Why Is F & O Transaction Business Activity From 25/1/2006 And Not From 1/4/2005?

December 19, 2008 by taxworry · Leave a Comment

Whether Trading in Nifty Futures, amount to trading in derivates and as a result not a speculative transaction as per the amendment to sec 43(5) by Fiance act 2005. RAMESH V RAICHUR, Belgaum

Futures and option trading-whether in individual shares or Nifty futures – was regarded as speculation business as per section 43(5) of the I T Act. Finance Act 2005 brought the amendment by which clause e was insterted in provision to section 43(5) to provide that transaction in F & O shall be business transaction and not regarded as “speculation”. The said amendment was as under

(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;shall not be deemed to be a speculative transaction

So , was that effective from 1/4/2005 . No , because the Rules for recognistion was not notified. The rules 6DDA and 6DDB were notified on 1/7/2005. After this the notification came on 25/1/2006 stating that only NSE and BSE are recognised for the purpose of the amended section 43(5) . This notifcation stated that transaction in F & O in NSE or BSE shall be trated as business transaction from 25/1/2006. The said notification is as under

NOTIFICATION NO. 2/2006, DATED 25-1-2006

In exercise of the powers conferred by clause (ii) in the Explanation to clause (d) of the proviso to clause (5) of section 43 of the Income-tax Act, 1961(43 of 1961) read with sub-rule (4) of rule 6DDB of the Income-tax Rules, 1962, the Central Government hereby notifies the following stock exchanges as recognised stock exchanges for the purposes of the said clause with effect from the date of publication of this notification.in the Official Gazette, namely:-

(1) National Stock Exchange of India Limited, Mumbai

(2) Bombay Stock Exchange Limited, Mumbai

2. The Central Government may withdraw the recognition granted to the stock exchange if any of the conditions prescribed in rule 6DDA of the income-tax Rules, 1962, subject to which the recognition is granted, is violated.

3. This notification shall remain in force until the approval granted by the Securities and Exchange Board of India is withdrawn or expires, or this notification is rescinded by the Central Government as provided in sub-rule (5) of rule 6DDB of the Income-tax Rules, 1962.

[F.No. 142/38/2005-TPL]

Explanatory Memorandum in respect of Notification S. O. 89(E)

Dated 25^th January, 200

The said Notification notifies Bombay Stock Exchange Limited, Mumbai and National Stock Exchange of India Limited, Mumbai as recognised Stock Exchanges for the purposes of clause (d) of the proviso to section 43(5) of the Income-tax Act, 1961. An eligible transaction in respect of trading in derivatives carried out on these two Stock Exchanges with effect from 25^th January, 2006 shall not be deemed to be speculative transaction. The expression eligible transaction is defined in the Explanation appearing after the proviso to section 43(5) of the Income-tax Act, 1961.

To sum up , the amendmend became effective from 25/1/2006 only. All transaction in F & O before that day is of speculative nature and after that is busness activity.

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