1.Explanation 2 to section 28 specifically provides that where an assessee carries on speculation business, that business of the assessee must be deemed as distinct and separate from any other business.
2.This becomes necessary because section 73 provides that losses in speculation business unlike other business, cannot be set-off against the profits of any business other than a speculation business.
3.Likewise, a loss in speculation business carried forward to a subsequent year can be set-off only against the profit and gains of any speculative business in the subsequent year.
- Profits and losses resulting from speculative transaction must, therefore, be treated as separate and distinct from other profits and gains of business and profession.
According to section 43(5), the expression “speculative transaction” means a transaction in which a contract for the purchase or sales 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. Further, in view of Explanation to section 73, the transaction of purchase and sale of shares by a company, other than an investment company and a company whose principal business is the business of trading in shares or banking or the granting of loans and advances, is also be deemed to be a speculative transaction. However, the following forms of transactions shall not be deemed to be speculative transaction:
(i) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchandising business to guard against loss through future price fluctuations in respect of his contracts for the actual delivery of goods manufactured by him or merchandise sold by him ; or
(ii) 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 fluctuation; or
(iii) a contract entered into by a member of a forward market or stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against any loss which may arise in the ordinary course of his business as a member; or
(iv) an eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange.
the above forms of transactions shall not be deemed to be speculation Business.
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