What is Speculation Buisness

CA Hemant T Dewani (Chartered Accountant) (3356 Points)
Replied 04 August 2008

What Is The Basis For Determining Turnover In Case Of Speculation?

If a person is engaged in share trading and turnover of delivery based buying & selling is less than 40 lacs but speculation business in share trading where intra-day sale purchase is effected but delivery is not taken exceeds 40 lacs, is tax audit applicable ?

This issue was subject to controversial interpretation by assessee and income tax department.The issue had come up in case of Babulal Enterprise vs ACIT before Mumbai bench of ITAT [1999-2000] wherein it was held that where the actual delivery was not taken and difference in price was settled on the basis of contract note,the turn over can not include those transactions. Another decision of Mumbai Tribunal expressing similar views was in case of Growmore Exports Ltd vs ACIT [78 ITD 95] . Therefore , if you are involved in Day Trading, i.e you are squaring off of the share deal same day, the contract value is not taken for the purpose of turnover, but the differential shall be taken for the purpose of turnover.

Remember , however since the F & O trades have been declared as business trade and not speculative , the department shall read the law literally.So, in case of Future & option trade , get your accounts audited u/s 44AB of the I T Act.

Therefore, if you are only doing day tarding ,and intra day sale exceeds Rs 40 lac contract note vale of share sale , you will not fall for tax audit u/s 44AB of the I T Act

Vineet Jain (Partner) (242 Points)
Replied 04 August 2008

Speculation Business Bole toh........ Business which depends upon the happening or non happening of an event.... or u can say it is based on probability......

Loss in Speculation Business can sett off agnst the income of the same......aur carry fwd ka period yaad nahi hai dost..... but i think its 4 yrs...

I think this will give u a vague idea of it....

Regards ,

Shailender Singh ("§ịŋğĤ ĭś Қïиפ")

Sneha R. Gujrathi (Chartered Accountant) (97 Points)
Replied 04 August 2008

When trading i.e. buying or selling of securities is done without actual delivery of the shares & securities it is called as speculation business.

The profits & gains from speculation business should be treated separately. The speculation loss can be adjusted against the speculation profit only and vise versa. Further the speculation loss can be carried forward for set off against the speculation profit only in subsequent 4 assessment years.

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CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 04 August 2008

When trading i.e. buying or selling of securities is done without actual delivery of the shares & securities it is called as speculation business.

The profits & gains from speculation business should be treated separately. The speculation loss can be adjusted against the speculation profit only and vise versa. Further the speculation loss can be carried forward for set off against the speculation profit only in subsequent 4 assessment years

Rahul Hatwal (Artical Assistant) (22 Points)
Replied 21 June 2009

SPECULATION LOSS MEANS THAT LOSS WHICH CAN BE SET-OFF ONLY AGAINST PROFITS OF ANY OTHER SPECULATION BUSINESS & NOT AGAINST ANY OTHER BUSINESS OR PROFESSIONAL INCOME. HOWEVER,LOSSES FROM OTHER BUSINESS CAN BE ADJUSTED AGAINST PROFITS FROM SPECULATION BUSINESS. THANKS, HOPEFULLY YOU WILL GET THE MEAINING OF................