Explanation to section 73 will also be not applicable to a company the principal business of which is the business of trading in shares [Explanation to section 73] [W.e.f. A.Y. 2015-16]
The existing provisions of section 73 provide that losses incurred in respect of a speculation business cannot
be set off or carried forward and set off except against the profits of any other speculation business.
Explanation to section 73 provides that in case of a company deriving its income mainly under the head
"Profits and gains of business or profession" (other than a company whose principal business is business of
banking or granting of loans and advances), and where any part of its business consists of purchase or sale
of shares, such business shall be deemed to be speculation business for the purpose of this section. Section
43(5) defines the term speculative transaction as a transaction in which a contract for purchase or sale of
any commodity, including stocks and shares, is settled otherwise than by way of actual delivery. However,
the proviso to the said section exempts, inter alia, transaction in respect of trading in derivatives on a
recognised stock exchange from its ambit.
The Act has amended the aforesaid Explanation so as to provide that the provision of the Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares.
Authors note: Prior to assessment year 2015-16, in case of a company such income was treated as speculative income. Therefore, if there is a carry forward of speculation loss relating to such transactions, it may not be possible to set off such loss in the subsequent year from the income of such transactions as it will now be treated as business income.BACK