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tax treatment

CA sakshi agarwal (graduate ) (52 Points)

16 March 2010

ques: i wanna knw tax provision regarding it.

An individual was runing a iron business during financial year-2007-08 having gross turnover of around 10-12 lacs. During mid year he has invested the entire profit & capital in share market & suffered a huge loss. yet he has not submitted the ITR. what will be the tax treatement regarding the profit from iron business???is he liable to pay tax??? or he is not liable to tax since he has invested entire profit in shares & suffered a loss???...

plz reply....its very urgent.......

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18 Replies

(CMA-Final) (acc) (426 Points)
Replied 16 March 2010

Loss from speculation busines can not be set off against any other income.future & option is not set off also. therefore 100% taxation charge on profit form iron business

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Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 16 March 2010

hi... sakshi,

aas per my understanding.... the assessee has to file return showing business profit and he has liable to pay on that alongwith penalty u/s 271F for late filing of return.

Moreever, he can carry forward the lossess from share trading for 8 assessment years....

hope ur doubt wil be cleared.

regards,

ratan

Amir (Learner) (4016 Points)
Replied 16 March 2010

Dear Sakshi,

Ur case falls in Sec 70, set off loss with in same head from different source..

So Loss from Share Transactions will be setoff with the Profit from Iron Business. No Doubt about it.

Tax is to be payable only on the balance amount of Profit after setting off Loss...

Following is required

1) Treat Share Transactions as Business/Profession & not as Capital Gain, otherwise if treated as Capital gain then the Loss will not be setoff with Business Income.

1) Loss on Shares should not be speculative in Nature..I mean loss should be on the delivery based transactions & not on Intra - Day Transactions otherwise Speculative Loss will not be setoff with Non Specuative Business.

1 Like

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 16 March 2010

Dear Naresh Bhai, investment in share market is treated as speculative business only if transaction is done without delivery...e.g.. in derivatives.....in the given case it is not clearly mentioned that investment is done in derivatives or not. So, if investment is done in derivatives then, what Naresh is saying is right.

But if shares are purchased for cash with delivery then, it if purchased as an investment it falls under capital gains otherwiese can be shown under PGBP. As per section 71(3) the losses under head capital cannot be setoff against any other head but if taken under PGBP it can be setoff against Iron business profits.

(CMA-Final) (acc) (426 Points)
Replied 16 March 2010

Ya bro i m agree with!!!!!!!!!!!!!!!!!!!!!!!!

There is no information about shares with delivery or without

without delivery means speculation so loss set off against such income and transfer to 4 a.y.

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 16 March 2010

Originally posted by : Amir
	Dear Sakshi, Ur case falls in Sec 70, set off loss with in same head from different source.. So Loss from Share Transactions will be setoff with the Profit from Iron Business. No Doubt about it. Tax is to be payable only on the balance amount of Profit after setting off Loss... Following is required 1) Treat Share Transactions as Business/Profession & not as Capital Gain, otherwise if treated as Capital gain then the Loss will not be setoff with Business Income. 1) Loss on Shares should not be speculative in Nature..I mean loss should be on the delivery based transactions & not on Intra - Day Transactions otherwise Speculative Loss will not be setoff with Non Specuative Business.

Dear Mr Amir,

These buying and selling of shares should be recorded in Accounts books of Iron Business ? Kindly clarify else it can be kept seperate by not bringing the same in iron business books

Amir (Learner) (4016 Points)
Replied 16 March 2010

Dear Sivaram,

It can be kept separate since Assesee is an Individual..No need to include in the Books..

However had it been the case of Company, Firm, etc then Transactions will be recorded in the Books(from accounting point) but no compulsion from Income Tax Act.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 16 March 2010

Thanks Mr Amir for the reply

Prasanth Nair V (ACA,ACS,CWA Final,Mcom) (557 Points)
Replied 16 March 2010

hi..Sakshi,

1.Profit from a business is profit for IT Act,even if it is invested, subject to certain deductions. The profit made will be taxable as Business Income.

2.The Capital loss can be set off against Capital Income only, but now even it is not possible as the Assessee had not filed his Return of income.Sec 139(1)of the Act.

AND ALSO FILE THE RETURN BEFORE 31ST OF MARCH 2010, OTHERWISE UR RETURN WILL BE TREATED AS INVALID...

Max Payne (employed) (2574 Points)
Replied 16 March 2010

Ahem... Rajat Sir,

Trading in derivatives is also not a speculative business anymore...

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Sachin Agarwal (CA) (23 Points)
Replied 16 March 2010

Business of Individual is of Iron Trading not share trading. Hence it is obvious that he has invested in shares as investment and profit or loss on sale of investment is Capital Gain not business loss. And further if U say that No it is trading loss than it will be treated as speculative loss and cant b set off against other business profit other than speculative business profit

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 16 March 2010

Thanks G.K. bhai for correcting me.......

Lalit Talesra (B.Sc.) (Student CA & CS Final ) (29 Points)
Replied 16 March 2010

Dear Sakshi ,

Its my pleasure to add something in your solutions :-

please bear in mind following points.

1. Mr. Rajat reply is very close to your problem but following the same you shall have to prove befor assessing officer, if required whether loss arised from invesment in share business. The criteria adopted by the department for distinquishing capital investment from Business Investment are generally following two :

(a) Volume of Transactions - if volume of Share transaction high or in number of per day then can be regarded as buisness otherwise as Investment and resulting pofit would be treated accordingly.

(b) Surplus of Capital - Investment is made out of surplus capital not from borrowed capital

2. You have not mentioned types of Share transactions, whether it is delivery based or interaday

- in case of delivery based transactions, volume of transaction criteria will apply to determine capital loss or business loss and accordingly you can make setoff of loss as well as prove before assessing officers.

- in case of Interaday share transactions : It is always treated speculative transactions. and no setoff can be claimed against income from non-speculative business Income.

So if number of transactions are volumenous and delivery based then you can setoff otherwise no.

I would appreciate to addition or rectification in my opinion, if any.

Regards

Lalit Talesara

( B.Sc. and pursuing CA & CS)

Lalit Talesra (B.Sc.) (Student CA & CS Final ) (29 Points)
Replied 16 March 2010

Dear Sakshi ,

Its my pleasure to add something in your solutions :-

please bear in mind following points.

(a) Volume of Transactions - if volume of Share transaction high or in number of per day then can be regarded as buisness otherwise as Investment and resulting pofit would be treated accordingly.

(b) Surplus of Capital - Investment is made out of surplus capital not from borrowed capital

2. You have not mentioned types of Share transactions, whether it is delivery based or interaday

- in case of Interaday share transactions : It is always treated speculative transactions. and no setoff can be claimed against income from non-speculative business Income.

So if number of transactions are volumenous and delivery based then you can setoff otherwise no.

I would appreciate to addition or rectification in my opinion, if any.

Regards

Lalit Talesara

( B.Sc. and pursuing CA & CS)