Commodity derivative traders can set-off losses from trades against profit of same business, irrespective of whether the transaction is speculative or non-speculative, according to a ruling by Mumbai bench of the Income-tax Appellate Tribunal. According to a note published by PwC, in a recent ruling, the tribunal has allowed the set-off of losses from commodity derivatives business against the profits of same business. Notably, the bench had clarified on the issue after an aggrieved  taxpayer in the business of commodity derivatives trading had approached the body.

According to PwC, the taxpayer had approached the tribunal after the tax officer assessed that loss from an unrecognised stock exchange (USE) is speculative in nature and hence is not eligible for set-off against profits made from transactions in a recognised stock exchange (RSE). PwC explains that the tribunal had to mainly decide whether the taxpayer’s sole business was to trade in commodity derivatives and whether the loss from such business activity could be set-off against the profits of the same business.

After due deliberation, the Tribunal said that trading in commodity derivatives was to be treated as speculative business prior to insertion of clause (e) to proviso to section 43(5) of the Act, did not apply for the assessment year under consideration in case of this taxpayer. The Bench took note of the fact that the taxpayer had not claimed any special deduction under section 43(5) of the Act for treating the profit as business profit.

Further, according to PwC, the Tribunal said that the commodity derivatives trading carried out by the taxpayer throughout solely in commodities trading on various stock exchanges should necessarily be treated as a single business and the speculative loss incurred or the profit earned should have been speculative in nature and  can be set-off against speculative profits. The Tribunal had also based its decision with reliance on previous decisions made on cases with similar facts. PwC notes that the ruling enforces a critical principle- a loss from a particular business can be set-off against the profits of the same business, irrespective of the speculative or non-speculative nature of the transaction.