Derivative trading income of FIIs taxable as capital gains, and not as ‘speculative’ income

In a recent ruling, in the case of  LG Asian Plus Ltd. Vs. Asst. Director of Income-tax the Mumbai Income-tax Appellate Tribunal has held that income earned by a Foreign Institutional Investor from derivative trading would be taxable as `capital gains’ in view of special provisions under section 115AD of the Income-tax Act, 1961. The Tribunal also held that under the Act, income could be treated as ‘speculative’ only if it was taxable as ‘business income’. The Tribunal accordingly ruled that FII income would not be treated as ‘speculative business income’. While ruling in favor of the assessee, the Tribunal held that loss incurred from derivative transactions would not be treated as ‘speculation loss’ but would be treated as capital loss, and hence, it could be adjusted against capital gains earned by the assessee.

IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH “A”,MUMBAI
BEFORE SHRI R.S. SYAL (AM) & SHRI VI~AY PAL RAO (~M)

I.T.A. No. 2645/Mum/2008
(A.Y. 2004- 05))

M/s. LG Asian Plus Ltd., C/o. S.R. Batliboi & Co., 18th floor, Express Towers, Nariman Point, Mumbai-400 021. PAN: AAACL8243K

Vs.

Asst.Director of Income-tax (International Taxation)-3(2), 1st floor, Scindia House, Ballard Pier, Mumbai-400 038.

I.T.A.No.2691/ Mum/2008
(A.Y. 2004-05)

Asst.Director of Income-tax (International Taxation)-4(1),  133, Scindia House, Ballard Pier, Mumbai-400 038.

Vs.

M/s. LG Asian Plus Ltd., C/o. S.R. Batliboi & Co., 18th floor, Express Towers, Nariman Point, Mumbai-400 021. PAN: AAACL8243K