TL Meaning of Speculation Transactions

Meaning of Speculative Transaction

Meaning of Speculation Transaction

Meaning of Speculative Transactions [Sec. 43(5)]

Speculative transaction means a transaction in which contract for purchase and sale of any commodity including stock and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts.

However, it should be noted that loss from derivative trading shall not be treated as loss from speculative business.
Exceptions
Following transactions are not considered as speculative transactions:

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
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
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
an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 20 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognised stock exchange;

(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 in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 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 2 of the Securities Contracts (Regulation) Act, 1956 and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.

Deemed Speculative Transactions [Explanations to Sec.73]

Where any part of the business of a company consists of purchase and sale of shares of other companies, such company shall be deemed to be carrying on speculation business to the extent of purchase and sale of shares. However, this rule is not applicable in case of companies -

of which gross total income mainly consists of income which is chargeable under the head 'Income from house property', 'Capital gains', and 'Income from other sources';or
of which principal business is banking or granting of loans and advances.

Notes

Above explanation covers only transactions of purchase and sale of shares. Debentures, units of UTI or of Mutual Funds are not covered by this explanation.
Above explanation is not applicable where shares are held with company as investments and not as stock in trade.