Case ID |
67cac367-faa9-4c87-8c75-81b0b98ddefe |
Body |
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Case Number |
D-2741 of 2016 |
Decision Date |
Dec 21, 2011 |
Hearing Date |
Dec 21, 2010 |
Decision |
The court held that the exchange traded derivative transactions carried on by the assessee during the assessment year 2003-04 were speculative transactions covered under section 43(5) of the Income-tax Act. The loss incurred in those transactions was liable to be treated as a speculative loss and not as a business loss. The clause (d) inserted in the proviso to section 43(5) with effect from 1-4-2006 is prospective in nature, and the Tribunal was in error in holding that clause (d) would apply retrospectively to the transactions carried on by the assessee during the assessment year 2003-04. The court emphasized that speculative transactions are defined as those settled otherwise than by actual delivery, which applies to futures contracts. The ruling clarified the legal standing of derivatives trading and reinforced the definition of speculative transactions within the framework of the Income-tax Act. |
Summary |
In the case of Commissioner of Income Tax v. Shri Bharat R. Ruia (HUF), the Bombay High Court examined the nature of speculative transactions under the Income-tax Act, 1961, specifically section 43(5). The case revolved around the assessment year 2003-04, where the assessee, an HUF engaged in trading shares and securities, incurred losses from exchange traded derivatives. The court ruled that these transactions were speculative as they were settled without actual delivery, thereby affirming the provisions of section 43(5). The decision highlighted the legal definition of derivatives as outlined in the Securities Contracts (Regulation) Act, 1956, and how these transactions fit within the income tax framework. The court's finding clarified the scope of speculative transactions and addressed the retrospective application of amendments made to the Income-tax Act, particularly clause (d) of the proviso to section 43(5), which excludes certain derivatives transactions from being classified as speculative from 1-4-2006 onwards. This ruling has significant implications for how similar cases are handled in the future, particularly concerning trading in derivatives, and provides clarity on the treatment of losses incurred in such transactions. Keywords: speculative transactions, derivatives trading, Income-tax Act, Bombay High Court, financial instruments, tax implications. |
Court |
Bombay High Court
|
Entities Involved |
Not available
|
Judges |
J.P. Devadhar,
Mrs. R.S. Dalvi
|
Lawyers |
Vimal Gupta,
Mrs. Padma Divakar,
J.D. Mistri,
A.K. Jasani,
Dr. K. Shivram
|
Petitioners |
Commissioner of Income Tax, Central-IV, Mumbai
|
Respondents |
Shri Bharat R. Ruia (HUF)
|
Citations |
2011 SLD 2816,
(2011) 337 ITR 452
|
Other Citations |
Davenport & Co. (P.) Ltd. v. CIT [1975] 100 ITR 715 (SC),
CIT v. Nirmal Trading Co. [1971] 82 ITR 782 (Cal.),
Bharat Co-op. Bank (Mumbai) Ltd. v. Co-op. Bank Employees Union [2007] 4 SCC 685,
CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC),
PNB Finance Ltd. v. CIT [2008] 307 ITR 75/175 Taxman 242 (SC),
CIT v. Official Liquidator, Palai Central Bank Ltd. [1984] 150 ITR 539/19 Taxman 11 (SC),
Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/154 Taxman 203 (Bom.),
Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 (SC),
CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC),
CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 (SC),
CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386 (SC)
|
Laws Involved |
Income-tax Act, 1961,
Securities Contracts (Regulation) Act, 1956
|
Sections |
43(5),
2(ac),
18A
|