Income from profits and gains of business and profession

Transaction in securities or derivatives by FII — Transactions in exchange traded finance derivatives, both index-based and individual share-based, are to be considered as speculative transactions within the meaning of s 43(5) and cannot be treated as normal business or non-speculative transactions, as held by MumTrib in LG Asian Plus Ltd v ADIT — In favour of: The assessee; IT Appeal Nos 2645 and 2691 (Mum) of 2008: (AY 2004–2005).

The income earned by a FII, either by way of retention or by way of transfer of securities (including derivates), falls within the ambit of s 115AD.

The income arising to a FII from the transfer of a “securities” or “derivatives” transaction resulting in a loss is to be considered as a short-term capital loss on the sale of securities, which is eligible for adjustment against short-term capital gains arising from the sale of shares. A loss in options trading on individual shares or index has to be held as a speculative loss.

Decided on: 27 May 2011.