Loss on Trading in Derivatives of Securities can be Adjusted against Business Income: Bombay HC [Read Order]

A division bench of the Bombay High Court comprising Justices R.D. Dhanuka and S.G. Mehare, has held that the loss on trading in derivatives of securities not a speculative loss, can be set off against business income for the purpose of the Income Tax Act, 1961.

The assessee/appellant M/s. Souvenir Developer (India) Pvt Ltd deals in collection of Toll fees and also carries out the business of shares and derivatives. The Assessing Officer rejected the appellant's income tax return and passed an order making certain additions to the income of the appellant. While doing so, the AO refused to consider the loss suffered by the appellant on transactions in derivatives while computing his net taxable income.

On the second appeal, the ITAT deleted the addition.

The High Court bench opined that the Income Tax Appellate Tribunal could not have confirmed any addition on transaction in derivatives on recognised stock exchange as defined in Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the Income Tax Act, 1961 which is applicable to speculative transaction.

“By virtue of insertion of clause (d) to the proviso to Section 43 (5) of the Income Tax Act, 1961, the transactions in respect of the trading in derivatives as prescribed in clause (d) inserted in proviso to Section 43(5) would not be a speculative transaction,” the Court said.

Concluding the order in favour of the assessee, the Court added that “the appellant was thus entitled to claim set off of the loss suffered by the appellant in the said transactions in derivatives against the business income of the appellant from infrastructure business under Section 70 of the Income Tax Act 1961.”

To Read the full text of the Order CLICK HERE

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