2018 (1) TMI 779

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....he recognised stock exchange will not be regarded as speculative transaction. The notification u/s 43(5)(d) of the Act notifying which are the recognised stock exchanges where trading in derivatives carried out by an assessee will not be regarded as speculative transaction was issued only n 25.01.2006. Though the law came into force w.e.f. 1.4.2006, the notification of recognised stock exchanges was operational only on 25.01.2006. 3. Prior to insertion of clause (d) to the proviso of section 43(5) by the Finance Act, 2005 with effect from 01-04-2006, the loss incurred in F&O transactions was treated as speculative loss and not business loss. Consequent to introduction of clause (d), a Notification No.2 of 2006 dated 25-01-2006 was issued wherein the National Stock Exchange, Mumbai and the Bombay Stock Exchange, Mumbai were recognized as Stock Exchanges to carry out the eligible transaction in F&O shares. The recognition was granted to the two Exchanges with effect from 25-01-2006. According to the AO it is only after insertion of clause (d) to the proviso of section 43(5) by the Finance Act, 2005 with effect from 01-04-2006 and Notification dated 25-01- 2006 that the loss incurr....

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....n means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. However, clause (d), which was inserted with effect from 1st April 2006, provides that an eligible transaction in respect of trading of derivates carried out in a recognized stock exchange shall not be deemed to be a speculative transaction. There is also no dispute that the transaction fulfils the requirements of being an eligible transaction in respect of trading in derivates. As for the requirement of stock exchange being recognized, as set out in Explanation (ii) to Section 43(5)(d), are that the stock exchange should , inter alia, 'notified by the Central Government for this purpose'. It is an accepted position that NSE and BSE have been granted recognition, for the purpose of Section 43(5)(d), vide notification dated 25th January 2006 issued by the Central Board of Direct Taxes, and the point of dispute is confined to the question whether this recognition will also affect the transactions entered into in the related stock exchange prior to th....

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....d and that has to be regarded as speculative loss for the purpose of set off. 7. Aggrieved by the action of CIT(A) in holding that the loss in respect of trading in derivatives carried out from 01.04.2005 should be regarded as normal business loss the revenue has preferred the appeal before the Tribunal raising the following ground of appeal : "The Ld. CIT(A) erred in holding that the loss of Rs. 1,36,90,925/- in derivative transaction prior to the notification of the National Stock Exchange dt. 25.01.2006 was covered by the exclusion set out in Sec. 43(5)(d). That the appellant craves the leaves to add, alter, modify, clued or delete any of appeal." 8. As far as the assessee is concerned the assessee is aggrieved by the action of CT(A) in not allowing the set off of loss in respect of trading in derivatives which were incurred by the assessee between 01.04.2005 upto 24.01.2006 by following the decision of the Hon'ble Delhi High Court in the case of DLF Commercial Developers Ltd. (supra). The grounds raised by the assesee read as follows :- "1. For that the order of the Ld. CIT (A) is arbitrary, illegal and bad in law. 2. For that the Ld. C....

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....e view that the words 'consists mainly' are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 12. The aforesaid decision was followed by the Hon'ble Calcutta High Court in the case of CIT vs Middleton Investment & Trading Co. Ltd. 196 of 1999 judgment dated 15.01.2014. Applying the ratio laid down in the aforesaid decision, we find the following factual position in the case of the assessee : 1. The assessee is out of the purview of the said Explanation to section 73 since the income from business as computed by the AO himself is loss of RS.74.43 lakhs which is much less than the income from capital gains of Rs. 3.86 crores. Therefore the assessee falls outside the mischief of Explanation to section 73. 2. Even if the computation under b....