A matter not yet settled. One can go through the AAR's Judgement in Morgan Stanley case to read the arguments both in favour of and against Derivatives Instruments Trading Gains being taxed as capital gain . Ofcourse, IT deptt. would like to tax all F&O transactions as Business Income but I have a difference of opinion (I am yet thinking about how to bring covered call income under capital gain taxation.). Let's see when the courts give a clear-cut verdict. Till then, it'll be a contentious matter.
Best Regards,
--Ashish