Derivatives-nature thereof

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anant (Querist)

08 January 2014 Respected Experts and Friends
I request the experts of caclubindia to once and for all settle the issue whether FNO Trading is speculative/non speculatice/can be both. I have been trying very hard to be clear in my mind about the above question but to no avail. Many CA's I have interacted with opine that it is speculative. I have read many articles which say the all FNO trading is non speculative wef 01/04/2006 by virtue of amendment to section 43(5) by Finance Act, 2006.Some say that intraday fNO trading is speculative while non intraday FNO trading is non speculative.
Kindly give a view which is acceptable to the IT Dept or at least the higher courts of the land so that even if the dept doest agree the assesse may successfully escalate the matter before superior courts and does not waist his or dept's time and energy.
Please respond positively
THANKS IN ADVANCE

Nikhil Kaushik

Nikhil Kaushik (Expert)

08 January 2014 transaction satisfying 43(5) are non-speculative...since there is nothing to suggest that the derivative position should be held for a certain period of time to be eligible for non-speculative treatment, closing your position within a day on derivatives should not affect 43(5). The concept of intra-day or obligation trading is relevant only for cash trades..

lets see what other experts say..

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CA PARAS BAFNA

CA PARAS BAFNA (Expert)

08 January 2014 Nikhil's reply is sufficient to satisfy the AO as well as any higher authorities during the proceeding's stage.
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In addition to the above it can be argued in a different manner also.

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If you read initial para of ss(5) of Section 43, it can easily be deduced that speculation transactions are those sales/ purchase transactions IN COMMODITY INCLUDING STOCKS AND SHARES which are settled otherwise than by the actual delivery.
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Derivatives have not been included in the term COMMODITY like STOCKS AND SHARES, though the transactions in derivatives are settled without delivery. In other words , it can be said that derivative transactions are outside the perview of the definition of "speculation transaction".
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Nikhil Kaushik

Nikhil Kaushik (Expert)

08 January 2014 Thank you Bafna ji for adding to the explanation..

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