Recently, the Special Bench of the Kolkata Income-tax Appellate Tribunal (the Tribunal) in the case of Shree Capital Services Ltd. Vs. ACIT (2009-TIOL-542-ITAT-KOL-SB) while dealing with a case prior to the amendment to section 43(5) of the Income-tax Act, 1961 (the Act) exempting derivative transaction as speculative in nature, held that the derivative transactions will be considered as speculative transaction under section 43(5) of the Act. Further, it was also held that the above referred amendment to section 43(5) of the Act is perspective in nature and comes into effect from Assessment Year (AY) 2006-07.
Facts of the case:-The taxpayer company was engaged in business of financing and investments in shares and securities. During the year the taxpayer suffered the loss amounting to INR 925,065 on account of futures and options. The Assessing Officer (AO) treated the same as speculation loss as per section 43(5) of the Act.
Contentions of the taxpayer :- The derivative transactions entered into in the form of futures and options were not covered under the provisions of section 43(5) of the Act. Hence, the said transactions cannot be considered as speculative transactions.
Contentions of the tax department
- As per the meaning given on the website of Security Exchange Board of India (SEBI) the ‘Derivatives’ gets its color from the underlying security and the underlying security can be either commodity or stock and in either case it will fall within the ambit of section 43(5) of the Act.
- The term ‘commodity’ is wider and, therefore, the derivatives would fall within the term ‘commodity’ used in section 43(5) of the Act.
- Clause (d) in section 43(5) of the Act was introduced with effect from 1 April 2006, providing that the derivatives transaction would not be treated as speculative transaction. Accordingly, transactions in derivatives before this amendment would be covered under section 43(5) of the Act.
- It was evident from the memorandum explaining the insertion of the relevant clause in the Finance Act that the insertion of clause (d) under section 43(5) of the Act was prospectively and not retrospectively.
Issues before the Tribunal
