- (1.) The Court: The appeal is directed against a judgment and order dated 19th June, 2013 by which the learned Tribunal expressed the following views: Under these circumstances, we are of the view that the assessee is entitled to the setting off of the loss on account of assessee's transactions in respect of derivatives and the day trading of shares against its profits and gains from the purchase and sale of shares.
(2.) The assessee basically is a share broker. The assessee also deals in buying and selling of shares for himself. The assessee is also dealing in derivatives. Dealing in derivatives has been excluded from the ambit of speculative transactions with effect from assessment year 2006-07. We are concerned with the assessment year 2005-06. The question arose whether the assessee was entitled to set off the loss arising out of business in derivatives against the income arising out of purchase and sale of shares. The question basically was as regards the meaning of the expression "speculative transaction". The definition of the term "speculative transaction" appearing from Section 43(5) of the Act is as follows: (5) "Speculative transaction" 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: Provided that for the purposes of this clause- (a) A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of the 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 of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (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 recognised stock exchange;] shall not be deemed to be a speculative transaction;
(3.) Clause (d) of Section 43(5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction.;