TaxTMI 
TaxTMI 
2010 (4) TMI 714
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....hich is a derivative instrument, there is no actual delivery of shares. The transaction of purchase at a particular price on a future date is entered into. On the specified date, the difference between the agreed price and price prevailing on the specified date is settled and there is no Shri Dinesh K. Mehta HUF actual transaction of purchase of the security. On such settlement there could be a loss or profit. The assessee explained that the loss had occurred on account of purchase of Nifty Futures and these transactions were purely hedging transactions meant to minimize the loss due to fluctuation of price of shares which the assessee does on delivery basis in the usual course of business and held by him as stock-in-trade of his business. They are primarily to be regarded as speculative transactions. Loss arising on account of speculative transactions cannot be set off against income from regular business. Speculative transactions have been defined in section 43(5) of the Act to mean transactions in which, contract for purchase and sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or....
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....ulation hinges on whether there already exists a related commercial position which is exposed to risk of loss due to price fluctuation. Hedging can be taken to be genuine only to the extent the total of such transactions does not exceed the ready stock. (ii) In the case of pure speculator, as distinguished from a hedger, futures transaction is a business by itself, as he has no off-setting commercial position. The assessee would bear the onus to prove that the forward contract of purchase entered into by it was to safeguard it against the loss through future price fluctuations in respect of any specific contracts of sale for actual delivery of shares. (iii) The basic material required to identify hedge would be as under:- (a) Details of original position and details of delivery and payment for original position. (b) Details of the hedging transaction (c) Details of the final settlement of the transaction. Analysis of assessee's arguments and conclusion: In view of the principles which emerge from discussion of the above judicial precedents, it is clear that the onus is on the assessee to prove that the transaction is not speculative, and it is Shri Dinesh K. Mehta....
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....f the said loss against business income. Learned CIT (A) accepted this submission of the assessee and directed the Assessing Officer to treat the loss in question as business loss and not speculative loss. Aggrieved by the aforesaid order of learned CIT(A), the revenue has raised ground No. 1 before the Tribunal. 7. At the time of hearing of this appeal, it was brought to our notice that Special Bench Kolkata in the case of Shree Capital Services Ltd., 121 ITD 498 (Kol) held that amendment referred to in the earlier para to section 43(5) is not clarificatory and therefore not retrospective in operation. In view of the aforesaid decision, the very same basis on which, learned CIT (A) allowed the claim of the assessee does not survive. Learned counsel for the assessee, however, submitted under Clause (b) to section 43(5) assessee's transaction ought to be considered as a hedging transactions. In this regard, it was submitted by learned counsel for the assessee that clause (b) to section 43(5) does not lay down that the hedging transaction should be in the very same stock and shares held by the assessee as inventory or that the value of hedging transactions should be equal to or le....
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...., the assessee in the garb of entering hedging transaction cannot seek to enter into speculative transaction in any stocks or shares other than by one held by him as inventory in the business of dealing in stocks and shares. Value of hedging transactions cannot also be more than such inventory. If arguments sought to be canvassed by the assessee is accepted, then it will lead to a situation where all speculative transactions will be claimed as hedging transactions and very purpose behind the provisions of section 73 of the Act not permitting set off of speculative loss against business income will become redundant. There is no doubt truth in the plea of the assessee that Nifty futures and index futures are the only available form of derivatives trading through which the assessee could hedge the value of inventory held by him. In such trading there cannot be any identification of shares and tally the same with the inventory of shares held. This aspect has been taken care by the Introduction of clause (d) of section 43(5) of the Act; therefore, from A.Y. 2006-07, the assessee may not face this difficulty. But in A.Y. 2005-06 as per the law as it stands, the claim of the assessee c....
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....pital gain and not business income for the following reasons :- "I have carefully considered the submissions made for the appellant and the assessment order. It is true that when a dealer in shares holds shares, the first presumption would be that the shares held by him constitute stock in trade. But, at the same time, it is not impossible that there cannot be a situation in which the assessee, who is dealer in shares also hold some shares as investment. This proposition is supported by the decision of Mumbai Tribunal in the case of J.M. Share and Stock Brokers Ltd., relied by the appellant. As such, I am not inclined to accept the Assessing Officer's line of reasoning that a dealer in shares cannot hold shares as investments. In fact, the very decision relied by the Assessing Officer in Motilal Oswal has been reversed by the same Tribunal on rehearing. The fresh decision on rehearing supports the appellant's case. An assessee who is a dealer in shares can also hold shares in investment portfolio by demarcating the same in his books of accounts has also been upheld by the Delhi Tribunal in the case of Arjun Kapur Vs. DCIT, 70 ITD 161 (Del) and the Chandigarh Tribunal in Vesta In....