Section 88E – STT paid on speculation loss has to be considered if after setting off the speculation loss against speculation gain there is positive income which has been included in the computation of total income.

The assessee was trading in shares and stocks and
also derived dividend income, interest income and rent which were
assessed under the head Income from Other Sources. While assessing the
total income, the Assessing Officer (AO) noticed that the loss in
respect of speculative transaction, though assessed, was carried forward
and did not form part of total income. He asked the assessee to show
cause why proportionate STT of Rs.1,79,722 should not be treated as STT
relating to speculative transactions and therefore, why this amount
should not be reduced from the total STT paid. The assessee filed a
detailed reply where it contended that when speculation income is taxed
there is no reason its claim should not be allowed when there is a
speculation loss. It was also contended that there is no provision for
bifurcating STT paid on each type of transaction. The AO rejected the
contentions of the assessee and disallowed the proportionate claim of
STT of Rs.1,79,722. Aggrieved, the assessee preferred an appeal to the
CIT(A) who confirmed the action of the AO. Aggrieved, by the order
passed by CIT(A), the assessee preferred an appeal to the Tribunal.

Held

A
perusal of the section 88E shows that the total income of the assessee
should include income chargeable under the head `profits and gains of
business or profession’ which arises from taxable securities
transactions. If this condition is fulfilled, then the assessee is
entitled to a deduction from the amount of income-tax on such income of
an amount equal to STT paid by him. Since the speculation loss is set
off against the speculation gain and thereafter if any positive income
remains that positive income is taken in the computation of total
income. Even the STT paid on speculation loss has to be considered while
giving effect to it. The Tribunal restored the issue to the file of the
AO with a direction to examine whether there is any positive income
remaining after giving set off to the speculation loss. The AO was
directed to allow the claim if positive income is found under this head
after giving reasonable and sufficient opportunity of being heard to the
assessee. The appeal filed by the assessee was allowed for statistical
purposes.