Whether transaction of call/put options in foreign currency are "derivatives" and whether loss suffered therein is a "speculation" loss?

Last updated: 24 February 2015

Court :
ITAT Mumbai

Brief :
Assessee is an Investment Management Consultant. During Scrutinyassessment, the AO noticed that the assessee had claimed a loss of Rs.93,63,235/- on account of loss on foreign currency futures. The AO disallowed the loss considering the provisions of section 43(5) of the Income Tax Act, 1961 r.w.section 2(ac) of the Securities Contracts (Regulation) Act. Aggrieved, the assessee carried the matter before Ld. CIT(A) contending that the contracts in foreign currency futures were not speculative transaction. It was further explained that the foreign currency contract does not satisfy the condition of being a speculative transaction and, therefore, the loss on account of foreign currency futures was not speculative loss. CIT(A) held that proviso (d) to section 43(5) was not applicable considering nature of assessee’s business. Aggrieved, Assessee approached Tribunal. Held that the derivatives include foreign currency, and calloption/ put option are transactions of derivative markets and cannot betermed as speculative in nature. Considering the totality of the facts andin the light of the judicial discussion the order of Ld. CIT(A) was set aside. Appeal filed by the assessee is accordingly allowed.

Citation :
IVF Advisors private Limited – Appellant – Versus – Asstt. Commissioner of Income Tax – Respondent