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2015 (11) TMI 69 - AT - Income TaxTransaction of shares - Assessment of income - whether the shares held by the assessee on behalf of its settler i.e. Mahindra & Mahindra Ltd. was capital asset and whether the income arising from sale proceeds of these shares in pursuant to exercise of the options by the eligible employees was to be determined under the head capital gains or under the head income from business? - Held that:- In the case of a trader, the motive is to maximize the profits, as the main object of the proper is mechanized the profits by doing the business of trading. The attributes available in the transaction of the assesee trust are unlike that of a trader and are more like that of an investor. The assessee trust is not free or authorized to sell the shares, held by it on behalf of the settler company, to any person in the free market at fair market price. Under such circumstances, the assessee trust is not in a position to earn maximum profits. Thus, it could be safely said that certainly assessee trust is not in the business of trading of shares. The shares held by the assessee trust cannot be categorised as "stock- in-trade" of the assessee trust. The assessee trust is like an extended arm or special purpose vehicle of the settler company, created for the purpose of carrying out certain transactions on behalf of the settler company, as discussed in detail in the above paras, and therefore, under these facts & circumstances, the nature and character of shares held by the assessee trust, on behalf of the assessee trust, and resultant gain or loss arising from the transfer of these shares, should also be same, as it would have been in the hands of settler company. Thus, viewed from this angle also the shares held by the assessee trust are capital assets in its hands and gain arising on the transfer of these shares by the assessee trust, shall be taxable under the head income from the capital gains in the hands of assessee trust. - Decided in favour of assessee Income of the assessee trust - whether chargeable to tax at maximum margin rate? - Held that:- The long term capital gain on shares is chargeable to tax at maximum marginal rate which cannot exceed the rate provide u/s 112 of the Act. Therefore, we hold that the action of AO in not providing the benefit of section 112 to the assessee with regard to the income assessable under the head income from capital gains is contrary to law and facts and the same is reversed. The AO is directed to charge tax on capital gains as per section 112 of the Act. With regard to other issue raised by the assessee i.e. availability of benefit of second proviso to section 112, it is seen by us that same has not been examined properly on facts. For this limited purpose, we send this issue back to the file of the AO. The assessee shall place requisite details and evidences before the AO to establish that the impugned shares were listed with stock exchange and assessee was eligible for the benefit of second proviso of section 112, as per facts. The AO shall give full opportunity to the assessee and shall confine his examination limited to this factual requirement only - Decided in favour of assessee for statistical purposes.
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