TaxTMI 
TaxTMI 
2012 (6) TMI 82
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....y by five days and a condonation petition has been filed by the department. Since Ld. Counsel for assessee conceded the position that has no objection for condoning the delay, we condone the delay and admit the appeal for hearing. 3. The only issue in this appeal of revenue is against the order of CIT(A) in holding that the loss on trading in futures and options as business loss which can be set off against business income disregarding the explanation to section 73 of the Act. For this, revenue has raised following ground no. 1: "1. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in holding that the loss on trading in future and options is business loss of Rs. 51.71 crore which can be set off against busin....
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....o CIT(A), the derivatives are items in themselves which are traded on Stock Exchange and only derives their price based on the underlying items like shares and share indices. Only because the price of derivatives is dependent on shares and share indices cannot lead to the conclusion that derivatives are shares. He also concluded that adding back of loss on sale and purchase of derivatives would lead to absurdity whereby a speculative transaction would be treated as non-speculative by virtue of section 43(5)(d) of the Act and then again would be treated as speculative by virtue of Explanation to Sec. 73 of the Act. The CIT(A) deleted the addition made by Assessing Officer and allowed the same to be claimed against business income as per the ....
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....g the Explanation to section 73 of the Act. We are of the view that the Explanation to section 73 of the Act deals with purchase and sale of shares and not for any other item. The relevant Explanation to section 73 of the Act reads as under:- "Explanation : Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", Income from house property", "Capital gains and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be....
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....ons in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) 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 fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature off jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act. 1956 (42 of 1956) carried out in a recognized stock....
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....ularly the Explanation to section 73 of the Act, it is very clear that the explanation deals with purchase and sale of shares and not with derivative transactions carried out on account of 'Future and Options' through any recognized stock exchange as in the present case of the assessee. We are of the view that transactions of 'Future and Options' are not shares although underlying asset for determining prices of future and options, which are shares, commodities, currencies etc. Future and options are in themselves the items, which are traded through stock exchange and not the underlying items to which 'future and options' relate. It means 'future and options' are not covered by Explanation to section 73 of th....
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....f a company in shares is speculative, according to it. The entire ramification of the business with all its parameters and devices pertaining to an incidental to the carrying on of the business comes in the fold of the share business. The transformation of derivatives into non-speculative transaction under the amended definition of speculation does not go to alter its character when Explanation below Section 73 attracts it. Because Explanation deems even a transaction outside Section 43(5) as speculative insofar as it relates to and is an adjunct of the business of purchase and sale of shares. Thus it is not open to exclude derivatives from the field of operation of the Explanation. Loss cannot, therefore, be computed in isolation from t....