Games People Play – Derivative Contracts in Bangladesh : Part 2 – (December 2013, Issue 1)

December 9, 2013, by Junayed Chowdhury

In the May 2013 issue of the LawNote, we discussed about the validity of the derivative transactions under the laws of Bangladesh in the light of the amendment made to the Securities and Exchange Ordinance 1969.[1]


The issue for discussion in this article is the tax effect on the derivative transactions under the Income Tax Ordinance 1984 (“the ITO”). Section 2(61) of the ITO defines the term “speculation business” which means a business in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts. It has been held that a derivative transaction is a “speculation transaction” as defined in section 2(61) of the ITO.[2] The effect of this characterization is that any loss resulting from speculative transaction can only be set-off against profits generated from the same type of transaction.[3]


This segregation between ‘speculative’ and ‘non-speculative’ transactions means that profits and gains of non-speculative business cannot be set off, whether within the assessment year or in subsequent assessment years, against the losses of speculation business.[4]


Written by Junayed Chowdhury, Managing Partner  


† Disclaimer: The opinions and comments expressed in this Blawg are not to be regarded or construed as legal advice by and from Vertex Chambers or any of its members. It is highly advisable that any person should seek independent legal advice before relying on any of the contents of this Blawg.


[1] See Bangladesh Gazette, 10 December 2012, newly inserted Clause 2(cccc) in the Securities and Exchange Ordinance 1969 - ‘Derivative’ has been defined as including (i) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; and (ii) a contract which derives its value from the prices, or index-ofprices, of underlying securities.

[2] [2011] 337 ITR 452 (Bom)

[3] See Explanation to section 28 read with the First Proviso to section 37 and section 39 of the ITO

[4] Gajendra Kumar v. ITO, 2011