Moreover, policymakers could view the rulings as a yardstick for amending *Section
73 of the Income Tax Act. UBS Securities and BLK Securities have secured rulings in their favour.
According to Section 73 of the I-T Act, a company is said to indulge in
speculative behaviour to the extent that it purchases and sells
shares of other companies. Therefore, losses arising from such transactions are
treated as speculative losses.
However, broking houses have occasionally suffered losses on account of
dealing errors involving the punching of wrong quantity, price and
instructions ('buy' instead of 'sell' and vice-versa) into the trading
terminal.
If a trading error is confirmed at the end of the day, the broker reverses
the order by taking a hit and claiming it as business loss for tax purposes.
Broking firms have been demanding that since the transactions are
done on behalf of clients, the losses arising from dealing errors should be
treated as business losses. But the I-T department treats these as speculative losses under section 73 and disallows them to be set off against
other business income.
"*Since the transactions are not undertaken on behalf of share broking firms
themselves, section 73 of the I-T Act is not
applicable and such losses should be considered as business expenses,".*
"For tax purposes, a speculative loss can be squared off against a
speculative gain and a trading business loss can be adjusted against trading
business gains. A trading business loss can be carried forward for eight
years, while a speculative business loss only has a 4-year window. Hence, it
is better for the broking firm to term losses in dealing errors as trading
losses,"