Speculative transaction means a transaction in which a contract for the purchase or sales 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 [section 43(5)].
Here important term is “periodically or ultimately settled otherwise than by the actual delivery”
This means physical delivery has not been made.
We also kept in mind (section 28, explanation 2) and (section 73) while discussing speculative transactions. Section 28, explanation 2 says that business of the assessee must be deemed as distinct and separate from any other business, where such assesse carries on speculative business.
Above point is also crucial because section 73 provides that losses in speculation business unlike other business cannot be set-off against the income of any business other than a speculation business.
As well a loss in speculation business carried forward to a succeeding year can be set-off only against the profit and gains of any speculative business in the subsequent year.
No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.
Where any portion of the business of a company consists in the purchase and sale of the shares of other companies, such a company shall be deemed to be carrying on speculation business to the extent to which the business consists of the purchase and sale of such shares.
However, above provision does not apply to the below mentioned companies
| (1) A company whose gross total income consists of mainly income chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources”; | (2) A company, the principal business of which is –
(a) the business of trading in shares; or (b) the business of banking; or (c) the granting of loans and advances. |
Therefore, explanation to section 73 provides that if above companies carry on the business of purchase and sale of shares of other companies, they would not be deemed to be carrying on speculation business.
Till now we discussed meaning and other consequences of Speculative transaction with reference to,
- Section 43(5)
- Section 28, explanation 2
- Section 73
- Explanation to section 73
Transaction not deemed to be speculative transaction
| Hedging contract in respect of raw materials or merchandise:
A contract in respect of raw materials or commodities entered into by a person in the course of his manufacturing or merchandising business to guard against loss through future price fluctuations in respect of his contracts for the actual delivery of goods manufactured by him or merchandise sold by him; or Explanation- when a person want to hedge him against future losses which may occur due to future price fluctuations. But condition is that delivery must be actual. We may say that if a person purchase goods to the tune of 5000 kgs @ 50Rs per kg than if he is worried that price may go to 70Rs per kg than me may do future contract @ 50 Rs. Per kg. But he has to take delivery of goods actually. |
Hedging contract in respect of stocks and shares:
A contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuation; or |
Forward contract:
A contract entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against any loss which may arise in the ordinary course of his business as a member; or meaning of forward market: A forward market is an over-the-counter market place that sets the price of a financial instrument or asset for future delivery.
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Trading in derivatives: An eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange.
Eligible transaction– carried out electronically on screen-based systems as per relevant statutes and which is supported by a time stamped contract note.
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Trading in commodity derivatives: An eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013
Eligible transaction– carried out electronically on screen-based systems as per relevant statutes and which is supported by a time stamped contract note.
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(Republished with Amendments)
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