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Tax audit

Girish (Student) (67 Points)

26 January 2012

Hi Friends,

One of my clients doing business of buying & selling shares through his DEMAT A/c which is interday/intraday transactions (Future/Market). His transactions have exceeded 60 lakhs during the FY 2010-11.

1. Has he liable to be tax audited u/s 44AB.

2. And what is your opinion in case of a Broker of Share business who receives the money from his clients and do the business in his account and receives only some percentage of commission based on turnover/profit earned by his client.

3. Profit/Loss earned by my client is under Speculative Profit/Loss OR Capital Gains?

Please help me.

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6 Replies

CA. MUKESH KUMAR (CHARTERED ACCOUNTANT) (183 Points)
Replied 26 January 2012

Friend...

1. he is liable to tax audit if he is buying or selling his shares or in his name.

2. In the second case he is liable to tax audit only when his commission exceeeds Rs. 60 Lakh.

3. Income of your client will not be taxable under the head capital gain or speculative profit/loss.

it wall be taxable under the head PGBP, this is not a speculative business because all transactions are taking place through a recogniesd stock Exchange.

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Girish (Student) (67 Points)
Replied 27 January 2012

Sir, Thanks for your valuable opinion. But as per the Defination of Speculative Transaction under Sec. 43(5) i.e., ""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 transfer of the commodity or scrips.

I read one more same article like your opinion, which states speculative transaction excludes transactions in recognized stock exchanges. Can you pls state which sec./provision explains this statement.

Thank you.

CA. MUKESH KUMAR (CHARTERED ACCOUNTANT) (183 Points)
Replied 27 January 2012

Please read below mention provision alongwith its proviso (b)...

Section 43(5) in The Income- Tax Act, 1995

(5) 1[ " 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 transfer of the commodity or scrips: Provided that for the purposes of this clause-

(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or

(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member;

shall not be deemed to be a speculative transaction;

Girish (Student) (67 Points)
Replied 27 January 2012

Sir,with reference to 3rd point in my question, there is no contact with anybody to guard against any loss. He just buys & sells shares in recognized stock exchange. and as per your view, there is no such statement in 43(5) definition which clearly states income from buying & selling of securities in recognized stock exchanges shall not be Speculation profits.