I think your original query—-the determination of quantum of STT to be claimed as rebate u/s 88E—-has been addressed. We've strayed into Section 145A, Section 40a(ib), the accounting treatment of STT and the allocation of expenses between speculative and non-speculative gains. But never mind! I understand that impact of STT on profits gets neutralized to the extent of securities held at the end of the year and included in stocks. But still the point is: we never segregated the STT from the purchases; it was always part of the purchase cost. And hypothetically speaking if all the securities bought during the year had been held at 31st March, the entire STT paid would've formed part of the value of closing stock. The fact that not all securities bought during the year are in stock on 31st March and most of them have been squared up during the year doesn't seem to make a difference to this point. Just as valuing the stocks at market price—which may be below cost--won't make any difference to the fact that we would have included the STT in closing stock if we'd valued the stock at cost. Now if we can legitimately take issue with the STT comprised in the closing stock being disallowed to us u/s 40a(ib), are we then supposed to ascertain and go in for disallowance of the STT attributable only to those purchases that have been squared up during the year, excluding those that are still in stock on 31st March? But Section 40a(ib) simply says STT PAID has to be disallowed without making even a passing reference to Section 145A—-what about the STT included in the closing stock? If we give Section 40a(ib) an overriding status over Section 145A, an assessee may be inflicted with a double disallowance. For instance, I buy shares worth Rs 1 lac paying an STT of Rs 100 on them. Out of these shares those worth Rs 40k are held in stock on 31st March. I value my stock at Rs 40040 in keeping with Section 145A mandate. Out of Rs 100 STT paid on purchases, can I disallow only Rs 60 instead of Rs 100, since I have already inflated my profits with Rs 40? Section 40a(ib) doesn't seem to support this kind of treatment. May be we can't fight against the entire disallowance of Rs 100 considering, as you said, some stocks bought during the year have been sold during the year itself. But I don't see how can the assessee be made to suffer disallowance of STT of Rs 40 in the above example. In my view, the STT to be taken out u/s 40a(ib) ought to be on a sort of Cost-of-Goods- Sold basis.STT paid on Sales is a different ball game altogether. There's no confusion in relation to that. The whole of it will be disallowed. Regarding allocation of expenses between speculative and non-speculative transactions, I think turnover is a valid basis for the allocation.
Thanks,
CA Sanjeev Bedi
--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Dhruv Arora" wrote:>> Dear Sanjeevji> > That was one exaustive reply.> > I do agree that STT becomes profit neutral, but it will be only to the> extent of STT that is included in the Closing Stock as on 31.03.2008.> How about the shares sold during the year? Didn't we include STT in the> purchases when these shares were acquired?> > Further, going by this what accounting treatment do you recommend for STT> paid at the incidence of sale of shares?> > One more issue comes into play, suppose the assessee is also trading on> intra - day basis (speculative) alongwith delivery based trading> (non-speculative) . What will the suitable basis for allocation of various> expenses in regard to speculative and non-speculative transactions? Should> we adopt turn-over as a basis?> > Thanks & Regards> CA Dhruv Arora> Meerut
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