INCOME TAX ACT, 1961

Section 43(5)(d) Section 73 Expln.

Speculative loss - Applicability of explanation to section 73 - Loss incurred on derivative transactions -

Assessee was a private limited company engaged in the business of real estate development and leasing of constructed premises; investment and trading in shares, securities, futures and options. It entered into derivative transactions comprising of futures and options in addition to entering into trading transactions in equity shares. Assessee claimed loss incurred on futures and options (derivative transactions) as business loss. AO invoked explanation to section 73 and treated the same as speculative loss. Held: Section 43(5) (d) should have to be first given effect while computing gross total income of assessee before applying section 73 and its Explanation thereon. In the instant case, assessee had executed futures and options transactions in recognized stock exchange through SEBI registered share broker and had incurred loss of Rs. 5,19,33,951 and Rs. 12,65,977 thereon during the year. Accordingly, said loss arising out of transactions would get covered in clause (ac) of section 2 of Securities Contract (Regulation Act, 1956). Hence, same would fall under the exception provided in the definition of 'speculative transactions' in terms of section 43(5)(d). Hence, same was to be treated as regular business transaction. Accordingly, loss incurred on futures and options (derivative transactions) was to be treated as business loss and not speculation loss and accordingly, Explanation to section 73 could not be made applicable thereon.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 43(5)(d)

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