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2016 (4) TMI 472 - ITAT DELHI

2016 (4) TMI 472 - ITAT DELHI - TMI - Income from capital gain OR business income - whether CIT(A) erred in directing the AO to assess the income as income from capital gain as disclosed by the appellant, as against assessed as business income by the AO - Held that:- Since the assessee has treated the securities as investment and not as stock in trade in all the earlier A.Ys as found by the ld. CIT(A), therefore, in view of the CBDT Circular No. 6/2016 dated 29th February 2016, the revenue canno .....

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2. The only issue involved in this appeal reads as under: On the facts and in the circumstances of the case, the ld. CIT(A) has erred in directing the AO to assess the income as income from capital gain as disclosed by the appellant, as against assessed as business income by the AO. 3. Briefly stated, the facts giving rise to this appeal as enumerated in the first appellate order are that the assessee filed his return of income for the Assessment Year 2008-09 on 29.07.2008 disclosing a total in .....

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e details filed by the assessee, the Assessing Officer observed that the transactions in different kinds of financial instruments, including shares, commodities, and futures and options, had resulted in short term capital gains/short term capital loss and long term capital gains. The Assessing Officer held that the assessee had held the securities for very short periods of time and the motive behind investment was to earn profit through trading. The transactions of purchase and sale were volumin .....

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of ₹ 47,12,342/- and long term capital gains of ₹ 30,58,841/-. Aggrieved, the assessee went in appeal before the ld. CIT(A) . 4. Before the ld. CIT(A), the ld. AR submitted that the assessee is a financial consultant engaged in the sale of fixed deposits, bonds, mutual fund units and life insurance products as an agent/broker. The assessee is also a distributor of mutual funds of various companies and no tax is deducted on the commission received from mutual fund companies in view of .....

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was invariably disclosed in the books of accounts as investment and not as stock-in-trade. The shareholding as on 31.03.2008 of ₹ 92,25,827/- was substantially higher than the holding as on 31.03.2007 of ₹ 55,03,897/-. Examination of the balance sheets, audit reports, and returns of income of the A.Ys. 2006-07 and 2007-08 shows that the method of accounting of the shares as investment was consistently followed. The appellant has further shown that his own funds of ₹ 1.20 crore .....

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percent of the total gains. By comparison, shares held for more than one year resulted in 39.57 percent of the capital gains disclosed. The appellant has credibly argued that the Income Tax Act recognizes shares held for less than 12 months as short term capital assets, and provides for favourable tax treatment under section 111A. Thus, the statute categorically allows that shares may be capital assets, and specifically short term capital assets, even if held for a duration of 1 day or just unde .....

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siness income. The appellant has relied on a number of decisions of the Courts, wherein it has been held that whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares. It is the substantial nature of the transactions which should form a guide to determine whether the transactions are in the nature of capital investments or of trading. The appellant has also furnished evidence .....

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merit. {4.3} As in earlier years, the appellant has treated the securities as investments, and not as stock-in-trade, in his books of accounts. The appellant has also valued the securities at the end of the year at cost and not by the method of valuation at market price or cost, whichever is less. The appellant has not claimed any interest payment relating to this activity, and it is verified that no borrowed funds have been utilized for the purchase of shares. So far as the frequency of transa .....

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business activity. In view of the above discussion, the appellant succeeds in his grounds of appeal and the Assessing Officer is directed to assess the said income as income from capital gains, as disclosed by the appellant. 6. Before us also, the ld. AR reiterated the submissions made before the ld. CIT(A) and relied on the recent CBDT Circular No. 6/2016 dated 29th February 2016 and contended that the ld. CIT(A) was right in directing the AO to assess the income of the assessee as income from .....

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" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is .....

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owever, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities tra .....

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pts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assess .....

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