Case Law Details
Vinay Prakash (HUF) Vs ACIT (ITAT Delhi)
Trading of currency derivatives are covered by definition of ‘derivatives’ and excluded from the ambits of speculative transactions defined under Section 43(5) of Income Tax Act, 1961.
The solitary issue confronted in the present appeal is on treatment of loss arising from derivative transactions in currency segment in the matter of set off and carry forward. It is the case of the assessee that it has entered into derivatives transactions in currency segment of the recognized stock exchange, i.e., BSE and has complied with other conditions stipulated in Section 43(5) read with proviso (d) thereto. The contract for Currency Derivative Transaction (CDT) executed through the registered share broker on the platform of the stock exchange (recognized Exchange by SEBI) was referred to on a sample basis to demonstrate that CDT executed by the assessee falls within the definition of ‘eligible transaction’ as per Explanation-1 appended below Section 43(5) of the Act. It was thus contended that the CDT being ‘eligible transaction’ falls within the exceptions carved out to Section 43(5) of the Act. The consequential effect would be that such CDT are outside the ambit of expression ‘Speculative transaction’ are thus non speculative in nature. Hence loss arising from such CDT being ordinary loss are eligible for set off against the profits arising from other non speculative business transactions, etc. in accordance with law.
Section 43(5) of the Income Tax Act defines ‘speculative transaction’. As per the Scheme of the Act, a transaction of speculative nature carries a differential treatment qua the non speculative transaction in the matter of set off and carry forward of losses arising therefrom. The proviso to Section 43(5) provides for certain exceptions in varied situation and where the transactions executed fall within any of such exceptions, profit/loss arising from such transactions will not be regarded as derived from speculative business and consequently, will not be deemed to be speculative transaction for the purposes of the Act.
We are presently concerned with clause (d) of such exceptions annexed to Section 43(5) of the Act. In view of the clause (d) to Section 43(5), a transaction will not be regarded as ‘speculative transaction’ where an eligible transaction in respect of trading in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 was carried out in a recognized stock exchange. Explanation-1 to Section 43(5), in turn, defines ‘eligible transaction’ for the purposes of clause (d) to mean a transaction carried out electronically on screen based systems through a stock broker registered under SEBI Act 1992.
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