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Speculative / Non Speculative Business

Pankaj (Manager) (284 Points)

26 November 2009

Hi,

Please anyone explain me about speculative and non speculative business

Thanks

Pankaj Sonar

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4 Replies

Krutesh Patel (ACA) (727 Points)
Replied 26 November 2009

To know speculative business, we should first know what is speculative transaction.

As Per Sec 43 (5), Speculative Transaction means a transaction in which a contract of purchase or sale of any commodity including stocks and shares, is periodically or ultemately settled otherwise than by the actual delivery or transfer of the commodity or scriptts.

It is to be noted that profit or loss from derivative trading carried out through a recognized stock exchange shall not be treated as profit or loss from speculative business. However, derivative trading in commedities shall continue to be treated as speculative transaction.

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 26 November 2009

SECTION 43(5) DEFINES SPECULATIVE TRANSACTIONS AS FOLLOWS:

5) “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 delivery29 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 232 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;]

shall not be deemed to be a speculative transaction;

[Explanation.—For the purposes of this clause, the expressions—

(i) “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 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 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;

(ii) “recognised stock exchange” means a recognised stock exchange as referred to in clause (f) of section 234 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified35 by the Central Government for this purpose

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 26 November 2009

If it is held that the transaction in derivatives does not fall in section 43(5), it will make clause (d) and Explanation thereto below section 43(5) introduced by Finance Act, 2005 to be redundant.Derivatives will also fall within meaning of ‘commodity’ used in section 43(5) of IT Act, 1961

Shree Capital Services Ltd. v. ACIT

[ITA No. 1294 (Kol) of 2008]

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CS Rohit Kumar (Company Secretary | Tax Expert) (65 Points)
Replied 23 April 2016

what described above is just suggesting what is not speculative transaction. Can somebody quote examples or name of business indulging in speculative business.

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