{"id":24458,"date":"2019-09-11T13:01:11","date_gmt":"2019-09-11T07:31:11","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=24458"},"modified":"2019-09-24T12:18:09","modified_gmt":"2019-09-24T06:48:09","slug":"section-73-of-the-income-tax-act-1961%ef%bb%bf","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/section-73-of-the-income-tax-act-1961%ef%bb%bf\/","title":{"rendered":"Section 73 of the Income Tax Act, 1961\ufeff"},"content":{"rendered":"<p>Income\nTax Act, 1961 includes the provisions for taxation of any kind of income earned\nby an individual. Major heads for the categories of income for tax assessing\nare:<\/p>\n\n\n\n<ul><li>Income\nfrom salary<\/li><li>Income\nfrom house <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a><\/li><li>Profit\n&amp; Gains from business or profession<\/li><li>Income\nfrom capital gains<\/li><li>Income\nfrom other sources.<\/li><\/ul>\n\n\n\n<p>Right\nclassification of income under different heads plays a vital role in assessing\nthe tax liability as different methods are used for computation of tax, the\ndeductions claimed. The tax rates are also different depending upon the class\nof income. <\/p>\n\n\n\n<p>One such method for assessing the income also depends upon the nature of the transaction, i.e., whether it is speculative &amp; non-speculative. Section 73 of the <strong>Income Tax Act, 1961<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/The_Income-tax_Act,_1961\">[1]<\/a><\/sup> deals with speculative income, which is discussed henceforth.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Section 73 of the Income Tax Act, 1961<\/strong><\/h2>\n\n\n\n<p>Carry\nforward and set off losses from speculation transactions are dealt with under\nSection 73 of Income Tax Act, 1961. Speculative transactions are the purchase\nor sale of any goods &amp; commodity where the commodity is not transferred or\ndelivered; rather, they are just settled otherwise. <\/p>\n\n\n\n<div class=\"shadow1\"><i>For example, an individual (farmer) agrees to sell rice to another person in two months&rsquo; time at a price of INR.100\/kg. The farmer speculates that the prices of rice will fall after two months as per his observations. Now, after two months, the price of the rice actually falls to INR 80\/kg. The farmer, therefore, makes a profit of INR 20\/kg. This would be his speculative income.<\/i> <\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Exempted Entities Under Section 73<\/strong><\/h2>\n\n\n\n<p><strong>Section 73 of the Income Tax Act, 1961 does not apply to the following:<\/strong><\/p>\n\n\n\n<ul><li>Any\nassesses who is any entity other than a company.<\/li><li>The\ncompanies whose gross total income comes from the following heads:<\/li><li>Interest on securities<\/li><li>Income from house\nproperty<\/li><li>Income from capital\ngains<\/li><li>Income from other\nsources<\/li><li>Principal\nbusiness activity of an entity is:<\/li><li>Granting of loans &amp;\nadvances<\/li><li>The business of banking.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Exempted Transactions Under Section 73<\/strong><\/h2>\n\n\n\n<p>Following\ntransactions are excluded from the definition of speculation transactions:<\/p>\n\n\n\n<ul><li><strong>Hedging Contracts for raw materials<\/strong>: These are the\ncontracts mostly entered into by manufacturers or merchandise to hedge against\nany loss. Such loss may occur if the price at which the contract is entered\ninto between the parties fluctuates in the future on the date of actual\ndelivery. These are the contracts to cover the losses of the price of raw\nmaterials or merchandise at the time of actual delivery.<\/li><li>&nbsp;<strong>Hedging contracts for stock &amp; shares<\/strong>:\nThese are the contract similar to that of above with the only difference of\nbeing shares. Here the contracts are entered into for covering the losses\nagainst price fluctuations in cases of holding of stocks &amp; shares. <\/li><li><strong>Forward Contract<\/strong>: These are the contracts entered into between\nparties in which parties agreed to trade for the commodity at the set price in\nfuture date irrespective of the actual price prevailing during the actual transaction\nin a future date.<\/li><li><strong>Derivative trading<\/strong>: Derivatives are the securities whose value is\nderived from underlying assets such as bonds, stocks, etc. Thus investment is\nmade under derivative trading in equity and currency to get the exposure of\nhigher returns &amp; investments.<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Recommended Article<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/section-201-of-the-income-tax-act1961\/\" target=\"_blank\" rel=\"noopener noreferrer\">Section 201 of the Income Tax Act,1961 &ndash; Interest on Late Payment of TDS&#65279;<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Treatment of loss from Speculative Business\n<\/strong><\/h2>\n\n\n\n<p>As\nper section 73 of the Income Tax Act, 1961 losses from Speculative Business are\ntreated as follows: <\/p>\n\n\n\n<ul><li>Loss\naccruing from the speculation business carried on by assesses can be set off\nonly against the profit of another speculation business. Assesses cannot adjust\nthe loss from speculation business against any other income. <\/li><li>In\nany assessment year, loss from the speculation business is not wholly set off,\nsuch non-set off a loss or in the case where there is no income from any other\nspeculation business such whole loss can be carried forward to the next\nassessment years.<\/li><li>And\nin the next assessment year, it shall be set off against the profit from\nspeculation business occurring during that year and in case of no income in\nthat year also, they are carried forward again for the next assessment year and\nso on.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Carry forward of loss of Speculative\nBusiness<\/strong><\/h2>\n\n\n\n<ul><li>Loss\nfrom the speculative business can be carried forward for up to the next four\nassessment years.<\/li><li>Carried\nforward losses can be set off only against speculation income and no other\nincome. If there is no income in such subsequent year also, they are carried forward\nfor the next year and so on.<\/li><li>Such\nlosses cannot be carried forward by an assesses if he has not filed his Income\nTax Return for the Financial Year within the due date.<\/li><li>There\nis no compulsion to carry on the business in future dates at the time of set\noff.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Contrary View of Section 73 with Case Laws<\/strong><\/h2>\n\n\n\n<ul><li>Section\n73 applies to the companies whose part business consists of purchase &amp; sale\nof shares are included as speculative business. Part means some portion of the\nbusiness, it may include 90% of the business, but the whole 100% is not\nconsidered as a part business. However, in the case of Arvind Investment Ltd.\nThe high court of Calcutta has decided in contrary view that section 73 applies\nin cases where part business as well whole business consists of the activity of\npurchase &amp; sale of shares.&nbsp;&nbsp; <\/li><li>Gross\ntotal income shall be the total of Income, Profit &amp; Loss. Loss is a negative\nincome that should be considered as a part of income decided by the high court\nin the case of Aryasthan Corporation Ltd. <\/li><li>The\npurchase of shares and apply the shares are the entirely two different concepts\nunder section 73. The purchase of the shares is covered under speculative\nbusiness. But if any company applies for the share of another company and\nshares are allotted to such a company who later sale such allotted share\ndoesn&rsquo;t come under section 73. The same has been decided in the case of Ginni\nFinance Pvt Ltd by the &ldquo;C&rdquo; bench of Calcutta ITAT that the loss incurred by the\nassesses by selling the shares of one company whose shares have been acquired\nby the assesses. Such loss doesn&rsquo;t cover under section 73, and it can&rsquo;t be said\nas a loss against the purchase &amp; sale of shares of other companies.&nbsp;&nbsp; <\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Read, Also<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/section-145-of-the-income-tax-act\/\" target=\"_blank\" rel=\"noopener noreferrer\">Section 145 of the Income Tax Act,1961&#65279;<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Income Tax Act, 1961 includes the provisions for taxation of any kind of income earned by an individual. Major heads for the categories of income for tax assessing are: Income from salary Income from house property Profit &amp; Gains from business or profession Income from capital gains Income from other sources. Right classification of income [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":24473,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1473,1],"tags":[2737,2738],"acf":{"service_id":"50"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Section 73 of the Income Tax Act, 1961\ufeff - Enterslice<\/title>\n<meta name=\"description\" content=\"Section 73 of the Income Tax Act 1961 deals with earnings from speculative incomes. 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