Denial of benefit of set off of the speculation loss and explanation to section 73 of Income Tax Act, 1971

Every year, Income tax return registration and filing of ITR return online or offline is a practice followed both by companies and individuals. An important section of the Income Tax Act, 1961-Secton 73; deals with carrying forward (not more than 4 subsequent assessment years) and setting-off losses from speculation business for companies. This section is very important for companies while preparing their Income tax return registration for a financial year.

Speculation Business: If the business of any company in India comprises of the purchase and sale of shares of other companies, such company shall be termed to be carrying on a speculation business to the tune of the amount of business achieved with the purchase or sale of the shares.

Section 73: Under Section 73, if any part of their business comprises of purchase and sale of shares of other companies, such a company can be termed to be carrying on a speculation business up to the limit to which the business consists of purchase and sale of such shares. All the companies, if not exempted as per provisions below, do purchase and sale-off shares of other companies and profit and loss, arising out of such a purchase or sale of shares; shall be deemed as speculation profit or speculation loss as the case may be.

Any company fulfilling any one of the following two conditions shall be exempted from the purview of this Section. The conditions being:

1. If the gross total income of the company includes income mainly from the following heads namely ‘Interest on Securities’, ‘Income from House Property’, ‘Capital Gains’ and ‘Income from Other sources’.

OR

2. The principal business of the company is the business of banking or granting of loans and advances.

All other companies are liable for filing ITR online or offline as per rules of Income Tax Act, 1961.

Shares can be acquired in the following manners:-

• Purchase of shares from the market: Shares, if Purchased is covered under Section 73 and shall be deemed to be under the definition of speculation business.
• Application for allotment of shares directly: If a Company Applies for shares of other companies and it gets the allotment of shares and sale the allotted shares, it will not come under the purview of explanation to section 73. It is very clear that there is no certainty to get the shares as applied for.

Hence, Purchase and Application, are two entirely different ways of share purchasing and not intermingled each other in any manner whatsoever.

Thus, during preparation and submission of offline or filing online ITR, companies can avail the provisions under section 73 of the Income Tax Act, 1961; for their benefit by forwarding or setting-off losses incurred from a speculation business; for the current assessment year, both for filing online ITR or offline.