S. 43(5): Transaction of call/put options in foreign currency are "derivatives" and loss suffered therein is not a "speculation" loss

Proviso (d) to s. 43(5) excludes the transaction from the definition of speculative transaction in respect of trading of derivatives referred to in section 2(ac) of the Securities Contract (Regulation) Act, 1956 carried in recognized stock exchange. Under section 2(ac) of the Securities Contract (Regulation) Act, 1956, derivatives also includes securities. In Rajshree Sugar & Chemicals Ltd. vs. Axis Bank Ltd., AIR 2011 (Mad) 144, the term “derivative” has been defined to include foreign currency as an underlying security of the derivative. In Aug. 2008 SEBI permitted exchange traded currency derivative. Accordingly, there remain no iota of doubt that the transaction of the assessee cannot be treated as speculative transaction. A perusal of the contract note shows that the assessee has either entered into call option or put option and on the settlement day the transaction has been settled by delivery, either the assessee has paid US dollar on the settlement day or has taken delivery of US dollar. To sum up, the “derivatives” include foreign currency and call option/ put option, are transactions of derivative markets and cannot be termed as speculative in nature.