Speculative business: Section 43(5) proviso (d): A. Y. 2006-07: Proviso (d) to section 43(5) inserted w.e.f. 01-04-2006: Transactions in derivatives on recognised stock exchange not deemed speculative: Rule prescribing conditions for notification framed on 01-07-2005: Notification in January 2006: Notification has retrospective effect: Loss in derivative transactions during July 2005 and September 2005 is not deemed speculative:

The assessee was engaged in the business of dealing in securities and investments. The assessee had claimed a loss of Rs. 1,90,29,988 in derivative transactions during the period July, 2005 and September, 2005 and claimed that it is not deemed speculative in view of exclusion in proviso to clause (d) to section 43(5) of the Income-tax Act, 1961 and Notification dated 25th January, 2006 notifying the National Stock Exchange and Bombay Stock Exchange for that purpose. The Assessing Officer held that the loss was speculative loss u/s. 73, and since the derivative transactions were during the period July, 2005 to September, 2005, they were violative of proviso (d) to section 43(5) and the benefit of Notification dated 25th January, 2006 is not applicable for those transactions. The Tribunal allowed the assessee’s appeal and held that the assessee was entitled to the benefit u/s. 43(5) proviso (d) read with the said Notification dated 25th January, 2006.

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

“i) Notification No. 2 of 2006, dated 25-01-2006, issued by CBDT does not specify any particular date and simply notifies the National Stock Exchange and Bombay Stock Exchange under proviso (d) to section 43(5) of the Act. Issue of notification obviously had to take some time as it involved processing and examination of applications etc. This was a matter relating to procedure and the delay in issue of notification or even framing of the Rules was due to administrative constraints.

ii) The delay occasioned, as procedure and formalities have to be complied with, should not disentitle or deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The notification was procedural and necessary adjunct to the section enforced w.e.f. 01-04-2006.

iii) The rule and notification issued in the present case effectuate the statutory and the legislative mandate. There was no reason to interfere with the findings of the Tribunal.”