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Article explains how Speculative Business is Distinct Business, What is speculative transaction, What shall not deemed to be speculative transactions, What is Eligible Transaction for security derivative, Recognised stock exchange for Section 43(5), Recognised association for Section 43(5), What are the Eligible Transaction for Commodity derivative, Do Single transaction constitute speculative business, Treatment of Losses […]
Speculative transaction means a transaction in which a contract for the purchase or sales of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips [section 43(5)]. Here important term is periodically or ultimately settled otherwise than by the actual delivery
Magic Share Traders Ltd Vs ITO (ITAT Ahmedabad) The issue under consideration is whether a company dealing in ‘derivatives’ could be considered as engaged in speculative business as per Section 73 or not? In the present case, the assessee seeks set off of losses arising from derivative losses as non-speculative business losses. The Revenue had […]
Under provisions of section 43(5), the transactions in derivatives at certain stock exchanges are deemed to be non-speculative, however, as per the explanation to section 73 for the purpose of computation of business loss the derivative transactions squarely fall within the scope of explanation to section 73.
Assessing Officer committed an error in resorting to explanation to section 73 of the Act. The issue before him was whether the income earned by the assessee through sale of shares should be taxed as business income or should be treated as capital gain. Such issue had to be decided on the basis of the question whether the assessee is involved in any business of buying and selling shares or had purchased and sold the shares by way of investment.
First issue is whether the provisions of Explanation to section 73 would apply when the entire business consists of purchase and sale of shares. This issue is covered by the judgment of Hon’ble High Court of Calcutta in the case of Arvind Investments Ltd. (supra), in which it has been held that Explanation to Section 73 would apply even when entire business consists of purchase and sale of shares.
The transaction of purchase and sale of shares would be held as speculative business only if the company was hit by the Explanation to section 73. The implication of the Explanation is that if a company incurs a speculation loss in a manner deemed in the explanation such loss shall not be set off except against profit and gains, if any, of another speculation business.
CIT vs. Darshan Securities Pvt. Ltd (Bombay High Court)- During the assessment year, the assessee returned an Income of Rs.2,25,04,588 from service charges. The assessee had a loss of Rs.02,23,32,127 in share trading. The assessee had a dividend income of Rs.4,79,325/. The assessee claimed that in computing the gross total income for the purpose of the explanation to Section 73, the income from service charges had to be adjusted against the loss in share trading.
ITO, Mumbai Vs GSB Capital Markets Ltd (ITAT Mumbai)- Whether where the assessee has considered the amount receivable from debtor as bad debts in the books of account, no disallowance can be made for want of fulfilment of conditions of section 36(2) – Whether where the amount is given to the sister concern by the assessee interest-free out of own funds and for business purposes, no disallowance can be made for interest expenses u/s 40A(2)(a) – Whether the losses of mutual funds are rightly adjusted against the speculation profit on shares in view of explanation to section 73 – Whether where the amount is taken by the assessee under a business transaction, no addition can be made u/s 2(22)(e) for deemed dividend. – Assessee’s appeal partly allowed.
The assessee earned a profit on sale of shares held as stock-in-trade. This profit was offered as profit from a ’speculation business’ and was set off against a ’speculation loss’ brought forward from an earlier assessment year. The AO took the view that the profit from sale of shares was not from a ’speculation business’ on the ground that the assessee
