For FIIs, Income arising from transfer of security is to be considered as short term capital gain or long term capital gain as per s. 115AD of the Act

Case: Platinum Asset Management Limited Vs DDIT (No 2) (ITAT Mumbai)

 

Facts:  The assessee incurred a loss of Rs. 172.18 Cr on derivative transactions and this loss was claimed as short term capital loss and was set-off against the Short Term Capital Gain.

The AO held that the said loss constituted a business/ speculation loss and could not be set-off against the STCG. The department argued that in the case of CIT vs. Bharat R. Ruia (HUF) 337 ITR 452 (Bom), it was held that as transactions in derivatives are entered into and settled without taking any delivery of the shares, the same constitutes a speculative transaction.

 

HELD in favour of assessee:

The judgement of the Bombay High Court in Bharat Ruia is not applicable to assessee which are FIIs duly registered with SEBI. FIIs are allowed to only invest in the Capital Market and the income arising from transfer of security is to be considered as short term capital gain or long term capital gain as per s. 115AD of the Act. FIIs are not allowed to do business in the security market. Also, derivative is a security as per the clause (ia) to sub-section (h) of section 2 of The Securities Contracts (Regulation) Act, 1956 with effect from 22.2.2000.

 

CA Rahul Jain

rahuljain@rpmd.in