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T. Banusekar

I AM engaged in the buying and selling of shares on the same day. You have earlier clarified through this column that such buying and selling is to be treated as a speculative business.

Will such profit from a speculative business be taxed at the normal rates applicable to an individual or will there be special rates of tax applicable to an individual on such profits?

Under which head of income is such speculative income to be taxed? Will the head of income under which the speculative income is to be taxed, remain the same whether or not the assessee carries on any other business or profession?

Is it required that all the conformation sheets periodically given by the stockbroker be filed along with the return of income by the assessee or will it be sufficient if only the summary of these transactions is reflected in a profit and loss account and such profit and loss account filed along with the return of income?

If the turnover from such business exceeds Rs 40 lakh is the required that the books of account be audited under Section 44AB of the Income-Tax Act 1961? What is a turnover in the case of a person who is engaged in the buying and selling of shares on the same day without taking delivery?

Rajasekhar Reddy

Reply

Profit or loss from a speculative business will be taxable as income under the head profits and gains of business or profession. Tax will be charged on such income at the normal rates applicable to an individual. Such income will be charged under the head profits and gains of business or profession whether or not the assessee is carrying on any other business or profession. The reader only needs to file along with the return of income the profit and loss account, which will be a summary of the transactions made by the reader in the previous year. The reader would not be required to furnish the statements given by the broker along with the return of income.

Since this is a business income which is chargeable under the head profits and gains of business or profession an audit will be required under Section 44AB of the Income-Tax Act, 1961 if the turnover exceeds Rs 40 lakh. Turnover for this purpose should be taken as the sale value of the transactions.

A similar view has been expressed by the publication of the Institute of Chartered Accountants of India in its second revised edition of the book Issues on Tax Audit.

It may also be noted that a speculation loss cannot be set off against any other business income or against income from any other head but can be set off only against speculation income in the same year. The balance of loss if any can be carried forward and set off only against speculation income within a period of eight assessment years immediately succeeding the assessment year in which the loss was first computed.

Query

Ours is a public charitable trust registered under Sections 12A and 80G of the Income-Tax Act, 1961. The trust is dedicated to promoting music and other allied forms of art. The trust publishes books and cassettes and out of the sale of these books and cassettes has a turnover exceeding Rs 40 lakh. A single income and expenditure account is prepared which reflects the sale of such publications etc. and also donations received.

The surplus after claiming expenditure is reflected in the income and expenditure account. Capital expenditure incurred on construction of building and so on is, however, shown as application of funds. Is the trust required to get its books of account audited under Section 44AB of the Income-Tax Act over and above the audit under Section 12A?

H. R. Seshadri

Reply

An audit under Section 44AB is required in case of every person, carrying on business if his total sales, turnover or gross receipts as the case may be in business exceeds Rs 40 lakh in any previous year or carrying on profession and if his gross receipts from profession exceeds Rs 10 lakh in any previous year or carrying on a business and who reports a profit lesser than what is deemed as the profits and gains of such person under Sections 44AD, 44AE, 44AF, 44BB and 44BBB. In the reader's case, the question for consideration is whether the sale of books, cassettes and so on, is in the nature of a business activity.

The same will be in the nature of a business activity and an audit under Section 44AB of the accounts would be required if the turnover therefrom exceeds Rs 40 lakh.

It may be noted that a similar view has been taken by the publication of the Institute of Chartered Accountants of India in its second revised edition of the book Issues on Tax Audit.

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