The Hindu Business Line : Capital gain or business income?

Insofar as the buying and selling of shares is concerned, the issue of whether the same should be treated as giving rise to capital gains or business income is one which will have to be determined on the facts and circumstances of the case.

Broadly speaking, the issue of whether such income will be treated as business income or capital gains can be decided based on the period of holding, the frequency of transactions, the motive of the transactions (to be examined on facts), the entries in the books, the infrastructure deployed (such as employees), nature of systems monitoring, the source of funds (whether own or borrowed).

None of these factors in isolation can be taken in determining whether the transactions by way of buying and selling of shares are in the nature of business or in the nature of investment.

The answer to your query will, therefore, have to be examined on the facts of the case.

In so far as trading in futures and options is concerned, the transactions should normally be regarded as being in the nature of business and the gain or loss will have to be offered as income under the head profits and gains of business or profession.

You may note that Section 43(5) has been amended by the Finance Act, 2005 to provide that trading in derivatives referred to in Section 2(aa) of the SCRA, 1956, carried on in a recognised stock exchange will not be treated as a speculative transaction. This benefit will be available only if the transaction is carried on through a registered broker or sub-broker or by banks or mutual funds and where the transaction is carried out electronically on screen-based systems and which is supported by a time stamp contract note that indicates the client identity and the number allotted under the SEBI Act or the SCR Act or the Depositories Act and also gives the Permanent Account Number of the client.

I have taken a housing loan. The loan has been fully disbursed and though the construction has not been completed, I have started paying the EMI. I now live in a rented house in the same city. Will it be possible for me to claim the tax benefit in respect of HRA while also claiming the tax benefit in respect of the interest and principal repayment on the housing loan? Ramakrishna

The exemption under Section 10(13A) is available so long as you are paying rent and you are in receipt of HRA subject to the limits stipulated in the Section. There are no conditions attached in the Section to say that the same would not be available if you already own a residential house. You will, therefore, be eligible for the exemption under Section 10(13A) if you are in receipt of HRA. The fact that you are staying in a rented premises in the same city where you are constructing the house will not in any way affect your eligibility for exemption under Section 10(13A). Insofar as the interest on the housing loan is concerned the tax benefit can be claimed only from the year in which the construction of the house is complete. The principal repayment will, however, qualify for deduction under Section 80C in the year of repayment.

Will payment of fees to UCMAS for the study of my child qualify for deduction under Section 80C? Ravi. H

No deduction can be claimed under Section 80C in respect of the fees paid to UCMAS for your child. Section 80C only allows a deduction in respect of the tuition fee paid to a university, college or school or other educational institution situated in India for full time education of any two children of an individual. Since UCMAS does not provide full time education, the fee paid to it will not qualify for deduction under Section 80C.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)