/2014 - - - Dated:- 29-5-2015 - SHRI CHANDRA POOJARI AND SHRI CHALLA NAGENDRA PRASAD, JJ. For The Appellant : Shri A.V. Sreekanth, JCIT For The Respondent : Ms. Pushya Seetharaman, Sr. Advocate and Ms. J. Sree Vidya ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals) dated 26.12.2013. 2. The only ground raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sell at an agreed amount an underlying asset on or before the specified future date and The ICAI Guidance Note on Accounting for Equity Index and Equity Stock Futures and Options says: Futures and options are both standardised derivative instruments traded on a stock exchange. From the above definitions it is clear that futures and options are also derivatives, i.e. an instrument whose value depends on an underlying source or asset. For stock derivatives the price of the shares of a particular company is the underlying source. For an index derivative, the value of the index is the underlying source. The Assessing Officer has treated the loss on trading of future and options as loss in speculation business by virtue of explanation to Sec 73. He has come to that conclusion based on the decisions wherein it has been stated that the loss suffered by an assessee company on dealing its shares on its own account was a speculation loss and therefore could not be allowed to be set off against the brokerage income, failing to see that in the present case, the trading was not in stocks and shares, but in derivatives. 4.1 Further, CIT(A) observed that the AO failed to see that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from trading in future and options (derivatives) from its business profit. Against this, the Revenue is in appeal before us. 5. The ld. DR submitted that the loss on share trading to a share broker is not a business loss and it is to be treated as a speculation loss by virtue of Explanation to sec.73 and Explanation 2 to sec.28, since brokerage income on shares and securities does not find a place in the list of exceptions provided in the Explanation to sec.73 of the Act. Further, he submitted that the loss suffered by an assessee on dealing its shares on its own account was a speculation loss and therefore, could not be allowed to be set off against brokerage income. He relied on the following judgments: (i) BLK Securities P. Ltd. (DEL), [2009] 27 SOT 142 (ii) SPFL Securities Ltd. (DEL) (2006) 6 SOT 562 (iii) Priyasha Meven Fin. Ltd. (BOM) 24 SOT 422 6. The ld. AR has submitted written submissions, wherein it was stated that for the assessment year 2008-09, the assessee claimed set off of loss from purchase and sale in future and options, against the business income, as derivatives had been excluded from the definition of speculative business u/s.43(5) by sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. derivative trading. The assessee incurred loss on delivery based purchase and sale of ₹ 1,08,22,078/-. The assessee claimed it as business loss. The AO during the course of assessment proceedings, considered this loss as speculation loss and not allowed set off against business loss. According to the AO, Explanation to sec.73 is applicable to the facts of the assessee s case and disallowed the claim of set off of losses from dealing of shares. The assessee carried the matter to the CIT(A), who allowed the claim of the assessee by holding that the loss incurred by the assessee in derivative transactions to be set off with the profits earned from derivative transactions. According to the ld. DR, the derivative transaction cannot fall under sec.73. Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of sec.73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in sec.43(5) of the Act, the transaction is not of that nature as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction. Sub-section 1 of Section 73 provides as follows: (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimatel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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