Motive is key for business

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QI have purchased shares of some companies. I plan to sell these shares after holding them for more than a year. If I make a profit, will the profit be a taxable income? If I make a loss will the loss be a dead loss or can I carry forward it? KISHORE KUMAR

Via email

A) The profit arising to an assessee from the transaction of sale and purchase of shares and securities, can be treated either as business income or capital gains.

The profit would be treated as business income if shares constitute a trading asset and the assessee is a trader of shares and securities. However, the profit would be taxable under the head “Capital Gains”, if the shares and securities are held as an investment i. e., a capital asset.

The original purpose or intention is crucial. If the original intention was to hold the shares as investment, the gains resulting from the sale of such shares will be capital gains. On the other hand, if the original intention was to carry on the activities of purchase and sale as a systematic activity and hold the shares as stock- in- trade, the gains resulting from the sale of such shares will be assessable as business income.

In case, the purchase and sale of the shares and securities is undertaken with a motive of earning profit out of the transaction, then the same would result in a trading transaction and will give rise to business income whereas if the motive of investment in the shares and securities is to earn income by way of dividend or interest, as the case may be, then the profit arising from the transaction of sale and purchase of such shares and securities will give rise to capital gain.

The magnitude of purchase and sale, the ratio between the purchase and sale of the shares and securities and holding period of the same can be considered for determining the motive.

Therefore, if the shares are purchased with an intention to hold, the shares as investment, the sale of the same after holding it for 12 months will result in long- term capital gains which is exempt from tax. Similarly, any loss on such transactions cannot be carried forward for set off in subsequent years.

QI am a salaried person and my wife is housewife. I am paying tuition fees for her post- graduation in India. Can I claim income tax deduction on tuition fees paid under section 80C. MAHESH SHARMA

Via Mail

A) Any payment made by an individual as tuition fees whether at the time of admission or thereafter, to any university, college, school or other educational institution situated in India for the purpose of full- time education of any two children of such individual can be claimed as a deduction under Section 80C. So the fee paid for wife’s education is not eligible for tax deduction.

The writer is a chartered accountant. You can your send queries to info@ rathiandmalani. com