INCOME TAX ACT, 1961

Section 73

Loss - Speculation loss - Loss incurred on derivatives trading -

AO made addition on account of loss incurred in future trading as speculation loss. Assessee contended that dealing in derivatives could not be said to be purchase and sale of shares; that the derivatives were neither shares scripts nor stock; that the derivatives were not capable of being held and delivered; and that the transactions in derivatives were not in respect of share scripts, therefore, not covered by the expression “purchase and sale of shares” as used in isolation to section 73. Held: Explanation to section 73(4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of 'speculative transactions', only underlines that such exclusion is limited for the purpose of those provisions or sections. Further, derivatives are assets, whose values are derived from values of underlying assets. In instant case, by all accounts the derivatives were based on stocks and shares, which fall squarely within the Explanation to section 73(4). Therefore, it was not idle to contend that derivatives would not fall within that provision because the derivatives being entirely dependent on stocks and shares for determination of their value. Hence, the AO was justified in making addition on account of loss incurred in future trading as speculation loss.

Followed:CIT v. DLF Commercial Developers Limited [ITA No. 94/2014] : 2013 TaxPub(DT) 2199 (Del-HC)

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 14A Rule 8D

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