Can I set my share trading loss off against my F&O profits?
No, for years up to AY 2014-15. Where a company's principal business is dealing in shares, the Explanation to s.73 deems that loss to be speculative, while derivatives profits on a recognised exchange are non-speculative under s.43(5)(d) — so the two cannot be set off. The 2014 amendment to the Explanation is prospective and does not help earlier years.
Decided by the Supreme Court (Supreme Court of India — Dr. Dhananjaya Y. Chandrachud J. and Hemant Gupta J.) on 2019-04-30, reported as [2019] 414 ITR 227 (SC); [2019] 265 Taxman 3 (SC); [2019] 105 taxmann.com 282 (SC); Civil Appeal No. 4483 of 2019. It bears on section 73, section 73(1), section 73(4), section 43(5), section 43(5)(d), section 260A of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This favours the revenue and is the authority the department will produce whenever a share-trading company nets its cash-segment losses against derivative gains in an older year. The Court accepted the asymmetry deliberately: Parliament fixed s.43(5) from 1 April 2006 but left the Explanation alone until the Finance (No. 2) Act 2014, and different effective dates were held to be a choice, not an oversight. It also shows how much damage a company's own description of its business can do.
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The appellant was registered as a non-banking financial company under the Reserve Bank of India Act 1934. For assessment year 2008-09 it returned income from trading in derivatives and in shares together with dividend and interest. The return was filed on 27 September 2008 and processed under s.143(1) on 8 October 2009; on scrutiny the assessment order of 14 December 2010 recorded that the principal business activity was trading in shares and securities, treated the share trading loss as a speculation loss, and held that by virtue of s.43(5)(d) futures and options were not speculative transactions, so the speculation loss could not be set off against those profits. The balance sheet figures relied on by the assessee for the year ending 31 March 2008 were total funds Rs 13.48 crore, funds deployed for loans and advances Rs 11.32 crore or 84 per cent, funds deployed for share business Rs 1.28 crore or 9.5 per cent, and unsecured loans Rs 5.92 crore. The revenue pointed out that the Rs 11.32 crore of loans and advances included interest-free lending of Rs 9.58 crore, and that the assessee had received interest on loans of Rs 2,21,917 while paying out interest of Rs 62,84,111.60. Before the Assessing Officer the assessee had stated 'in our case the share trading is our sole business during the assessment year under concern'. The Commissioner (Appeals) rejected the set off; the Tribunal allowed it on 6 November 2015 on the footing that the activities were of similar character and had been treated as one composite business; and the Calcutta High Court restored the disallowance on 22 November 2016 (paras 2 to 10, 20, 22).
The appeal was dismissed and the Calcutta High Court's judgment was affirmed (para 32). On the first issue, the exception in the Explanation to s.73 for a company whose principal business is the granting of loans and advances did not apply: the assessee had itself told the Assessing Officer that share trading was its sole business for the year, that admission on a statement of fact bound it, and it was reinforced by the fact that Rs 9.58 crore of the Rs 11.32 crore of loans and advances was interest-free lending; the deeming fiction under s.73 was therefore attracted (paras 20, 22). On the second issue, the amendment to the Explanation to s.73 made by the Finance (No. 2) Act 2014 took effect from 1 April 2015 as Parliament stipulated, and was neither clarificatory nor intended to operate retrospectively (paras 24, 30). The consequence is that for assessment year 2008-09 the loss from trading in shares, being a loss of a speculation business, could not be set off against the profits from futures and options, because those profits were not profits and gains of a speculative business (para 31).
The Court traced the legislative sequence. The Finance Act 2005 amended s.43(5) so that from 1 April 2006 an eligible transaction in derivatives on a recognised stock exchange was, by deeming fiction, not a speculative transaction, the CBDT circular of 27 February 2006 explaining that this followed SEBI's legal and technological changes bringing transparency to the derivatives market (paras 14, 15). The corresponding amendment to the Explanation to s.73, taking trading in shares out of the deeming fiction, came only with effect from 1 April 2015 (paras 16, 17). The Court held that when Parliament amended s.43(5) in 2005 it was demonstrably conscious of s.73, because the same Finance Act reduced the carry forward period for speculation losses in s.73(4) from eight assessment years to four; had it intended parity it would have amended the Explanation then, and it did not do so for nine years. Parliament may have had its reasons for allowing the position to continue, including its view on the stability of the stock market (paras 23, 24). The Court accepted that it may as an exercise of statutory interpretation decide whether an amendment is clarificatory or retrospective notwithstanding a stipulated commencement date, reviewing Allied Motors and Alom Extrusions on s.43B, the Constitution Bench in Vatika Township on the three concepts the legislature works with - prospective, retrospective and clarificatory - and the three-judge Bench in Vijay Industries holding s.80AB prospective (paras 25 to 29). The test is essentially the intent of the legislature (para 27), and on that test the 2014 amendment was prospective. On the first issue the Court expressly left open the correctness of the assessee's argument, based on the Calcutta High Court's decision in Savi Commercial (P.) Ltd., that the deployment of funds rather than income should determine the principal business; it did not need to decide that because the admission was decisive (paras 21, 22).
The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect.
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Handle my notice → Ask a CA on WhatsAppNo, for years up to AY 2014-15. Where a company's principal business is dealing in shares, the Explanation to s.73 deems that loss to be speculative, while derivatives profits on a recognised exchange are non-speculative under s.43(5)(d) — so the two cannot be set off. The 2014 amendment to the Explanation is prospective and does not help earlier years. This was decided by the Supreme Court (Supreme Court of India — Dr. Dhananjaya Y. Chandrachud J. and Hemant Gupta J.) and bears on section 73, section 73(1), section 73(4), section 43(5), section 43(5)(d), section 260A of the Income Tax Act 1961. It is reported as [2019] 414 ITR 227 (SC); [2019] 265 Taxman 3 (SC); [2019] 105 taxmann.com 282 (SC); Civil Appeal No. 4483 of 2019. This favours the revenue and is the authority the department will produce whenever a share-trading company nets its cash-segment losses against derivative gains in an older year. The Court accepted the asymmetry deliberately: Parliament fixed s.43(5) from 1 April 2006 but left the Explanation alone until the Finance (No. 2) Act 2014, and different effective dates were held to be a choice, not an oversight. It also shows how much damage a company's own description of its business can do. If it applies to you, the first step is this: Fix the assessment year first — from AY 2015-16 the amended Explanation excludes a company whose principal business is trading in shares, and the point falls away.
The appellant was registered as a non-banking financial company under the Reserve Bank of India Act 1934. For assessment year 2008-09 it returned income from trading in derivatives and in shares together with dividend and interest. The return was filed on 27 September 2008 and processed under s.143(1) on 8 October 2009; on scrutiny the assessment order of 14 December 2010 recorded that the principal business activity was trading in shares and securities, treated the share trading loss as a speculation loss, and held that by virtue of s.43(5)(d) futures and options were not speculative transactions, so the speculation loss could not be set off against those profits. The balance sheet figures relied on by the assessee for the year ending 31 March 2008 were total funds Rs 13.48 crore, funds deployed for loans and advances Rs 11.32 crore or 84 per cent, funds deployed for share business Rs 1.28 crore or 9.5 per cent, and unsecured loans Rs 5.92 crore. The revenue pointed out that the Rs 11.32 crore of loans and advances included interest-free lending of Rs 9.58 crore, and that the assessee had received interest on loans of Rs 2,21,917 while paying out interest of Rs 62,84,111.60. Before the Assessing Officer the assessee had stated 'in our case the share trading is our sole business during the assessment year under concern'. The Commissioner (Appeals) rejected the set off; the Tribunal allowed it on 6 November 2015 on the footing that the activities were of similar character and had been treated as one composite business; and the Calcutta High Court restored the disallowance on 22 November 2016 (paras 2 to 10, 20, 22). The matter was decided on 2019-04-30 by the Supreme Court (Supreme Court of India — Dr. Dhananjaya Y. Chandrachud J. and Hemant Gupta J.). On those facts the Supreme Court held as follows. The appeal was dismissed and the Calcutta High Court's judgment was affirmed (para 32). On the first issue, the exception in the Explanation to s.73 for a company whose principal business is the granting of loans and advances did not apply: the assessee had itself told the Assessing Officer that share trading was its sole business for the year, that admission on a statement of fact bound it, and it was reinforced by the fact that Rs 9.58 crore of the Rs 11.32 crore of loans and advances was interest-free lending; the deeming fiction under s.73 was therefore attracted (paras 20, 22). On the second issue, the amendment to the Explanation to s.73 made by the Finance (No. 2) Act 2014 took effect from 1 April 2015 as Parliament stipulated, and was neither clarificatory nor intended to operate retrospectively (paras 24, 30). The consequence is that for assessment year 2008-09 the loss from trading in shares, being a loss of a speculation business, could not be set off against the profits from futures and options, because those profits were not profits and gains of a speculative business (para 31).
The Court traced the legislative sequence. The Finance Act 2005 amended s.43(5) so that from 1 April 2006 an eligible transaction in derivatives on a recognised stock exchange was, by deeming fiction, not a speculative transaction, the CBDT circular of 27 February 2006 explaining that this followed SEBI's legal and technological changes bringing transparency to the derivatives market (paras 14, 15). The corresponding amendment to the Explanation to s.73, taking trading in shares out of the deeming fiction, came only with effect from 1 April 2015 (paras 16, 17). The Court held that when Parliament amended s.43(5) in 2005 it was demonstrably conscious of s.73, because the same Finance Act reduced the carry forward period for speculation losses in s.73(4) from eight assessment years to four; had it intended parity it would have amended the Explanation then, and it did not do so for nine years. Parliament may have had its reasons for allowing the position to continue, including its view on the stability of the stock market (paras 23, 24). The Court accepted that it may as an exercise of statutory interpretation decide whether an amendment is clarificatory or retrospective notwithstanding a stipulated commencement date, reviewing Allied Motors and Alom Extrusions on s.43B, the Constitution Bench in Vatika Township on the three concepts the legislature works with - prospective, retrospective and clarificatory - and the three-judge Bench in Vijay Industries holding s.80AB prospective (paras 25 to 29). The test is essentially the intent of the legislature (para 27), and on that test the 2014 amendment was prospective. On the first issue the Court expressly left open the correctness of the assessee's argument, based on the Calcutta High Court's decision in Savi Commercial (P.) Ltd., that the deployment of funds rather than income should determine the principal business; it did not need to decide that because the admission was decisive (paras 21, 22). In the words reproduced by the source cited on this page: "The latter amendment was intended to take effect from the date stipulated by Parliament and we see no reason to hold either that it was clarificatory or that the intent of Parliament was to give it retrospective effect."
It was decided by the Supreme Court on 2019-04-30 and is reported as [2019] 414 ITR 227 (SC); [2019] 265 Taxman 3 (SC); [2019] 105 taxmann.com 282 (SC); Civil Appeal No. 4483 of 2019. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 73, section 73(1), section 73(4), section 43(5), section 43(5)(d), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed and the Calcutta High Court's judgment was affirmed (para 32). On the first issue, the exception in the Explanation to s.73 for a company whose principal business is the granting of loans and advances did not apply: the assessee had itself told the Assessing Officer that share trading was its sole business for the year, that admission on a statement of fact bound it, and it was reinforced by the fact that Rs 9.58 crore of the Rs 11.32 crore of loans and advances was interest-free lending; the deeming fiction under s.73 was therefore attracted (paras 20, 22). On the second issue, the amendment to the Explanation to s.73 made by the Finance (No. 2) Act 2014 took effect from 1 April 2015 as Parliament stipulated, and was neither clarificatory nor intended to operate retrospectively (paras 24, 30). The consequence is that for assessment year 2008-09 the loss from trading in shares, being a loss of a speculation business, could not be set off against the profits from futures and options, because those profits were not profits and gains of a speculative business (para 31). It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 73, section 73(1), section 73(4), section 43(5), section 43(5)(d), section 260A of the Income Tax Act 1961, and was decided by Supreme Court of India — Dr. Dhananjaya Y. Chandrachud J. and Hemant Gupta J.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Watch what is said about 'principal business' in replies, accounts and the objects clause; the assessee here was held to its own statement that share trading was its sole business. Do not argue that the 2014 amendment was clarificatory or retrospective; that submission was considered and rejected.
Still good law. A separate search on later treatment found no reversal or doubting of the ruling; it continues to be reported as the governing Supreme Court authority on the Explanation to section 73 and on the prospective operation of the Finance (No. 2) Act 2014 amendment. Its practical reach is confined to assessment years up to AY 2014-15, because from AY 2015-16 the amended Explanation excludes a company whose principal business is trading in shares. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The decision has two limbs and only the second is generally transposable. The first turned on an admission the assessee had made to the Assessing Officer that share trading was its sole business, which the Court held bound it (paras 20, 22); it expressly declined to decide whether, absent such an admission, the principal business should be identified by deployment of funds rather than by income, which is the point the Calcutta High Court had considered in CIT v. Savi Commercial (P.) Ltd. [2015] 60 taxmann.com 295 / 233 Taxman 289 / 373 ITR 243 (para 21). That question is therefore still open. The second limb is the general one: an amendment commencing on a stipulated date may still be read as clarificatory or retrospective, but the test is the legislature's intent, and here the nine-year gap between the 2005 amendment of s.43(5) and the 2014 amendment of the Explanation to s.73 - with s.73(4) itself having been amended in 2005 - showed a deliberate choice. The ruling's practical reach is confined to assessment years up to 2014-15, because from 2015-16 the amended Explanation excludes a company whose principal business is trading in shares. Whether the principal business of a company for the purposes of the Explanation to s.73 is to be determined by the deployment of funds rather than by income was argued but expressly left undecided (paras 21, 22), so this judgment is not authority either way on that question. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed and the Calcutta High Court's judgment was affirmed (para 32). On the first issue, the exception in the Explanation to s.73 for a company whose principal business is the granting of loans and advances did not apply: the assessee had itself told the Assessing Officer that share trading was its sole business for the year, that admission on a statement of fact bound it, and it was reinforced by the fact that Rs 9.58 crore of the Rs 11.32 crore of loans and advances was interest-free lending; the deeming fiction under s.73 was therefore attracted (paras 20, 22). On the second issue, the amendment to the Explanation to s.73 made by the Finance (No. 2) Act 2014 took effect from 1 April 2015 as Parliament stipulated, and was neither clarificatory nor intended to operate retrospectively (paras 24, 30). The consequence is that for assessment year 2008-09 the loss from trading in shares, being a loss of a speculation business, could not be set off against the profits from futures and options, because those profits were not profits and gains of a speculative business (para 31).
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