TMI Blog2016 (5) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ling appeal by the revenue. The same has been explained in an affidavit filed before us as owing to inability to trace the assessment records. After considering the reasons given in the affidavit, we are satisfied that the delay in filing the appeal was due to reasonable and sufficient cause. Accordingly the delay in filing the appeal is condoned. 3. The grounds of appeal of the revenue reads as follows: 1. Whether on the facts and circumstances of the case, Ld. CIT(A ) erred in law in allowing the loss of ₹ 34,61,912/- on speculative transactions to be adjusted with profit from non speculative business. 2. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in stating that provisions to Section 73 are not applicable in the case of an assessee dealing in shares. 3. Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in stating that the business of dealing in shares is one and inseparable and it could not separated into speculative and non speculative business. 4. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing. 4. The Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources , or a company the principal business of which is the business of banking or the granting of loans and advances, consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. 5. It can be seen from Explanation to Sec.73 of the Act that if an Assessee is a company and it carries on business in purchase and sale of shares of other companies than such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. There are exceptions set out in the explanation. The explanation does not apply to (a) a company whose gross total income consists mainly of income which is chargeable under the head Interest on securities , Income from house property , Capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under this Act; (ii) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. 7. It is not in dispute that the transactions carried out by the Assessee in derivatives was through a recognized stock exchange and in a manner contemplated by Explanation 1 to Sec.43(5)(d) of the Act and therefore the gain or profit from such transactions cannot be regarded as income from speculation business in view of the proviso (d) to Sec.43(5) of the Act and therefore was of the nature of normal business loss. 8. According to the Assessee the business of trading in shares and business of dealing in derivatives were to be regarded as one business and loss in share trading ought to be allowed to be set off against the income from trading in derivatives. Such set off has to be done even before the stage of application of Chapter VI of the Act which contains the provisions of Sec.73 of the Act. 9. According to the AO, the two business of dealing in shares and share br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) to Sec.43(5) of the Act have to be regarded as speculative in nature and income there from has to be regarded as Speculative income/loss. 12. The CIT(A) agreed with the contentions put forth by the Assessee. On facts the CIT(A) found 30. I have considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant is a share broker deriving income from trading in shares, stock brokering and dealing in Future Options. The appellant has submitted that it is primary and only business is to deal in shares and securities including derivatives and work as broker on behalf of clients. All the business activities are cumulatively related to sale and purchase of shares. The appellant has shown income from interest, brokerage, dividend, misc. income, penalty charge recovered, F O share trading etc. The income and expenditure account shows that there is a profit of ₹ 27,96,413/-. The appellant has income from derivative trading amounting to ₹ 90,58,340/- and stock broking operations amounting to ₹ 9,58,95,368/- and loss from share trading of ₹ 34,61,912/-. The appellant has shown an income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom derivative transactions ,are to be aggregated as they are of the same nature. Applying the above ratio to the case of the appellant it can be concluded that share trading loss should be allowed to be set-off loss from profit from Futures and Options. Therefore, in view of the above the appellant is entitled to set off of the share trading loss with the profit earned from derivative transactions. The same issue was involved in the case of the appellant for the assessment year 2008-09 and as CIT(A)-VI, Kolkata, I have upheld the set off of loss from share trading with income from F 0 in Appeal No. 04/CIT(A)-VI/Cir-6/11-12!Kol dated 18.02.2013 and decided accordingly 34. Therefore, it is held that since 'there is net income from share trading and F O, therefore, the provision of section 73 are not applicable in the case of the appellant. Hence, the amount of ₹ 34,61,912/- is allowed to be set off with income from derivative trading. This ground of appeal is allowed. 15. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. The request for adjournment made on behalf of the learned DR was refused as the issues raised by the revenue in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carry forward of losses. Explanation to Section 73(4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections To borrow the Madras High Court s expression, derivatives are assets, whose values are derived from values of underlying assets ; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73(4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives once removed from it and entirely dependent on stocks and shares, for determination of their value). In view of the alternative plea of the assessee, we are in agreement with the argument of Ld. counsel for the assessee that the income from derivatives is defined in section 43(5) of ..... 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