Case Law Details
Even prior to the amendment to s. 43(5) by the Finance Act 2005 w.e.f 1.4.2006, dealings in Futures & Options and other derivatives products cannot be treated as speculative transactions as they are special kind of transactions, not involving purchase and sale of shares and consequently the loss arising therefrom cannot be treated as a speculation loss.
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R. B. K. Securities vs. ITO (ITAT Mumbai)
on 21/7/2008
ORDER
G.C. Gupta, Judicial Member
1. This appeal by the assessee for the Assessment Year 2003-04 is directed against the order of the CIT(A).
2. The ground No. 1 of the assessee is as under:
On the facts and in the circumstances of the case and in law–
1. The Ld. CIT(A) erred in confirming the loss claimed by the appellant of F&O transaction as a business loss into a speculation loss. The CIT(A) further erred in holding that amendment of Section 43(5) is not retrospective and hence the benefit of the amendment cannot be given to the appellant.
3. The learned Counsel for the assessee submitted that the issue in the ground of appeal of the assessee is covered in its favour with the decision of the Mumbai Tribunal in the case of DCIT v. SSKI Investors Services (P) Ltd. And Bangalore Tribunal in the case of C. Bharath Kumar v. DCIT (2005) 4 SOT 593 (Bang.), wherein held that dealings in derivative is a separate kind of transaction which docs not involve any purchase and sale of shares and therefore loss thereof cannot be treated as speculation loss. The learned DR submitted that in this case the settlement of the transaction was admittedly without delivery of shares and therefore it is a case of speculation loss to the assessee. He referred to the relevant portions of the order of the CIT (A) in support of his argument regarding the interpretation of the provision of Section 43(5) of the Act.
4. We have considered the rival submissions We find that in the case of DOT v. SSKI Investors Services (P) Ltd. (supra), the Mumbai Tribunal has held that the dealings in the derivative is a separate kind of transaction which does not involve any purchase and sale of shares and therefore loss on account of derivative trading cannot be treated as speculative loss to the assessee. In the case of C. Bharath Kumar v. DCIT (supra), the Bangalore Tribunal Answered the issue of acceptance of constructive or implied delivery as actual delivery within meaning of provision of Section 43(5) of the Act, in the affirmative.
5. The issue in the ground of appeal of the assessee with regard to the loss claimed by the assessee on F & O transaction as a business loss, being covered in favour of the assessee with the decisions of the co-ordinate benches of the Tribunal cited supra, is decided in favour of the assessee and the ground No. 1 of the appeal is allowed.
6. The ground of appeal No. 2 of the assessee is as under:
2. The Ld. CIT(A) erred in confirming the ad hoc disallowance of 1% of total expenses claimed during the year towards estimated expenses incurred on speculative share trading transaction.
7. We have heard the parties. In view of our decision in favour of the assessee with regard to the issue in the ground of appeal No. 1 in the foregoing para of our order, we hold that the disallowance of 1% of total expenses towards estimated expenses incurred on speculative share transactions is uncalled for and the disallowance of 1% of total expenses is deleted and the ground of appeal No. 2 of the assessee is allowed. In-the result, the appeal of the assessee is allowed.
Order pronounced on 21.07.08.
