THE TURNOVER OR GROSS RECEIPTS IN RESPECT OF TRANSACTION IN SHARES,
SECURITIES AND DERIVATIVES MAY BE DETERMINED IN THE FOLLOWING MANNER.
(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 scripts. 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 doing speculative transactions there can be both positive and
negative difference 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 amount 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 transaction for
determining the liability to audit vide section 44 AB.
(b) Derivatives, futures and options: Such transactions are
completed without the delivery of shares or securities. These are also
squared up by payment of differences. The contract notes are issued for
the full value of the asset purchased or sole but entries in the books
of account are made only for the differences. The transactions may be
squared up any time on or before the striking date. The buyer of the
option pays the premia. The turnover in such types of transactions is to
be determined as follows:
- The total of favourable and unfavourable differences shall be
taken as turnover.
- Premium received on sale of options is also to be included in
turnover.
- In respect of any reverse trades entered, the difference thereon,
should also from part of the turnover.
(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
sale is to be considered as turnover.
Further, an issue may arise whether such transactions of purchase or
sale of stocks and shares undertaken by the assessee are in the curse of
business or as investment. The answer to this issue will depend on the
facts and circumstances of each case taking into consideration the
nature of the transaction, frequency and volume of transactions etc. For
this attention is invited to the following judgments where this issue
has been considered.
- CIT v P.K.N. and Co., Ltd (1966) 60 ITR 65 (SC)
- Saroj Kumar Mazumdar v CIT (1959) 37 ITR 242 (SC)
- CIT v Sutlej Cotton Mills supply Agency (1975) 100 ITR 706 (SC)
- G Venkataswamy Naidu(1959) 35 ITR 591 (SC)
In case such transactions are for the purposes of investment and
income / loss arising therefrom is to be computed under the head
'Capital Gains, then the value of such transaction is not be included in
sales or turnover for deciding the applicability of audit under section
44 AB. However, in case such transactions are in the course of business,
then the total of such sales are to be included in the sale, turnover or
gross receipts as the case may be of the assessee for determining the
applicability of audit under section 44 AB.
