CA. Tarun Ghia SURAT BRANCH OF WIRC OF ICAI TAX ISSUES IN TRANSACTIONS OF SECURITIES AND RELATED DISALLOWANCES U/S. 14A ON  Speaker :  CA. TARUN GHIA One can join by to :

CA. Tarun Ghia A. CAPITAL GAINS : 1. Charging Section Section 2 (14) : Capital Asset 3. Transfer : Section 2(47) 4. SCRA, 1956 the Law – SEBI the Regulator

CA. Tarun Ghia 5. Investment in the name of minor by guardian 6. Beneficial interest to be disclosed 7. HUF can invest through its Karta 8. Company as a shareholder

CA. Tarun Ghia 9. Co-op. Society as a shareholder 10. Trust as a shareholder 11. Partnership firm as a shareholder 12. Exclusions from transfer Section 47, Family arrangements etc.

CA. Tarun Ghia B. CAPITAL GAINS vs. BUSINESS INCOME : 1. Short Term Capital Gains vis a vis Long Term Capital Gains 2. Business Income vs. Speculation Income 3. Comparative Treatment : Capital Gains vis a vis Business Income

CA. Tarun Ghia 4. Comparative Treatment : Business Income vis a vis Speculation Business Income 5. Comparative Treatment : Long term Capital Gains vis a vis Short Term Capital Gains 6. Circular No of 1989 Draft supplementary instructions on Final supplementary instructions on

CA. Tarun Ghia 7. Relevance of treatment in books of account and financial statements 8. Relevance of Controlling Interest 9. Relevance of Res Judicata 10. Volume and frequency

CA. Tarun Ghia 11. Continues as Investment when no evidence of Conversion 12. Own Funds vs. Borrowed Funds 13. Primary Market Operations 14. Through Portfolio Managers

CA. Tarun Ghia 15. Dealer as well as Investor 16. Stock Broker can also be an Investor 17. Money lending business : shares in lieu of outstanding loan : stock 18. Shares received by inheritance, gifts

CA. Tarun Ghia 19. Marketability 20. Shares in lock in period 21. Shares given as a security for a long term debt 22. Short period sale to save losses 23. Length of period of ownership

CA. Tarun Ghia 24. Purchases held for long term & short term 25. Suggestions for segregation 26. Revision 27. Reassessment 28. Penalty

CA. Tarun Ghia C. SPECULATION : 1. Speculation Business Loss : Implications 73 (1): Speculation loss against speculation profits only C/f only for 4 years 2. Speculation Transaction – Actual Delivery vis a vis Delivery w.r.t. Sale of Goods Act, Transaction unintentionally settled without delivery 4. Delivery by Agent 5. When speculative transactions constitute business, it’s a distinct business

CA. Tarun Ghia 6. A single speculation transaction i. Section 2(13) vis a vis Explanation 2 to Section 28 ii. Speculation transactions have to constitute business : A single speculation transaction Classification u/s. 14

CA. Tarun Ghia 7. Composite Business : Dealing in shares and speculation in shares 8. Purchase Delivery on the date of Sale 9. Company dealing in shares 10. Exclusions to Expln. to Sec 73

CA. Tarun Ghia 11. Gross Total Income : Whether to include or ignore loss in shares Business Loss higher than Other income 12. Share Brokerage income is not from dealing in shares 13. Shares held as Investments 14. Explanation applies to losses as well as profits

CA. Tarun Ghia 15. Explanation for dealing in shares only 16. Loss due to stock valuation 17. Whether loss on sale and purchase of Shares of only Associated Companies covered 18. Any part of the business

CA. Tarun Ghia 19. Dealing in one company’s shares only 20. Tax Audit

CA. Tarun Ghia 1. Futures and Options : Security under SCRA 2. Traded since 2000 on Indian Stock Exchanges 3. Finance Act, 2005 : Not speculation : Subject to Conditions D. DERIVATIVES :

CA. Tarun Ghia 4. CBDT granted recognition to BSE & NSE on Whether derivative transactions were speculative before amendment in clause (d) to proviso to 43(5)? 6. Turnover in Derivatives : 44AB 7. Provision for Loss in open position

CA. Tarun Ghia E. DISALLOWANCES U/S. 14A : 1. CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1(SC) 2. Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 194 Taxman 203 (Bom.) 3. In cases where the expenditure is incurred for the composite/indivisible business/activity earning taxable and non-taxable income

CA. Tarun Ghia 4. Principle of apportionment embedded in section 14A has no application when possible to determine expenditure incurred to earn non taxable income 5. Effect of section 14A is to widen the theory of apportionment of expenditure 6. Implicit notion of apportionment within the section even prior to insertion of sub section(2)

CA. Tarun Ghia 7. Sub-sections (2) and (3) intended to enforce and implement provisions of sub-section (1) 8. Sub sections (2) to provide uniformity of method if AO is, on the basis of the accounts not satisfied with the correctness of the claim 9. Rule 8D prospective from AY

CA. Tarun Ghia 10. Prior to sub section (2) AO to follow a reasonable method of apportionment of expenditure 11. Even if assessee claims non incurrence of any expenditure for earning non taxable income 12. Expenditure directly or indirectly incurred in relation to non taxable income

CA. Tarun Ghia 13. AO to determine as to whether assessee has incurred any expenditure in relation to non taxable income 14. Assessee to produce accounts and all relevant material record 15. Proximate relationship between the expenditure and non taxable income must

CA. Tarun Ghia 16. Factual incurrence of expenditure is a primary condition 17. Interest on borrowed funds used for share trading activity allowable u/s. 36(1)(iii) 18. Utilisation of borrowed funds for purchase of shares as stock in trade which yield dividend

CA. Tarun Ghia 19. Income incidental to earning of taxable income 20. When assessee has interest free funds and borrowed funds 21. Disallowance of administrative expenses 22. “expenditure incurred” refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for in sections 30 to 37

CA. Tarun Ghia 23. Basis : Turnover or volume of transactions, frequency and nature of the transactions/activity 24. Expenditure incurred to earn non taxable dividend and income from MFs not allowable under section 14A 25. Time and energy spent in investment activity 26. Probable steps to counter or remain away from 14A

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