2013 (5) TMI 990 - AT - Income Tax

Summary

Issues involved:
The issue in this case is whether the income from derivatives transactions should be treated as "business income" or as "short term capital gain."

Issue 1: Classification of income from derivatives transactions

The appellant contended that the income from derivatives should be taxed as "short term capital gains" based on the nature of the transactions. The Assessing Officer (AO) treated the profit as income from business, stating that the derivatives were non-delivery-based and speculative in nature. The AO relied on the proviso 'd' to section 43(5) of the Act, inserted by the Finance Act 2005, which clarified that trading in derivatives is not speculative. The AO concluded that the profit from trading in derivatives should be considered as business income. The CIT(A) upheld the AO's decision, citing section 43(5)(d) of the Act, which states that non-delivery-based transactions involving derivatives are non-speculative business. The appellant argued that the derivatives transactions did not involve delivery-based transactions and should be treated as capital gains. The Tribunal found that the transactions were eligible transactions as defined under the proviso to section 43(5), and therefore not speculative. As such, the income from derivatives transactions was correctly classified as business income.

Conclusion:
The Tribunal dismissed the appeal, upholding the classification of income from derivatives transactions as business income based on the provisions of section 43(5)(d) of the Income Tax Act.