Turnover calculation in intraday for income tax

Dear Gopalan Sir

First of all, I have made a big mistake while expalining the treatment of intarday sales in Point 4 in the last part of my answer wherein I WRONGLY stated that-

"the turnover is "net" of all positive and negative incomes from various transactions."

Actually the term should be "aggregate" instead of "net" and it is my mistake. However, Shri. CA. Ajit Mundada Sir has prompty clarified my mistake in a subsequent post. In order to clarify the same on my part I am editing my old answer to make it right and I can only wish that nobody acted upon it. My sincere appologies for the wrong opinion.

Now, to come to your query, in case of speculative transaction, you need consider the transaction value for the purpose of detmermining your "turnover". Instead you have to take the AGGREGATE all the positive and negative differences from each of your 30 odd transactions and if this aggregate exceeds Rs.1 Crore, then only you need to have your books audited u/s 44AB.

For Eg., suppose from first sale, you made a PROFIT of Rs.50,10,000 and in the second transaction you made a LOSS of Rs.50,00,000. In this case, though your "net" result is a profit of Rs.10,000, for the purpose of determining "turnover" u/s Sec.44AB, you have to "aggregate the postive and negative diffreneces", that is ignore the negative sign, and thus, your turnover will be Rs.1,00,10,000 which is above Rs.1 Crore and thus, the situtaion mandates a tax audit u/s 44AB.

Regards

Ajay

Originally posted by : Ajay
	Dear Piyashamit The broad legal postions are as follows: Dealing in shares can result either in "Business income" (chargeable as Profits & Gains of Business or Profession chargeable under section 28 of the Income Tax Act,1961) or "Capital Gains" (chargeale uder Sec.45 of the Act). Thus, dealings in shares could either be in the course of business - chargeable as Business Income, OR for the purpose of investment - chargeable as Capital Gains. Classification into Business Income and Capital Gains depends on facts & circumstances of each case. However, as a very broad guideline, as held in many cases, it can be said that - oridnariliy, the purchase and sale of shares with the motive of earning a profit, would result in transaction being in the nature of trade, but where the object of investment in shares of a company is to derive income by way of dividend etc., then the profit accruing by sale of shares will yield capital gains and not revenue gains(business income). If such dealings in the shares are in the course of business, you may note the definition of "Speculative Transaction" as defined under Sec.43(5) of the Act - "A 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." Note that the definition of specultaive losses is relavent for the operation of Sec.73 of the Act which deals with "Losses in Speculation Business". In case of Specultive losses, it can be set off in the current year only against gains from any other speculative business and also, if carried forward, it can be set off in the subsequent year only against gains from another speculative business. Also, Speculative losses can be carried forward only for 4 years unlike other business losses which may be so carried forwarded for 8 years. Now, your attention may be directed to the Para 5 of"Guidance Note on Tax Audit under Section 44AB of the Income Tax Act,1961" issued by The Institure of Chartered Accountants of India (ICAI), which provides the guidelines regarding "Turnover or Gross Receipts in respect of transactions in shares.." as follows: (a) Speculative transaction: A 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. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be positive or negative. As such, in such transaction the difference amount is 'turnover'. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit vide section 44AB. (c) Delivery based transactions: Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sales is to be considered as turnover. Above being the legal postions/guidelines relevant in your case, As a first step, you have to place whether your transactions are Business Transactions or Investments. Though, it purely depends on facts of your case, assuming you do the intra-day trading on a regular basis, we can say your income may be taxable as Business Income rather than Capital Gains (Investment). Next question is whether your business income is "Speculative Income" or "Non-Specultaive Business Income". By definition under Sec.43(5), we may have to say that it is "Specultive Income". Now if it is speculative income, the turover as per the relevant Guidance Note of ICAI, the "turnover" is "Net" of all postive and negative incomes from various transaction and NOT total of all Sales transaction. So, if your "net income" exceed Rs.1 Crore, you are liable to tax audit. Futher, in case you have loses,it can be set off only against other specutive losses and not against any other income. Further, it can be carried forward only for 4 years being Specultive Income and also, such carried forwarded losses can be set off only against other specutive losses and not against any other income. Refer https://www.capitalmarket.com/CMEdit/story11-37.asp?SNo=314481 Thus, I feel you have to disclose both your "Salary income" and "Business Income' separately in your return. KINDLY NOTE that the above are based on whta I have learned from various sources. So after reading the above you must consult or re-consult a praticing CA dealing in such cases and I believe you will be in a better position to understand the situation. Also, kindly anyone correct me if I am wrong/need updation. Regards Ajay

In the above, I have WRONGLY mentioned in point 4 in the last part (highlighted above) as- "the turnover is "net" of all positive and negative incomes from various transactions." Actually the term should be "aggregate" instead of "net" and it is my mistake. However, Shri. CA. Ajit Mundada Sir has prompty clarified my mistake in a subsequent post. In order to clarify the same on my part I am editing my old answer to make it right and I can only wish that nobody acted upon it.

My sincere appologies for the wrong opinion.

Regards

Ajay