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T. Banusekar

I AM a retired person and have invested the amounts received on retirement in a fixed deposit account jointly with my wife. My wife is not employed and does not have any income of her own. I have taken a loan against the fixed deposits and purchased shares in my wife's name. I have earned profit on the buying and selling of shares in my wife's name. Should this gain be treated as my income or that of my wife's?

S. K. Handa

Reply

The gain on the buying and selling of shares will be assessed as income in your hands and will not be assessed in the hands of your wife. This will be so because of the clubbing provisions in Section 64(1) which require that income from an asset transferred for inadequate consideration by one spouse to another is to be clubbed in the hands of the transferor spouse.

I AM engaged in the buying and selling of shares. I take delivery of the shares purchased and also deliver the shares at the time of sale. In such a case, how is the turnover to be reckoned for the purpose of determining whether a tax audit under Section 44AB is to be done? Is it the aggregate amount of sale that has to be taken as the turnover?

V. Viswanathan

Reply

In the instant case, since the purchase and sale of shares are delivery based, the gross sale value has to be taken as the turnover. Therefore, if the gross sale value exceeds Rs 40 lakh, a chartered accountant must conduct a tax audit under Section 44AB. It is understood that you are a regular trader in shares carrying on the business of buying and selling of shares.

Query

I am engaged in buying and selling of shares. I do not take delivery of the shares and these transactions are speculative in nature. What is to be taken as the turnover for the purpose of determining whether a tax audit is required in such cases? Are short-term and long-term capital gains to be taxed under the same head? Is a speculative business also to be taxed under the head capital gains? Can expenditure, such as depreciation on assets such as computer, air-conditioner, furniture and postage, telephone, conveyance, and so on, be claimed against speculative income? Can a business loss be set off against salary income?

K. Gopalakrishna

Reply

In this case, since the transactions in shares are non-delivery based, it is only the net of the sales and purchases that is to be treated as turnover. Tax audit under Section 44AB would be required only if the turnover so computed exceeds Rs 40 lakh. You may refer to the decision of the Mumbai Bench of the Tribunal in the Babu Lal Enterprises vs ACIT (ITA NO.6031/MUM/1996) case as also the ruling in the Royal Cushion Vinyl Products Ltd case.

Both short-term and long-term capital gains are to be taxed under the head `capital gains'. Any profits and gains from a speculative transaction is to be taxed under the head `profits and gains of business or profession'. In case of speculative transaction, all expenditure allowable under Sections 30 to 38 can be claimed since the charge arises under the head `profits and gains of business or profession'.

You can claim expenses, such as postage, conveyance and telephone, incurred by you for carrying on the business. You can also claim depreciation on assets used for the business or profession. You may, however, note that a loss, if any, from a speculation business cannot be set off against income from other sources or other heads. It can only be set off against speculation income and the balance, if any, after such set off, can be carried forward and set off against speculation income within eight assessment years immediately succeeding the assessment year in which the loss was first computed.

In case of business loss not being a speculative loss, it can be set off against income from other sources or other heads. It cannot, however, be set off against income under the head `salaries'. The balance, if any, can be carried forward and set off against business income within eight assessment years immediately succeeding the assessment year in which the loss was first computed. Unabsorbed depreciation can, however, be set off and carried forward and set off without any restriction either in the manner of set off or the timeframe for such set off.

Query

In case of `options' and `futures', is the gain or loss to be treated as speculation loss?

Anonymous

Reply

The gain or loss from dealing in `options' and `futures' will be treated as a speculation loss. This will be so because of the provisions of Section 43(5) of the Act.

Under this section, the buying and selling of goods or commodities, including shares or scrips which are settled otherwise than by actual delivery, will be treated as a speculative transaction.

Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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