Section 73 — Losses in Speculation Business

Section 73 of the Income-tax Act, 1961 deals with the treatment of losses incurred in a speculation business. This section is significant as it restricts the set-off and carry forward of such losses. Specifically, losses from speculation business can only be set off against profits from another speculation business and cannot be set off against income from any other source. Furthermore, these losses can be carried forward for a maximum of four assessment years immediately succeeding the assessment year in which the loss was first computed. The burden of proof lies on the taxpayer to establish that the loss pertains to a speculation business. This section is crucial for taxpayers engaged in speculative transactions, such as trading in stocks and shares, as it impacts their tax liability and financial planning.

Common Litigation Flashpoints

1. Classification of business as speculation or non-speculation
2. Set-off of speculation losses against non-speculation income
3. Carry forward of speculation losses beyond the permissible period
4. Burden of proof regarding the nature of transactions

Judgments on Section 73 — Losses in Speculation Business

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Apollo Tyres Ltd vs Commissioner of Income Tax — SC,
  The Assessing Officer cannot go behind the net profit shown in the profit and loss account certified under the Companies Act for the purpose of Section 115-J.