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GROUP EXERCISEGROUP-12

CONCEPT OF SPECULATIVE INCOME/LOSS

Presented By :-

Shri Sanasam Sachidananda Singh

ITO Ward-1, Sivasagar, Assam[Next]

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Definition of Speculation

The act of • Trading in an asset, or• Conducting a financial transaction,

– that has a significant risk of losing most or

– all of the initial outlay,

In expectation of a substantial gain.

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Speculative Income/Loss

Any Profit or Loss out of a speculative

Business is

Speculative Income/Loss

Where Speculation Transactions carried on by an assessee are of such a nature as to constitute a business it is referred to as

SPECULATION BUSINESS

Section 28- explanation-2

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SPECULATION BUSINESS A DISTINCT AND SEPARATE BUSINESS

Section 28-Explanation 2

Where speculative transactions constitute a business, the business shall be deemed to be distinct and separate from any other business.

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Definition- Income Tax Act

• Section 43(5) in The Income- Tax Act

" Speculative Transaction" means a transaction 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 transferof the commodity or scripts:

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NOT SPECULATIVE TRANSACTIONProvision to section 43(5)

1. A contract to guard against loss in respect of:a). A person

- for raw materials or merchandiseb). A Dealer or investor for - stocks and shares in his holdings

through price fluctuations (Hedging)c). a member of a forward market or a stock

exchange - in the course of jobbing or arbitrage in the ordinary course of his business

Commissioner Income Tax Vs. Sri Ram Kishan Gupta(Allahabad High Court )

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NOT SPECULATIVE TRANSACTION Provision to section 43(5)

2. An Eligible Transaction in respect of trading in :

d. DERIVATIVES

- Carried out in a recognised stock exchange

e. COMMODITY DERIVATIVES (01/07/2013)

- Carried out in a recognised association, which is chargeable to Commodities Transaction Tax

(Chapter VII of the Finance Act, 2013)

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ELIGIBLE TRANSACTION [FOR CLAUSE(d)]

any transaction, (Share Derivatives)

(A) carried out electronically on screen- based systems through

- a stock broker or

- a sub-broker or

- such other intermediary registered under - The Sebi Act 1992, The SC(R) Act 1956, The Depositories

Act 1996 etc.

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ELIGIBLE TRANSACTION [FOR CLAUSE(e)]

any transaction, (Commodity Derivatives)

(A)carried out electronically on screen-based systems through

-member or an intermediary,- registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952); and

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(CONTD/-) ELIGIBLE TRANSACTION [FOR CLAUSE(e)]

AND

(B) which is supported by a time stamped contract note issued to every client indicating the

- unique client identity Number and - - Permanent Account Number

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INTERMEDIARY TO BEREGISTERED UNDER

The Securities and Exchange Board of India Act, 1992

The Securities Contracts (Regulation) Act, 1956 or The Depositories Act, 1996 and Forward Contracts (Regulation) Act, 1952 (74 of 1952); the rules, regulations or bye-laws made or directions

issued -under those Acts or

-by banks or -mutual funds on a recognized stock exchange;

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Losses in speculation businessSection 73

• Any Speculative loss is to be set off only against profit of Speculative business.

• Loss can be carried forward upto four succeeding years.

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DEEMED SPECULATION BUSINESS

Section 73- explanation- 1• For a company where Any part

of business consist of trading in share of another company such transaction is Deemed Speculation Business.

[To the extent of such investment]

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DEEMED SPECULATION BUSINESS

• In Short.

the Purchase And Sale Of Shares is deemed Speculation Business within the meaning of proviso to section 73 of IT Act, 1961.[ITO V. Ethno Financial Research Pvt. Ltd.

(ITAT, Delhi Bench)]

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NOT DEEMED SPECULATION BUSINESS

But not for COMPANIES which income assessed under the head

1. Interest on securities.

2. Income from house property

3.Capital gains

4. Income from other sources and5.a company Where the principal business of

which is the business of banking or the granting of loans and advances

[Otherwise trading in share of other company is deemed speculative] [Next] 1515

CASE LAWS

Transaction by a company in units of UTI would not result into speculative income or loss.

Apollo Tyres Ltd. v. CIT, [122 Taxmann 562] (SC)

The profits and losses of a company from the business of dealing in shares will be speculative

irrespective of share delivered or not

Commissioner of Income-tax v. Arvind Investments Limited, [192 ITR 365] (CHC)

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CASE LAWS

• Recent case 11-07-2013CIT v DLF Commercial Developers Ltd (ITA

94/2013), Delhi High Court

“Loss on account of Share/derivative transaction is speculative loss”

• Rs. 4.93 Cr of derivative trading loss claimed by the assessee – disallowed by the AO.

• CIT(A) upheld.• ITAT gave relief to the assessee. (Revenue appealed)

• DHC held in favour of the Revenue.[Next]

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TAX TREATMENT

SPECULATIVE INCOME IS

TAXED AT NORMAL RATE

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SUM UP

Transaction settled without actual delivery or transfer of the commodity or scripts: is speculative transaction.

Example:-1. Intra day share trading is speculation

business .2. Trading in derivatives including

commodity derivatives is not speculative. (Through DEMATE & PAN)

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SOME TERMS

• Hedging: The activity of trading futures with the objective of reducing or controlling price risk (due to uncertainty about future price levels) is called hedging.

• Stock Jobbing:The buying and selling of securities with the intent of generating quick profits.

• Arbitrage: the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset

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• ..

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SOME TERMS

• Jobbing is buying and selling of shares within quick time (Entry and Exit) for a very small profit. Whatever the trade is you have to square it off within short time. .Usually jobbers do this kind of trade continuously throughout the day earning a handsome profit at the end of the day.

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SPECULATIVE INCOME LOSS

THANK YOU ALL

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