Turnover/gross receipts – Transactions in shares, securities and derivatives
Turnover Meaning for Share Broker
According to paras 5.13 of the 2014 Guidance Note issued by Institute of Chartered Accountants of India,
Share brokers, on purchasing securities on behalf of their customers, do not get them transferred in their names but deliver them to the customers who get them transferred in their names. The same is true in case of sales also. The share broker holds the delivery merely on behalf of his customer.
The property in goods does not get transferred to the share brokers. Only brokerage which is being accounted for in the books of account of share brokers should be takeninto account for considering the limits for the purpose of section 44AB.
However, in case of transactions entered into by share broker on his personal account, the sale value should also be taken into account for considering the limit for the purpose of section 44AB [ of Income Tax Act ]. The case of a sub-broker is not different from that of a share broker.
Turnover or gross receipt for shares, securities and derivatives
According to paras and 5.14 of the 2014 Guidance Note issued by Institute of Chartered Accountants of India, the turnover or gross receipts in respect of transactions in shares, securities and derivatives should be determined as under :
Speculative transaction: A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be positive or negative. As such, in such transaction the difference amount is ‘turnover’. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. In such transactions though the contract notes are issued for full value of the purchased or sold asset the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit vide section 44AB [ of Income Tax Act ].
[This view of ICAI does not appear to be the correct view – see Growmore Exports Ltd. v. Asstt. CIT ITAT (Mumbai).]
Let us understand it with help of example : – Suppose there is a loss of ABC futures is Rs.30000.00 and profit on BCD futures is Rs.60000.00 then profit will be 30000.00 but turnover in that case will be 90000.00 (30000.00+60000.00).
Derivatives, futures and options: Such transactions are completed without the delivery of shares or securities. These are also squared up by payment of differences. The contract notes are issued for the full
value of the asset purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:
(i) The total of favourable and unfavourable differences shall be taken as turnover.
(ii) Premium received on sale of options is also to be included in turnover.
(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.
Let us understand it with help of example : Suppose ABC 300 Call Option was purchased at Rs. 4*1000 shares lot and has been sold at Rs. 5*1000 shares lot. Turnover will be Rs.5000.00 and profit will be Rs 1000.00 per lot.
Delivery based transactions: Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sales is to be considered as turnover.