Income arising on forward exchange contracts by an assessee engaged in the business of import and export must be treated as “Business income” and not “Speculation income”:

Assessee was engaged in the business of import and export of diamonds. He entered into forward exchange contract in respect of import and export transactions in order to protect its interest against the fluctuation in the rate of foreign exchange currency. On cancellation of such contracts, assessee was entitled to either profit or loss depending upon the rated contracted and the rates prevailing at the time of cancellation. During the year under consideration, the assessee earned income on such forward contracts on account of fluctuations in foreign exchange. AO held that such income was “Speculative income” in light of the provisions of S.43(5). On appeal, the Hon’ble ITAT held that profit arising on cancellation of such forward contracts is an integral part of such business and provisions of S.43(5) shall not apply in such cases. Hence, the said income should be treated as “Business income” and not “Speculation income”.

[M/S. VEER GEMS Vs. ACIT – ITA NO.2478/Ahd/2009]