TaxTMI 
TaxTMI 
2015 (5) TMI 706
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.... learned CIT(A) ought to have held that clause (d) of the proviso to section 43(5) of the Income Tax Act, 1961 ('the Act'), was applicable to the transactions in foreign currency futures entered into by the appellant and therefore that the loss from these transactions was not in the nature of speculation loss." 2. Briefly stated, the facts of the case are that the assessee is an Investment Management Consultant. The return for the year was filed on 25/09/2009 declaring total income at Rs.Nil. The return was selected for scrutiny assessment. Statutory notices were issued and served upon the assessee. 3. While perusing the profit and loss account of the assessee, the AO noticed that the assessee has claimed a loss of Rs. 93,63,235/- on ....
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....t proviso (d) to section 43(5) was not applicable. Ld. CIT(A) confirmed the assessment order holding that the AO has correctly held that such loss was a speculation loss within the meaning of section 43(5) of the Act. Aggrieved by this assessee is before us. 5. Ld. Counsel for the assessee reiterated what has been submitted before lower authorities. Ld. Counsel for the assessee drew our attention to proviso (d) of section 43(5) of the Act and stated that the Revenue Authorities have failed to interpret the said proviso. It is the say of the Ld. Counsel that the contracts entered by the assessee cannot be said to be of speculative in nature because the contracts have ultimately been settled by the delivery of Forex. 6. Per contra , Ld.....
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....urities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;[or] (e) 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 (17 of 2013)] shall not be deemed to be a speculative transaction. [Explanation.-For the purposes of this clause, the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provi....
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....gulations or bye-laws made or directions issued under that Act on a recognized association; and (B) which is supported by a time stamped contract note issued by such member or intermediary to very client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or byelaws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act. (iii) "recognized association" means a recognized association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose" Proviso (d) excludes the transa....
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....derlying security of the derivative. The relevant extract of the case is quoted below: "What are these derivatives which have gained such a great deal of notoriety? In simple terms, derivatives are financial instruments whose values depend on the value of other underlying financial instruments. The International Accounting Standard (IAS) 39, defines "derivatives" as follows: - "A derivative is a financial instrument: (a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying'); (b) that requires no initial net investment or little initial net in....
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.... prices, of underlying securities; It is further provided by SEBI that in Aug.2008 SEBI permitted exchange traded currency derivative. 7.4 Considering the relevant provisions of the relevant Acts, discussed herein above in the light of Hon'ble Madras High Court and the answers given to frequently asked questions by the SEBI and the incorporation of exchange traded currency derivative from August, 2008, there remain no iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. We have also gone through the copies of the contract notes incorporated in the paper book filed before us. A perusal of the contract note shows that the assessee has either entered into call option or put option and on the settl....