2012 (6) TMI 182 - AT - Income Tax

Setting off the claim of brought forward speculation loss against the speculative income - AO rejected the claim of assessee on the ground that such a claim was not made in the return of income Held that - AO has not assigned any reason for not granting the set off of income against brought forward losses - simply observing that assessee has not made this claim in the original return filed by him cannot disallow setoff as this income was duly declared by him but under a different head in favour of assessee. Short term capital gain disclosed by the assessee relates to those transactions where assessee has taken delivery of the shares submitting all the details before the AO and if the revenue wants to tax these amounts carried on sale of shares during this year and shown as short term capital, as business income then revenue has to allow the deduction in respect of STT paid by the assessee

Issues: Appeal against setting off speculative loss, Treatment of short term capital gain as business income, Set off of brought forward losses, Deduction of STT paid, Section 80E deduction

1. Appeal against Setting off Speculative Loss:
The appeal before the tribunal was against the order of the Ld. CIT(A) allowing the setting off of the claim of the assessee regarding brought forward speculation loss against speculative income for the assessment year 2006-07. The AO had questioned the treatment of short term capital gain as business income due to numerous transactions by the assessee. The assessee claimed speculation income earned through future options, deserving treatment as speculative income. The Ld. CIT(A) observed that the assessee had brought forward speculation losses and changed the head of income from short term capital gain to speculative income, allowing the set off. The tribunal found no error in the Ld. CIT(A)'s order, noting the lack of reasoning by the AO for not granting the set off initially claimed by the assessee. The tribunal upheld the decision to grant the set off of brought forward losses against the speculative income determined by the AO.

2. Treatment of Short Term Capital Gain as Business Income:
The assessee disclosed short term capital gain, which the AO questioned as potentially being business income due to the nature of transactions. The assessee clarified that the gain related to transactions where delivery of shares was taken and provided details to the AO, including interest payments. The assessee argued that if the revenue intended to tax these gains as business income, deductions for Security Transaction Tax (STT) should be allowed. The assessee highlighted a potential refund under section 80E due to STT paid. The tribunal noted that the revenue did not press the second ground of appeal after verification, finding no merit in the revenue's appeal and dismissing it.

3. Set off of Brought Forward Losses:
The tribunal addressed the issue of setting off brought forward speculation losses against speculative income. The Ld. CIT(A) allowed the set off after re-evaluating the case and determining the true income by granting the set off of income against brought forward losses. The tribunal agreed with the Ld. CIT(A)'s decision, emphasizing the logical computation of income by giving the benefit of brought forward losses. The tribunal upheld the decision to assess only a portion of the income as speculative income after the set off.

4. Deduction of STT Paid:
The assessee argued for the deduction of Security Transaction Tax (STT) paid in relation to short term capital gain treated as business income. The tribunal considered the deduction under section 80E, which would result in a tax refund for the assessee. The revenue did not press this ground of appeal after verification, leading the tribunal to dismiss the revenue's appeal due to the lack of merit.

In conclusion, the tribunal upheld the Ld. CIT(A)'s decision to allow the set off of brought forward speculation losses against speculative income and dismissed the revenue's appeal regarding the treatment of short term capital gain as business income, highlighting the importance of logical income computation and benefitting from deductions like STT under relevant tax provisions.

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