Provisions of clause (d) of S. 43(5) inserted with effect from 1-4-2006 which deem derivative transactions as non-speculative are clarificatory in nature and have retrospective application.

ACIT v.
Shreegopal Purohit

A.Y. : 2004-05. Dated : 30-6-2009

S. 43(5) — Derivative transactions — Whether speculative :

(a) Provisions of clause (d) of S. 43(5) inserted with
effect from 1-4-2006 which deem derivative transactions as non-speculative
are clarificatory in nature and have retrospective application.

(b) Therefore, income from F & O transactions, being
non-speculative in nature, cannot be set off against speculation loss.

The assessee had earned income from Future and Option (F &
O) transactions. It suffered share trading speculation loss, jobbing loss and
bought forward speculation loss in the relevant assessment year. It had set
off the speculation loss of the current year as well as brought forward
speculation loss against the income from F & O transactions, treating the
latter as speculative income. The Assessing Officer disallowed the claim. The
CIT(A) set aside the order of the Assessing Officer and allowed the claim of
the assessee.

The Tribunal, following the decision in the case of P.
S. Kapur v. ACIT, (2009) 29 SOT 587 (JP), disallowed the assessee’s claim.
The Tribunal, noted as under :

(1) Derivative products are intangible and are not
capable of delivery or transfer. The transactions in derivatives are, thus,
not speculative as these lack the basic ingredients of speculative
transactions.

(2) Clause (d) of proviso of S. 43(5) inserted by the
Finance Act, 2005 deeming the transaction in derivatives as non-speculative
was clarificatory in nature, as it only clarified the existing position.
Therefore, it has retrospective application. Thus, transactions in
derivatives were held to be non-speculative and the income from such
transaction could not be set off against the speculation loss.