2014 (8) TMI 676 - AT - Income Tax

Assessment of gain on sale of shares Held that - The entry passed in the books of account to convert stock in trade into investments is not substantiated with any document - the examination of the applicability of various tests is not required since the assessee has clearly brought out its intention by classifying the shares as its Stock in Trade - the assessee is a legal person and its intention can be ascertained only through the documents resolutions passed in Board meetings etc. - the assessee has decided to convert the stock in trade into Investments on 1.4.2005 only when it took the decision to sell the shares immediately thereafter and the purpose is very clear i.e. to avail the benefit of exemption and concessional rate of tax - since the assessee has shown the shares as its stock in trade and further it has also declared the gains arising on sale of shares as its business profit only - the assessee has immediately sold the shares after the conversion - CIT(A) was justified in confirming the gains arising on sale of shares as the business income of the assessee by disregarding the claim of Long term Capital gain and Short term Capital gain Decided against Assessee. TDS not deducted before prescribed due date u/s 40(a)(ia) Held that - The assessee has paid the TDS amount before the due date prescribed for filing return of income u/s 139(1) of the Act relying upon COMMISSIONER OF INCOME TAX KOL-XI KOL Versus VIRGIN CREATIONS 2011 (11) TMI 348 - CALCUTTA HIGH COURT - the amendment brought out by the Finance Act 2010 in sec. 40(a)(ia) providing for non-disallowance if the TDS amount is paid before the due date prescribed for filing return of income u/s 139(1) is retrospective in nature - the order of CIT(A) is set aside and the AO is directed to delete the disallowance made u/s 40(a)(ia) of the Act Decided in favour of Assessee.

Summary

Issues:
1. Assessment of gain arising on sale of shares.
2. Exclusion of long term capital gain while computing book profit u/s 115JB.
3. Disallowance u/s 40(a)(ia) of the Act.

Analysis:

1. Assessment of gain arising on sale of shares:
The primary issue in this case revolves around the classification of gain from the sale of shares by the assessee as either business income or capital gains. The assessee had historically treated shares as stock in trade but reclassified them as investments at the beginning of the assessment year. The contention was that this reclassification was genuine, reflecting a change in intention. However, the tax authorities viewed this change as a strategic move to claim tax exemptions and benefits. The tribunal observed that the assessee's sudden conversion of stock in trade to investments, followed by immediate sale of shares, indicated a clear intention to avail tax benefits. The tribunal emphasized that the assessee's consistent treatment of shares as stock in trade in previous years was crucial in determining the true nature of the transaction. The tribunal rejected the argument that the CBDT criteria for assessing transaction nature applied, stating that the assessee's clear intention negated the need for such analysis. Ultimately, the tribunal upheld the assessment of gains from share sales as business income, dismissing the claim for capital gains treatment.

2. Exclusion of long term capital gain for computing book profit u/s 115JB:
The assessee raised an additional ground regarding the exclusion of long term capital gains while computing book profits under section 115JB of the Act. However, since the tribunal upheld the assessment of share sale gains as business income, the additional ground became irrelevant and was dismissed.

3. Disallowance u/s 40(a)(ia) of the Act:
The final issue pertained to the disallowance of a specific amount under section 40(a)(ia) of the Act due to delayed payment of TDS. The assessee contended that the TDS amount was paid before the due date for filing the return of income under section 139(1) of the Act. Citing relevant case law and legislative amendments, the tribunal ruled in favor of the assessee, noting that the TDS payment before the return filing due date rendered the disallowance invalid. Following precedent and legal interpretations, the tribunal directed the assessing officer to delete the disallowance made under section 40(a)(ia) of the Act.

In conclusion, the tribunal partially allowed the appeal filed by the assessee, addressing each issue comprehensively and providing detailed reasoning for its decisions.