TMI Blog2022 (5) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions Of the appellant that his case is covered by the Judgment of the Calcutta High Court in Asian Financial Services Ltd., Vs CIT., (2016) 240 taxman 192 (Cal) wherein it is held that loss incurred on account of derivatives would be deemed business loss under proviso to section 43(5) and not speculation loss and, hence, Explanation to section 73 could not be applied and as such, loss would be allowed to be set off against income arising out of proper business because derivatives were treated differently within meaning of Explanation to section 73(4) and not at par with shares. 8. The appellant submits in his case Explanation to Section 73 is not applicable for the reason the income from principal business is from Shiva Textiles (Rs.82,23,449) and Angayarkanni investments (Rs.1,38,849/-) totaling Rs.83,68,298/- against loss of Rs.45,11,108/- from derivative trading; Explanation to Section 73 is applicable only in a case where the principal business of the assessee is purchase and sale of shares. 9. Without prejudice to the above contentions the appellant submits that both the Commissioner of Income Tax (Appeals) as well as the assessing officer failed to note that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise than by actual delivery of shares and securities, the same were to be treated as speculation business loss. The assessee submitted that the transactions were carried out electronically through registered stock-broker on stock exchange and therefore, these transactions are eligible transactions as per explanation-1 to Sec.43(5)(d) of the Act. Accordingly, the transactions shall not be deemed to be speculative transactions. 4.2 However, considering the explanation to Section 73 which provide that where any part of the business of the company consists in the sale and purchase of shares then such company shall be deemed to be carrying on a speculation business to the extent to which such business consists of purchase and sale of shares. Relying upon the decision of Hon ble Delhi High Court in CIT V/s DLF Commercial Developers Ltd. (261 CTR 126) which held that stock derivative value is dependent on shares and therefore, the explanation to Sec. 73 would apply, Ld. AO opined that the explanation to Sec. 73 was applicable to the case of the assessee and the losses were speculative in nature. Consequently, the assessee was not entitled for set-off of the losses from business inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (5) of section 43 define 'speculative transaction' to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso to section 43(5) lists out certain transactions which are not deemed to be speculative transactions. Systemic and technological changes introduced by SEBI have resulted in sufficient transparency in the stock markets and have to a large extent curbed the scope for generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another. The screen based computerized trading provides for audit trail. In the wake of these developments, the present distinction between speculative and non-speculative transactions, in respect of trading in derivatives of securities is losing relevance. The Finance Act, 2005 has, accordingly, amended section 43(5) to provide that an eligible transaction in respect of trading in derivatives of securities carried out on a recognised stock exchange shall not be deemed as speculative transaction. The notification prescribing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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