The Assessing Officer says our loss is a speculation loss under s.43(5) and cannot be set off. We settled the contracts without taking delivery, but they were hedges against our own raw-material purchases — and separately we trade exchange derivatives. Which of the proviso clauses do I get, and from which year?
Settlement without delivery is what makes a transaction speculative, and the proviso then takes five described kinds of transaction back out. The definition, as printed on the departmental Year 2021 edition, is that "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso then provides that, for the purposes of the clause, (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction. DATES, from the footnotes. Clauses (a), (b) and (c) are the original limbs and are printed on the departmental Year 1985 edition. Clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006, with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006. Clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014, and originally read "carried out in a recognised association"; the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020. A second proviso now provides that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 shall not apply; it is absent from the Year 2014 edition and present on the Year 2021 edition, and the departmental copy of the Finance Bill, 2018 carries it at clause 12 to take effect from 1 April 2019 — I did NOT read the Finance Act, 2018 as enacted and say so.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2020-04-01, reported as Section 43(5) of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-43-59 (Year: 2021), with the insertion footnotes and the Explanations read on incometaxindia.gov.in/w/section-43-48 (Year: 2014), and the original three-clause proviso read on incometaxindia.gov.in/w/section-43-29 (Year: 1985); the second proviso corroborated against the departmental copy of the Finance Bill, 2018 (BILL No. 4 of 2018, as introduced in Lok Sabha) at incometaxindia.gov.in/documents/20117/6475258/Finance-Bill-2018.pdf, clause 12. It bears on section 43(5), section 43(5)(d), section 73, section 28, section 43(1) of the Income Tax Act 1961, in How Tax Law Is Read, Assessment & Scrutiny and Deductions & Disallowances matters.
Section 43(5) is a definition, and it decides whether a loss goes into the s.73 ring-fence or into ordinary business. Four things a practitioner has to get right. First, the exclusion is CLAUSE-SPECIFIC: each of (a) to (e) has its own conditions and its own date, and an assessee who qualifies under (a) as a manufacturer hedging raw materials is not helped by (c), which is confined to a member of a forward market or a stock exchange doing jobbing or arbitrage. Second, (a) is worded on raw materials or merchandise and on contracts for actual delivery of goods manufactured or merchandise sold by the person — a hedge of something the assessee neither manufactures nor sells is not within it. Third, (d) and (e) both turn on "eligible transaction" and on the venue, and those expressions are defined in Explanations to the sub-section which impose screen-based execution, a registered intermediary or member, and a time-stamped contract note carrying the unique client identity number and the permanent account number; a transaction that fails the contract-note requirements fails the clause however the exchange is described. Fourth, the venue words themselves changed on 1 April 2020, from "recognised association" to "recognised stock exchange", so an older order applying the clause is applying different words. THE LIBRARY ALREADY HOLDS DECISIONS bearing on clause (d) — CIT v Bharat R Ruia (slug cit-v-bharat-r-ruia-exchange-traded-derivatives-clause-d-prospective) and Souvenir Developers (slug souvenir-developers-derivatives-43-5-d-outside-explanation-73) — and on delivery and on the set-off of a brought-forward speculation loss — Davenport & Co v CIT (slug davenport-co-v-cit-actual-delivery-speculative-transaction) and CIT v Lokmat Newspapers (slug cit-v-lokmat-newspapers-brought-forward-speculation-loss-against-delivery-based-profit) — and the reader should be sent to those rather than to this entry for what they decide. This entry states the section and makes no statement about any of them.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 43(5), as printed on the departmental page stamped Year 2021, reads: "'speculative transaction' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause— (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction: Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply." Explanation 1, as printed on the departmental page stamped Year 2014, provides that for the purposes of clause (d) the expression "eligible transaction" means any transaction (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange, and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; and that "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. Explanation 2, as printed on that same Year 2014 page and therefore in its pre-2020 wording, provides that for the purposes of clause (e) "commodity derivative" shall have the meaning assigned to it in Chapter VII of the Finance Act, 2013; "eligible transaction" means any transaction (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association, and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; and "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose. The departmental page stamped Year 1985 prints the sub-section with clauses (a), (b) and (c) only.
Not a judgment. The statutory position is that a speculative transaction under s.43(5) is a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips; that the proviso takes five described classes out of that deeming — (a) raw-material or merchandise hedging by a manufacturer or merchant against his own contracts for actual delivery, (b) stocks-and-shares hedging by a dealer or investor against his own holdings, (c) jobbing or arbitrage by a member of a forward market or a stock exchange in the ordinary course of his business as such member, (d) an eligible transaction in derivatives referred to in s.2(ac) of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange, and (e) an eligible transaction in commodity derivatives carried out in a recognised stock exchange chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013; that clauses (a), (b) and (c) stand in the Year 1985 departmental edition, clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006 with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006, and clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014; that the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020; that "eligible transaction" and the venue expressions are defined in Explanations 1 and 2, requiring screen-based execution through a registered intermediary or member and a time-stamped contract note carrying the unique client identity number, the permanent account number and, for commodity derivatives, the unique trade number; and that a second proviso disapplies the commodities transaction tax requirement of clause (e) in respect of trading in agricultural commodity derivatives, the enacting Act and date of which are not established by any departmental page I could reach.
Not a judgment; no judicial reasoning is stated for the section.
Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply.
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Handle my notice → Ask a CA on WhatsAppSettlement without delivery is what makes a transaction speculative, and the proviso then takes five described kinds of transaction back out. The definition, as printed on the departmental Year 2021 edition, is that "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The proviso then provides that, for the purposes of the clause, (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction. DATES, from the footnotes. Clauses (a), (b) and (c) are the original limbs and are printed on the departmental Year 1985 edition. Clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006, with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006. Clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014, and originally read "carried out in a recognised association"; the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020. A second proviso now provides that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 shall not apply; it is absent from the Year 2014 edition and present on the Year 2021 edition, and the departmental copy of the Finance Bill, 2018 carries it at clause 12 to take effect from 1 April 2019 — I did NOT read the Finance Act, 2018 as enacted and say so. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 43(5), section 43(5)(d), section 73, section 28, section 43(1) of the Income Tax Act 1961. It is reported as Section 43(5) of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-43-59 (Year: 2021), with the insertion footnotes and the Explanations read on incometaxindia.gov.in/w/section-43-48 (Year: 2014), and the original three-clause proviso read on incometaxindia.gov.in/w/section-43-29 (Year: 1985); the second proviso corroborated against the departmental copy of the Finance Bill, 2018 (BILL No. 4 of 2018, as introduced in Lok Sabha) at incometaxindia.gov.in/documents/20117/6475258/Finance-Bill-2018.pdf, clause 12. Section 43(5) is a definition, and it decides whether a loss goes into the s.73 ring-fence or into ordinary business. Four things a practitioner has to get right. First, the exclusion is CLAUSE-SPECIFIC: each of (a) to (e) has its own conditions and its own date, and an assessee who qualifies under (a) as a manufacturer hedging raw materials is not helped by (c), which is confined to a member of a forward market or a stock exchange doing jobbing or arbitrage. Second, (a) is worded on raw materials or merchandise and on contracts for actual delivery of goods manufactured or merchandise sold by the person — a hedge of something the assessee neither manufactures nor sells is not within it. Third, (d) and (e) both turn on "eligible transaction" and on the venue, and those expressions are defined in Explanations to the sub-section which impose screen-based execution, a registered intermediary or member, and a time-stamped contract note carrying the unique client identity number and the permanent account number; a transaction that fails the contract-note requirements fails the clause however the exchange is described. Fourth, the venue words themselves changed on 1 April 2020, from "recognised association" to "recognised stock exchange", so an older order applying the clause is applying different words. THE LIBRARY ALREADY HOLDS DECISIONS bearing on clause (d) — CIT v Bharat R Ruia (slug cit-v-bharat-r-ruia-exchange-traded-derivatives-clause-d-prospective) and Souvenir Developers (slug souvenir-developers-derivatives-43-5-d-outside-explanation-73) — and on delivery and on the set-off of a brought-forward speculation loss — Davenport & Co v CIT (slug davenport-co-v-cit-actual-delivery-speculative-transaction) and CIT v Lokmat Newspapers (slug cit-v-lokmat-newspapers-brought-forward-speculation-loss-against-delivery-based-profit) — and the reader should be sent to those rather than to this entry for what they decide. This entry states the section and makes no statement about any of them. If it applies to you, the first step is this: Test the definition first: was the contract for the purchase or sale of a commodity, including stocks and shares, and was it periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or scrips? If delivery was taken, the definition is not attracted and the proviso is never reached.
Section 43(5), as printed on the departmental page stamped Year 2021, reads: "'speculative transaction' means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause— (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised stock exchange, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction: Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply." Explanation 1, as printed on the departmental page stamped Year 2014, provides that for the purposes of clause (d) the expression "eligible transaction" means any transaction (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange, and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; and that "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. Explanation 2, as printed on that same Year 2014 page and therefore in its pre-2020 wording, provides that for the purposes of clause (e) "commodity derivative" shall have the meaning assigned to it in Chapter VII of the Finance Act, 2013; "eligible transaction" means any transaction (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association, and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; and "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose. The departmental page stamped Year 1985 prints the sub-section with clauses (a), (b) and (c) only. The matter was decided on 2020-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that a speculative transaction under s.43(5) is a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips; that the proviso takes five described classes out of that deeming — (a) raw-material or merchandise hedging by a manufacturer or merchant against his own contracts for actual delivery, (b) stocks-and-shares hedging by a dealer or investor against his own holdings, (c) jobbing or arbitrage by a member of a forward market or a stock exchange in the ordinary course of his business as such member, (d) an eligible transaction in derivatives referred to in s.2(ac) of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange, and (e) an eligible transaction in commodity derivatives carried out in a recognised stock exchange chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013; that clauses (a), (b) and (c) stand in the Year 1985 departmental edition, clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006 with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006, and clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014; that the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020; that "eligible transaction" and the venue expressions are defined in Explanations 1 and 2, requiring screen-based execution through a registered intermediary or member and a time-stamped contract note carrying the unique client identity number, the permanent account number and, for commodity derivatives, the unique trade number; and that a second proviso disapplies the commodities transaction tax requirement of clause (e) in respect of trading in agricultural commodity derivatives, the enacting Act and date of which are not established by any departmental page I could reach.
Not a judgment; no judicial reasoning is stated for the section. In the words reproduced by the source cited on this page: "Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply."
It was decided by the CBDT Circulars & Instructions on 2020-04-01 and is reported as Section 43(5) of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-43-59 (Year: 2021), with the insertion footnotes and the Explanations read on incometaxindia.gov.in/w/section-43-48 (Year: 2014), and the original three-clause proviso read on incometaxindia.gov.in/w/section-43-29 (Year: 1985); the second proviso corroborated against the departmental copy of the Finance Bill, 2018 (BILL No. 4 of 2018, as introduced in Lok Sabha) at incometaxindia.gov.in/documents/20117/6475258/Finance-Bill-2018.pdf, clause 12. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 43(5), section 43(5)(d), section 73, section 28, section 43(1), 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 cuts both ways and is cited by both sides. Not a judgment. The statutory position is that a speculative transaction under s.43(5) is a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips; that the proviso takes five described classes out of that deeming — (a) raw-material or merchandise hedging by a manufacturer or merchant against his own contracts for actual delivery, (b) stocks-and-shares hedging by a dealer or investor against his own holdings, (c) jobbing or arbitrage by a member of a forward market or a stock exchange in the ordinary course of his business as such member, (d) an eligible transaction in derivatives referred to in s.2(ac) of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange, and (e) an eligible transaction in commodity derivatives carried out in a recognised stock exchange chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013; that clauses (a), (b) and (c) stand in the Year 1985 departmental edition, clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006 with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006, and clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014; that the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020; that "eligible transaction" and the venue expressions are defined in Explanations 1 and 2, requiring screen-based execution through a registered intermediary or member and a time-stamped contract note carrying the unique client identity number, the permanent account number and, for commodity derivatives, the unique trade number; and that a second proviso disapplies the commodities transaction tax requirement of clause (e) in respect of trading in agricultural commodity derivatives, the enacting Act and date of which are not established by any departmental page I could reach. It arises in How Tax Law Is Read, Assessment & Scrutiny and Deductions & Disallowances matters, on section 43(5), section 43(5)(d), section 73, section 28, section 43(1) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Then name the clause of the proviso you rely on and plead its conditions in terms — (a) raw materials or merchandise hedged by a manufacturer or merchant against his own contracts for actual delivery; (b) stocks and shares hedged by a dealer or investor against his own holdings; (c) jobbing or arbitrage by a member of a forward market or stock exchange in the ordinary course of his business as such member; (d) an eligible derivative transaction on a recognised stock exchange; (e) an eligible commodity derivative transaction on a recognised stock exchange chargeable to commodities transaction tax. For clause (d) or clause (e), produce the Explanation material: screen-based execution through a registered broker, sub-broker, intermediary or member, and a time-stamped contract note showing the unique client identity number, the permanent account number and, for commodity derivatives, the unique trade number. A claim under these clauses without the contract notes is not made out. Check the year against the clause's date before arguing it — (a), (b) and (c) are original; (d) runs from 1 April 2006; (e) from 1 April 2014; the venue words changed from "recognised association" to "recognised stock exchange" from 1 April 2020; and the agricultural commodity derivative relaxation is later still and its enacting date is not established in this entry. If the transaction falls outside every clause of the proviso, move the fight to s.73 and to the library's decisions on speculation losses — cit-v-lokmat-newspapers-brought-forward-speculation-loss-against-delivery-based-profit and souvenir-developers-derivatives-43-5-d-outside-explanation-73 — rather than relitigating the definition.
Still good law. The text as stated is the current text so far as I could establish. Three departmental section editions were read, stamped Year 1985, Year 2014 and Year 2021, and the progression across them — three clauses, then five with clause (e) worded on a "recognised association", then five with clause (e) worded on a "recognised stock exchange" plus a second proviso — is coherent and is explained by the footnotes transcribed in the editor note. Year 2021 is the most recent edition I located; repeated searches returned no later one, so an amendment after 2021 cannot be excluded. Explanation 2 is reproduced only in its Year 2014 wording because the Year 2021 page records a substitution by Act No. 12 of 2020 at footnote 81 whose content it does not print. The enacting Act and effective date of the second proviso are NOT established from any departmental Act page; only the Finance Bill, 2018 position is stated, and stated as a Bill. No judicial treatment was examined on this pass; the library already holds decisions bearing on clause (d), on actual delivery and on speculation losses, named in this entry. 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.
THREE departmental editions of s.43 were reachable by search and they print three different sub-section (5)s, which is the point a reader most needs. The operative text is from https://www.incometaxindia.gov.in/w/section-43-59, stamped "Year: 2021", the most recent edition located. STALE-PAGE WARNING, found this pass. https://www.incometaxindia.gov.in/w/section-43-29 is stamped "Year: 1985" and prints s.43(5) with clauses (a), (b) and (c) ONLY, ending "shall not be deemed to be a speculative transaction" after clause (c); there is no clause (d), no clause (e), no second proviso and no Explanation about eligible transactions. A reader who lands on it and concludes that exchange-traded derivatives are speculative will have read a page forty years out of date. https://www.incometaxindia.gov.in/w/section-43-48 is stamped "Year: 2014" and prints clauses (a) to (e), but its clause (e) reads "carried out in a recognised association" and its Explanation 2 is built on the Forward Contracts (Regulation) Act, 1952 and on a "recognised association" defined by reference to clause (j) of section 2 of that Act; the Year 2021 page prints "recognised stock exchange" in the same places. TWO EDITIONS THEREFORE CONTRADICT EACH OTHER ON THE VENUE WORDS OF CLAUSE (e), and the contradiction is explained by footnotes 78 and 80 on the Year 2021 page, transcribed verbatim: "Sub. for 'recognised association' by the Act No. 12 of 2020, w.e.f. 1-4-2020." Footnote 81 on that page, "Sub. by the Act No. 12 of 2020, w.e.f. 1-4-2020", records a further substitution whose content the page did not render, so I cannot say what else in Explanation 2 changed on 1 April 2020, and Explanation 2 is reproduced in this entry ONLY in the Year 2014 wording, flagged as such. I have NOT verified the short title of Act No. 12 of 2020 from a government source and give the Act number, which is what the page prints. THE INSERTION FOOTNOTES COME FROM THE YEAR 2014 PAGE, which is the only reachable edition rendering them, transcribed verbatim: "26. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006" against clause (d); "27. Substituted for '(aa)' by the Finance Act, 2006, w.e.f. 1-4-2006"; "29. Inserted by the Finance Act, 2013, w.e.f. 1-4-2014" against clause (e); "30. Inserted by the Finance Act, 2005, w.e.f. 1-4-2006" against the original Explanation; "31. Explanation renumbered as Explanation 1 by the Finance Act, 2013, w.e.f. 1-4-2014"; "32. Substituted for 'this clause', by the Finance Act, 2013, w.e.f. 1-4-2014"; and "35. Inserted by the Finance Act, 2013, w.e.f. 1-4-2014" against Explanation 2. A further footnote on that page, "29a. Inserted by the Finance (No. 2) Act, 2014, w.r.e.f. 1-4-2014", I could NOT place against any particular words and I therefore state nothing about it. The Year 2021 page renders footnotes only from number 76 upwards, so none of the insertion footnotes appear on it — the current edition cannot date its own clauses. NO FOOTNOTE FOR THE MAIN DEFINITION OR FOR CLAUSES (a), (b) AND (c) was found on any edition; they are printed unfootnoted on the Year 1985 page, and I therefore say only that they stand in the Year 1985 edition and state no commencement date for them. WHAT I COULD NOT ESTABLISH: the amending Act and effective date of the SECOND PROVISO, the agricultural commodity derivatives relaxation. It carries no footnote marker on the Year 2021 page — I asked twice and there is none — and no departmental section edition between Year 2014 and Year 2021 was reachable. What I did establish is bracketing: the proviso is absent from the Year 2014 edition and present on the Year 2021 edition, and the departmental copy of the Finance Bill, 2018 at documents/20117/6475258/Finance-Bill-2018.pdf carries it at clause 12 in the same words, to take effect from 1 April 2019. A BILL IS NOT AN ACT: I did not read the Finance Act, 2018 as enacted, and this entry does not assert that the proviso was enacted in those terms or from that date. https://incometaxindia.gov.in/Acts/Finance%20Acts/2018/102120000000071920.htm, which the search index returns, is a 404 on fetch. COPYRIGHT NOTE, and it is a real one on this section: the departmental /w/ pages carry the line "© Copyright. Taxmann Publications Pvt. Ltd.", and on the Year 2014 s.43 page several footnotes are editorial cross-references directing the reader to that publisher's own titles for the meaning of expressions such as "actual delivery" and "speculative transaction". I have transcribed ONLY footnotes stating a legislative fact and have reproduced none of the editorial cross-references or any publisher's commentary. `decided_on` is 2020-04-01, the date of the most recent change to the text as this entry states it. 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.
Not a judgment. The statutory position is that a speculative transaction under s.43(5) is a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips; that the proviso takes five described classes out of that deeming — (a) raw-material or merchandise hedging by a manufacturer or merchant against his own contracts for actual delivery, (b) stocks-and-shares hedging by a dealer or investor against his own holdings, (c) jobbing or arbitrage by a member of a forward market or a stock exchange in the ordinary course of his business as such member, (d) an eligible transaction in derivatives referred to in s.2(ac) of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange, and (e) an eligible transaction in commodity derivatives carried out in a recognised stock exchange chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013; that clauses (a), (b) and (c) stand in the Year 1985 departmental edition, clause (d) was inserted by the Finance Act, 2005 with effect from 1 April 2006 with "(ac)" substituted for "(aa)" by the Finance Act, 2006 with effect from 1 April 2006, and clause (e) was inserted by the Finance Act, 2013 with effect from 1 April 2014; that the words "recognised stock exchange" were substituted for "recognised association" by Act No. 12 of 2020 with effect from 1 April 2020; that "eligible transaction" and the venue expressions are defined in Explanations 1 and 2, requiring screen-based execution through a registered intermediary or member and a time-stamped contract note carrying the unique client identity number, the permanent account number and, for commodity derivatives, the unique trade number; and that a second proviso disapplies the commodities transaction tax requirement of clause (e) in respect of trading in agricultural commodity derivatives, the enacting Act and date of which are not established by any departmental page I could reach.
TaxSphere, “Statutory position — s.43(5): what a speculative transaction is, and the five clauses of the proviso that take a transaction out of it — raw-material hedging, stocks-and-shares hedging, jobbing and arbitrage by a member, eligible derivative transactions on a recognised stock exchange, and commodity derivatives — with the effective date of each”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-43-5-speculative-transaction-and-the-five-clauses-of-the-proviso/ (validity last checked 2026-09-17)
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Can I set my share trading loss off against my F&O profits?
My company lost money trading in exchange traded derivatives. Section 43(5)(d) says those are not speculative transactions, so can I set the loss off against ordinary business income?
The AO says my company's gross total income does not 'consist mainly' of the four excluded heads because he has left the share loss out of the business head. Is that the right computation?
My company has brought forward speculation loss from the Explanation to s.73. This year it made a profit on delivery-based share sales. The AO says the deeming fiction works only on losses. Can I set the brought forward loss against that profit?
