ITAT Lucknow Allows Set-Off of Spouse’s F&O Losses Arising From Gifted Funds

Vipin Yadav Vs ITO (ITAT Lucknow)

The appeal before the Income Tax Appellate Tribunal (ITAT), Lucknow Bench, arose from the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), dated 7 August 2024, affirming the assessment order passed under Section 143(3) of the Income Tax Act for Assessment Year 2018-19. The dispute concerned whether losses arising from derivative and equity trading undertaken in the name of the assessee’s spouse could be clubbed with the assessee’s income under Section 64(1)(iv) of the Income Tax Act.

The assessee had been engaged in trading in securities, derivatives and equities over several years and had been reporting such earnings under the head “Profits and Gains from Business or Profession” and under short-term and long-term capital gains, as applicable. During the relevant financial year, the assessee transferred ₹1,15,47,000 to his spouse from his earnings and past savings without consideration. The spouse maintained a demat account and a joint bank account with the assessee, through which derivative and equity transactions were undertaken.

The assessee claimed that a proportionate loss of ₹1,14,80,285 attributable to the gifted funds should be clubbed with his income under Section 64(1)(iv) and treated as business loss arising from futures and options transactions. According to the assessee, even the speculative profit of ₹30,239 earned in the spouse’s name had been included in his own return of income.