Speculation loss: Section 43(5): A.Y. 2003-04: Loss from trading derivatives is speculative loss: Clause (d) inserted to the proviso to section 43(5) w.e.f. 1-4-2006 is prospective and not retrospective.

In the A.Y. 2003-04, the assessee had entered into certain transactions in exchange-traded derivatives which resulted in loss amounting to Rs.28,37,707. The assessee claimed the loss as business loss. The Assessing Officer held that the loss is speculation loss covered u/s.43(5). The Tribunal allowed the assessee’s claim. Following the decision of a Coordinate Bench, the Tribunal held that clause (d) to the proviso to section 43(5) of the Act being retrospective in nature, the losses incurred from the derivative transactions could not be treated as speculation losses incurred by the assessee in the A.Y. 2003-04.

On appeal by the Revenue, the Bombay High Court reversed the decision of the Tribunal and held as under:

“(i) Clause (d) inserted to the proviso to section 43(5) w.e.f. 1-4-2006 is prospective and not retrospective.

(ii) The futures contract being an article of trade created by an authority under the 1956 Act, the transactions in futures contracts would constitute transaction in commodity u/s.43(5) of the Act. In the result, we hold that the exchange-traded derivative transactions carried on by the assessee during the A.Y. 2003-04 are speculative transactions u/s.43(5) of the Act and the loss incurred in those transactions are liable to be treated as speculative loss and not business loss.”