Kolkata bench of Income Tax Appellate Tribunal ( ITAT ) has recently held that loss derived from trading in derivatives carried out prior to 25/01/2006 cannot be treated as speculative loss and it should be treated as normal business loss under the provisions of the Income Tax Act, 1961.
Assessee in the instant case was a non-banking finance company and incurred a loss of Rs. 3,81,20,180 on account of trading in derivative transactions during the previous year.
During the assessment period the Assessing Officer (AO) noticed that the loss derived by the assessee from trading in derivatives carried out prior to 25.01.2006 had to be regarded as a speculative transaction and therefore a speculative loss and accordingly he completed the assessment by considering the aforesaid loss as speculative loss. And had not allowed set off of the aforesaid loss against the other income of the assessee.
Tribunal bench comprising of Judicial Member N.V.Vasudevan and Accountant Member Dr.A.L.Saini held that transactions in respect of trading in derivatives carried out in the recognized stock exchange will not be regarded as speculative transaction. And also noticed that The notification u/s 43(5)(d) of the Act notifying that the recognized stock exchanges where trading in derivatives carried out by an assessee will not be regarded as speculative transaction was issued only on 25.01.2006. Though the law came into force w.e.f. 1.4.2006, the notification of recognized stock exchanges was operational only on 25.01.2006.
It was noted that the transactions made by the assessee did not satisfy the requirements of Section 43(5)(d) to the effect that transactions should be entered into in a recognized stock exchange. As per section 13(5)(d) of the Act ‘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.
After perusing the material facts and records the bench found that the gross total income of the assessee under the head capital gains is much more than the other heads of income. While 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.
The division bench was of the opinion that, there for the set off claimed by the assesse cannot be denied by relying on the Explanation to section 73 of the Act and also considering the decision of the Delhi High Court .
It was therefore, held that the transaction of trading in derivatives and profit or loss from such transaction should be regarded as normal business loss and cannot be considered as speculative loss.
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