income calculation for share broker

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Kamal

Kamal (Querist)
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11 November 2009 Wether share broker can claim bad debts as expenses in his income while computing taxable incom ?

M Prabhakar Menon

M Prabhakar Menon (Expert)
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11 November 2009 Yes he can. For tax purposes it is better to build up back up papers to convince the AO on the genuiness of the claim.

Kamal

Kamal (Querist)
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11 November 2009 yes and there is a case law relating to this is below
CIT vs. Bonanza Portfolio (Delhi High Court)
The assessee, a share broker, purchased shares on behalf of its client and paid for them. The brokerage on the said transaction was offered to tax. As the client did not pay for the shares, the assessee wrote off the amount due and claimed the same as a bad debt u/s 36 (1) (vii). The AO rejected the claim on the ground that as the said â€œdebtâ€ had not â€œbeen taken into account in computing the incomeâ€, the conditions of s. 36 (2) (i) were not satisfied. This was confirmed by the CIT (A). On appeal, the Tribunal upheld the claim on the ground that s. 36 (2) (i) required â€œsuch debt or part thereofâ€ to be taken into account in computing the income and as the brokerage had been offered to tax, s. 36 (2) (i) was satisfied. On appeal by the Revenue, HELD dismissing the appeal:
(i) The assessee being a broker, the fact that it paid for the shares did not make it an â€œinvestmentâ€ for the assessee. The transaction was one of brokerage on purchase / sale on behalf of the client;
(ii) The money receivable from the client for the said shares was a â€œdebtâ€ and since it became bad, it was rightly treated as a â€œbad debtâ€;
(iii) Since the brokerage payable by the client was a part of the debt and that debt had been taken into account in computing the income, the conditions of s. 36 (2) (i) read with s. 36 (1) (viii) were satisfied and the entire bad debt was allowable as a deduction.

Note: See also CIT vs. DB (India) Securities (Delhi High Court) where the same view was taken.

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