TMI Blog2018 (1) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... on banking finance company. In the course of assessment proceedings the AO noticed that the assessee during the previous year had incurred loss of ₹ 3,81,20,180/- on account of trading in derivative transactions. Under section 43(5)(d) of the Income Tax Act, 1961 (Act) which was inserted by Finance Act, w.e.f. 01.04.2006 applicable from AY 2005-06. transactions in respect of trading in derivatives carried out in the recognised stock exchange will not be regarded as speculative transaction. The notification u/s 43(5)(d) of the Act notifying which are the recognised stock exchanges where trading in derivatives carried out by an assessee will not be regarded as speculative transaction was issued only n 25.01.2006. Though the law came into force w.e.f. 1.4.2006, the notification of recognised stock exchanges was operational only on 25.01.2006. 3. Prior to insertion of clause (d) to the proviso of section 43(5) by the Finance Act, 2005 with effect from 01-04-2006, the loss incurred in F O transactions was treated as speculative loss and not business loss. Consequent to introduction of clause (d), a Notification No.2 of 2006 dated 25-01-2006 was issued wherein the National Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that, as on the date of transactions, the stock exchange was not notified for the purposes of Section 43(5)(d), and, therefore, even though clause (d) came into force with effect from 1t April 2006, the impugned transactions did not satisfy the requirements of Section 43(5)(d) to the effect that transactions should be entered into in a recognized stock exchange. Section 43 (5) defines 'Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. However, clause (d), which was inserted with effect from 1st April 2006, provides that an eligible transaction in respect of trading of derivates carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. There is also no dispute that the transaction fulfils the requirements of being an eligible transaction in respect of trading in derivates. As for the requirement of stock exchange being recognized, as set out in Explanation (ii) to Section 43(5)(d), are that the stock exchange should , inter alia, ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 35 taxmann 280 (Delhi) took the view that the definition of speculative transaction is applicable only in the context of section 28 to 41 dealing with computation of income and does not apply to section 73 which lays down the condition for set off of loss. Following the aforesaid decision the CIT(A) held that the claim of the assessee for set off of the loss in respect of trading in derivatives cannot be allowed and that has to be regarded as speculative loss for the purpose of set off. 7. Aggrieved by the action of CIT(A) in holding that the loss in respect of trading in derivatives carried out from 01.04.2005 should be regarded as normal business loss the revenue has preferred the appeal before the Tribunal raising the following ground of appeal : The Ld. CIT(A) erred in holding that the loss of ₹ 1,36,90,925/- in derivative transaction prior to the notification of the National Stock Exchange dt. 25.01.2006 was covered by the exclusion set out in Sec. 43(5)(d). That the appellant craves the leaves to add, alter, modify, clued or delete any of appeal. 8. As far as the assessee is concerned the assessee is aggrieved by the action of CT(A) in not allowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee under the head capital gains is much more than the other heads of income. In this regard he drew our attention to the computation of taxable income of the AO in the order of assessment. 11. The ld. Counsel drew our attention to the decision of he Hon ble Bombay High Court in the case of CIT vs M/s. Darshan Securities Pvt. Ltd. 341 ITR 556 (Bom). The Hon ble Bombay High Court took the view that the words 'consists mainly' are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 12. The aforesaid decision was followed by the Hon ble Calcutta High Court in the case of CIT vs Middleton Investment Trading Co. Ltd. 196 of 1999 judgment dated 15.01.2014. Applying the ratio laid down in the aforesaid decision, we find the following factual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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