My company is not a share dealer at all, but it lost money on exchange-traded F&O. The AO says the Explanation to s.73 makes it speculation loss. Can I set it off against my ordinary business income?
In the Bombay High Court, yes. Once a derivative transaction falls inside clause (d) of the proviso to s.43(5) it is not a speculative transaction at all, and the Court held that neither s.73(1) nor the Explanation to s.73 applies to the loss, so it is an ordinary business loss set off under s.70 against any other business income. The Court expressly recorded that the Delhi High Court in DLF Commercial Developers has taken the contrary view.
Decided by the High Court (R. D. Dhanuka J and S. G. Mehare J) on 2022-05-06, reported as Income Tax Appeal No. 79 of 2018 (Bombay High Court, Aurangabad Bench); 2022 LiveLaw (Bom) 194. It bears on section 43(5), section 73, section 70, section 28 of the Income Tax Act 1961, in How Tax Law Is Read and Assessment & Scrutiny matters.
This is the cleanest High Court authority the other way from DLF Commercial Developers, and the Court said so in terms rather than distinguishing it. Where you are before the Bombay High Court or a Tribunal bench within its jurisdiction, this is the decision to lead with; where you are in Delhi, DLF binds and this is at best persuasive. Two limits travel with it. First, the assessee's principal business was toll collection and infrastructure, not share dealing, and its counsel expressly conceded at para 9 that losses on trading in shares, being speculative, could not be set off against other heads - so the case does not help a company whose loss is on delivery-based share trading. Second, the year was AY 2009-10, before the Finance (No. 2) Act 2014 amendment to the Explanation, so the amended exclusion for a company whose principal business is trading in shares was not in issue.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant is a domestic company collecting toll under the name M/s. Souvenir Developer (India) Pvt. Ltd., Dhule, and also carried on business in shares and derivatives. For assessment year 2009-10 (financial year 2008-09) it filed a return on 30 September 2009 declaring total income of Rs.85,43,220, which was processed under s.143(1) on 28 March 2011. On scrutiny the Assessing Officer passed an order on 29 December 2011 assessing income at Rs.90,79,092, making additions of Rs.5,35,872 under three heads and refusing to take into account the loss of Rs.1,90,66,444 suffered on transactions in derivatives. A rectification application under s.154 was rejected on 14 May 2012. The Commissioner (Appeals) by order dated 27 February 2014 held that the loss was a loss from speculative business under s.73 and could not be set off against income from a non-speculative business; the Tribunal dismissed the further appeal on 31 October 2017 on the same footing. Before the High Court the assessee's counsel fairly conceded that losses arising on the trading in shares, being speculative, could not be set off against other heads of income, and confined the claim to the derivative loss.
Both questions were answered in favour of the assessee and the appeal was allowed. Transactions in derivatives referred to in clause (ac) of s.2 of the Securities Contracts (Regulation) Act 1956 carried out on a recognised stock exchange are excluded from the definition of speculative transaction in s.43(5) by clause (d) of the proviso, inserted by the Finance Act 2005 with effect from 1 April 2006. Neither s.73(1) nor the Explanation to s.73 applies to a loss arising on such trading in derivatives, and the Tribunal could not have confirmed an addition on derivative transactions on a recognised stock exchange by reference to the Explanation to s.73. The assessee was entitled to set off the derivative loss against its business income from the infrastructure business under s.70 (paras 35, 36, 43, 44 and 45).
The Court set out s.73(1) and the Explanation and observed that the Explanation deems a company, other than the companies within the carved-out exceptions, to be carrying on speculation business to the extent its business consists in the purchase and sale of shares of other companies (paras 33 and 34). It then held that clause (d) of the proviso to s.43(5) takes eligible exchange-traded derivative transactions out of the definition of speculative transaction altogether, with the consequence that s.73(1) and the Explanation do not reach a loss arising in such trading (paras 35 and 36). It applied its own Division Bench decision in CIT v. Shri Bharat R. Ruia (HUF) (2011) 337 ITR 452, which had construed clause (d) and held it prospective from 1 April 2006, noting that the year before it, 2009-10, was after the insertion, so the principles laid down in Ruia applied (paras 37 to 39). It distinguished CIT v. Lokmat Newspapers P. Ltd. (2010) 322 ITR 43, relied on by the Revenue, on the ground that the question there was whether brought forward speculation loss could be set off against delivery-based share profits, and that the Court there had considered unamended s.43(5) and s.73 and had not considered clause (d) at all (paras 40 and 41). As to CIT v. DLF Commercial Developers Ltd. (2013) 218 Taxman 45, also relied on by the Revenue, the Court recorded that the Delhi High Court had taken a view contrary to the view taken by the Bombay High Court in Ruia (para 42). On Snowtex, the Court noted the Supreme Court's holding that the Finance (No. 2) Act 2014 amendment to the Explanation to s.73 was neither clarificatory nor retrospective (paras 31 and 32).
In our view, Section 73 (1) as well as the explanation inserted by Taxation Laws (Amendment) Act, 1975 with effect from 01.04.1977 thus would not apply to the loss having arisen in the trading in derivatives being not speculative transaction which is excluded from the definition of 'speculation transaction' described under Section 43 (5) of the Income Tax Act.
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Handle my notice → Ask a CA on WhatsAppIn the Bombay High Court, yes. Once a derivative transaction falls inside clause (d) of the proviso to s.43(5) it is not a speculative transaction at all, and the Court held that neither s.73(1) nor the Explanation to s.73 applies to the loss, so it is an ordinary business loss set off under s.70 against any other business income. The Court expressly recorded that the Delhi High Court in DLF Commercial Developers has taken the contrary view. This was decided by the High Court (R. D. Dhanuka J and S. G. Mehare J) and bears on section 43(5), section 73, section 70, section 28 of the Income Tax Act 1961. It is reported as Income Tax Appeal No. 79 of 2018 (Bombay High Court, Aurangabad Bench); 2022 LiveLaw (Bom) 194. This is the cleanest High Court authority the other way from DLF Commercial Developers, and the Court said so in terms rather than distinguishing it. Where you are before the Bombay High Court or a Tribunal bench within its jurisdiction, this is the decision to lead with; where you are in Delhi, DLF binds and this is at best persuasive. Two limits travel with it. First, the assessee's principal business was toll collection and infrastructure, not share dealing, and its counsel expressly conceded at para 9 that losses on trading in shares, being speculative, could not be set off against other heads - so the case does not help a company whose loss is on delivery-based share trading. Second, the year was AY 2009-10, before the Finance (No. 2) Act 2014 amendment to the Explanation, so the amended exclusion for a company whose principal business is trading in shares was not in issue. If it applies to you, the first step is this: Establish first that every transaction is an eligible transaction within clause (d) of the proviso to s.43(5) - screen-based, through a SEBI-registered intermediary, on a notified recognised stock exchange, with time-stamped contract notes carrying the client identity number. Get the broker to certify this; the carve-out fails without it.
The appellant is a domestic company collecting toll under the name M/s. Souvenir Developer (India) Pvt. Ltd., Dhule, and also carried on business in shares and derivatives. For assessment year 2009-10 (financial year 2008-09) it filed a return on 30 September 2009 declaring total income of Rs.85,43,220, which was processed under s.143(1) on 28 March 2011. On scrutiny the Assessing Officer passed an order on 29 December 2011 assessing income at Rs.90,79,092, making additions of Rs.5,35,872 under three heads and refusing to take into account the loss of Rs.1,90,66,444 suffered on transactions in derivatives. A rectification application under s.154 was rejected on 14 May 2012. The Commissioner (Appeals) by order dated 27 February 2014 held that the loss was a loss from speculative business under s.73 and could not be set off against income from a non-speculative business; the Tribunal dismissed the further appeal on 31 October 2017 on the same footing. Before the High Court the assessee's counsel fairly conceded that losses arising on the trading in shares, being speculative, could not be set off against other heads of income, and confined the claim to the derivative loss. The matter was decided on 2022-05-06 by the High Court (R. D. Dhanuka J and S. G. Mehare J). On those facts the High Court held as follows. Both questions were answered in favour of the assessee and the appeal was allowed. Transactions in derivatives referred to in clause (ac) of s.2 of the Securities Contracts (Regulation) Act 1956 carried out on a recognised stock exchange are excluded from the definition of speculative transaction in s.43(5) by clause (d) of the proviso, inserted by the Finance Act 2005 with effect from 1 April 2006. Neither s.73(1) nor the Explanation to s.73 applies to a loss arising on such trading in derivatives, and the Tribunal could not have confirmed an addition on derivative transactions on a recognised stock exchange by reference to the Explanation to s.73. The assessee was entitled to set off the derivative loss against its business income from the infrastructure business under s.70 (paras 35, 36, 43, 44 and 45).
The Court set out s.73(1) and the Explanation and observed that the Explanation deems a company, other than the companies within the carved-out exceptions, to be carrying on speculation business to the extent its business consists in the purchase and sale of shares of other companies (paras 33 and 34). It then held that clause (d) of the proviso to s.43(5) takes eligible exchange-traded derivative transactions out of the definition of speculative transaction altogether, with the consequence that s.73(1) and the Explanation do not reach a loss arising in such trading (paras 35 and 36). It applied its own Division Bench decision in CIT v. Shri Bharat R. Ruia (HUF) (2011) 337 ITR 452, which had construed clause (d) and held it prospective from 1 April 2006, noting that the year before it, 2009-10, was after the insertion, so the principles laid down in Ruia applied (paras 37 to 39). It distinguished CIT v. Lokmat Newspapers P. Ltd. (2010) 322 ITR 43, relied on by the Revenue, on the ground that the question there was whether brought forward speculation loss could be set off against delivery-based share profits, and that the Court there had considered unamended s.43(5) and s.73 and had not considered clause (d) at all (paras 40 and 41). As to CIT v. DLF Commercial Developers Ltd. (2013) 218 Taxman 45, also relied on by the Revenue, the Court recorded that the Delhi High Court had taken a view contrary to the view taken by the Bombay High Court in Ruia (para 42). On Snowtex, the Court noted the Supreme Court's holding that the Finance (No. 2) Act 2014 amendment to the Explanation to s.73 was neither clarificatory nor retrospective (paras 31 and 32). In the words reproduced by the source cited on this page: "In our view, Section 73 (1) as well as the explanation inserted by Taxation Laws (Amendment) Act, 1975 with effect from 01.04.1977 thus would not apply to the loss having arisen in the trading in derivatives being not speculative transaction which is excluded from the definition of 'speculation transaction' described under Section 43 (5) of the Income Tax Act." The decision followed or applied CIT v. Shri Bharat R. Ruia (HUF) (2011) 337 ITR 452 (Bom) - applied; Snowtex Investment Ltd. v. PCIT, 2019 SCC OnLine SC 749 - relied on for the prospectivity of the Finance (No. 2) Act 2014 amendment; CIT v. Lokmat Newspapers P. Ltd. (2010) 322 ITR 43 (Bom) - distinguished; CIT v. DLF Commercial Developers Ltd. (2013) 218 Taxman 45 (Del) - noted as a contrary view.
It was decided by the High Court on 2022-05-06 and is reported as Income Tax Appeal No. 79 of 2018 (Bombay High Court, Aurangabad Bench); 2022 LiveLaw (Bom) 194. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 43(5), section 73, section 70, section 28, 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 taxpayer. Both questions were answered in favour of the assessee and the appeal was allowed. Transactions in derivatives referred to in clause (ac) of s.2 of the Securities Contracts (Regulation) Act 1956 carried out on a recognised stock exchange are excluded from the definition of speculative transaction in s.43(5) by clause (d) of the proviso, inserted by the Finance Act 2005 with effect from 1 April 2006. Neither s.73(1) nor the Explanation to s.73 applies to a loss arising on such trading in derivatives, and the Tribunal could not have confirmed an addition on derivative transactions on a recognised stock exchange by reference to the Explanation to s.73. The assessee was entitled to set off the derivative loss against its business income from the infrastructure business under s.70 (paras 35, 36, 43, 44 and 45). It arises in How Tax Law Is Read and Assessment & Scrutiny matters, on section 43(5), section 73, section 70, section 28 of the Income Tax Act 1961, and was decided by R. D. Dhanuka J and S. G. Mehare 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. Separate the derivative loss from any delivery-based share loss in the computation. The concession recorded at para 9 means the share-trading limb is conceded ground, and mixing them invites the AO to treat the whole figure as speculative. Identify the High Court with jurisdiction over your assessment before choosing this ground. In Delhi, DLF Commercial Developers is binding and the argument must be put differently. If the AO relies on CIT v Lokmat Newspapers, point to paras 40 and 41: that case turned on unamended s.43(5) and never considered clause (d). Check the assessment year against the Finance (No. 2) Act 2014 amendment to the Explanation to s.73, which operates only from AY 2015-16 (Snowtex).
High Courts differ on this point. The judgment itself records at para 42 that the Delhi High Court in CIT v. DLF Commercial Developers Ltd. has taken a view contrary to the Bombay line, so the conflict is on the face of the report and a practitioner must present both. A search of decisions citing this judgment found three Tribunal orders applying it - ITO v. Plaza Securities Ltd. (ITAT Mumbai, 15 June 2022), Bright Paints Pvt. Ltd. v. DCIT (ITAT Mumbai, 27 June 2025) and Raag Vihar Apartments Pvt. Ltd. v. DCIT (ITAT Delhi, 10 July 2026) - and none doubting it. I did not read those three orders in full and I could NOT establish whether the Revenue has taken this judgment to the Supreme Court; no special leave petition was located. The decision concerns AY 2009-10 and therefore the Explanation to s.73 as it stood before the Finance (No. 2) Act 2014 amendment. No source could be cited for that finding. 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.
Paragraph 38 of the judgment, reproducing the reasoning of the Bombay High Court in Bharat R. Ruia (HUF), says 'the legislature by Finance Act, 1995 has specifically provided that clause (d) to the proviso to Section 43 (5) shall come into operation prospectively with effect from 01.04.2006'. Clause (d) was inserted by the Finance Act 2005, not 1995; the same slip appears in Ruia itself, and nothing turns on it because the date 01.04.2006 is given correctly throughout. The judgment numbers its concluding order as paragraph 45 and then carries a further sentence numbered 46 allowing the appeal. I read the questions of law, paragraphs 1 to 12 and paragraphs 30 to 46 verbatim; the intervening submissions paragraphs I did not reproduce. 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.
Both questions were answered in favour of the assessee and the appeal was allowed. Transactions in derivatives referred to in clause (ac) of s.2 of the Securities Contracts (Regulation) Act 1956 carried out on a recognised stock exchange are excluded from the definition of speculative transaction in s.43(5) by clause (d) of the proviso, inserted by the Finance Act 2005 with effect from 1 April 2006. Neither s.73(1) nor the Explanation to s.73 applies to a loss arising on such trading in derivatives, and the Tribunal could not have confirmed an addition on derivative transactions on a recognised stock exchange by reference to the Explanation to s.73. The assessee was entitled to set off the derivative loss against its business income from the infrastructure business under s.70 (paras 35, 36, 43, 44 and 45).
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