TMI Blog2022 (8) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... held as investment is offered for capital gains or loss. AO has not given any clear cut finding that the shares held as stock-in-trade were sold by the assessee and claiming capital gain. When this basic foundation is not being doubted by the AO - The action of the A.O. treating the sale of shares held as investment by the assessee and offered the same for short term capital gain cannot be treated as business income. For the only reason that the assessee is not carrying out any business activity during this assessment year except the sale of shares. Thus we hold that the sale of SIL shares held by the assessee as investment is to be treated only as short term capital gain and not as business income and thus we allow the grounds of appeal of assessee. - ITA No. 1597/Ahd/2016 - - - Dated:- 13-7-2022 - Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Appellant : Shri Milin Mehta, A.R. For the Respondent : Shri A. P. Singh, CIT/D.R. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- The present appeal has been filed by the Assessee against the order dated 29.03.2016 passed by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 393 shares. During the Assessment Year 2009-10, 7,65,000 shares were purchased and during the Assessment Year 2010-11 32,87 shares were purchased. Thus the assessee consistently classified these shares as investment in its balance sheet. The assessee company also received dividend out of the above shares amounting to Rs. 6,77,458/-. 5. The assessee s replied was considered by the Assessing Officer and held that the transaction carried out by the assessee are in the nature of trade not as an investment. Mere classification of shares transaction as investment in the books of accounts is not conclusive. The assessee has claimed certain shares to be investment, though these transactions were only in the nature of trade. It is also evident that for the purpose of claiming benefit of lower rate of tax u/s. 111A. Therefore the profits on sale of shares is to be treated as business profit and chargeable at maximum rate instead of the asessee s claim it as Short Term Capital Tax which is chargeable at lower rate of tax. Thus the Assessing Officer determined the total income as Rs. 19,34,10,140 and demanded tax thereon. 6. Aggrieved against the same, the assessee filed an appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not erode due to volatile conditions of the share market at times, depending upon the situation, the assessee has disposed of a part of its investment. Further the value of shares does not get eroded in long run which being its investment. Because of the favourable market conditions, the transaction of sale of shares held as investment has resulted in surplus. Such surplus does not partake the character of business income because what has been sold by the assessee is not stock-in-trade. Further, it is submitted that, if the assessee retained the investment for a few months more and sold the same in April, 2011, the surplus arising from such transaction would be long term capital gain and in that event, the assessee would be getting exemption u/s. 10(38) on sale of such shares. This method of retaining the investment for a period of few more months would have been more beneficial to the assessee in terms of incidence of tax, because of exempt u/s. 10(38) of the Act. However, the assessee has sold the shares and claimed Short Term Capital Gain of Rs. 22.36 crores and paid tax thereon. This clearly shows the bona fide of the assessee in paying the short term capital gain tax wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of share as capital gain or business loss at its will therefore the same cannot be accepted. Therefore the A.O. is justified in treating the profit from sale of share as business income. The ground is dismissed. 7.7 The appellant has also taken the alternative ground that the Long Term Capital Loss of Rs. 1,94,90,83/- on sale of Long Term Capital Assets should be reduced from the business income of sale of share as assessed by the AO. I have carefully considered the contention of the appellant. As per the IT act an exception to intra head set off is loss under the head 'Capital gains', which may arise from transfer of any capital asset. Long-term capital loss arises from transfer of shares or units where holding period is more than 12 months and in respect of other assets holding period is more than 36 months prior to sale. Transfer of assets held for less than prescribed period results in short-term capital loss. Long-term capital loss cannot be set off against short-term capital gains. Further, loss incurred from speculation loss (e.g. from shares or commodities) cannot be set off against any other income. LTCL can only be set off against LTCG and cannot be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain of Rs. 22,36,38,580 as the business income. 6. The learned CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 234B 234C of the Act. 7. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty proceeding u/s 271(l)(c) of the Income Tax Act, 1961. 9. The Ld. Counsel Mr. Milin Mehta appearing for the assessee in support of its Ground nos. 1 to 3 submitted that the assessee company had Opening Stock of 51,93,393 shares of Sintex Industries Ltd. The Assessing Officer accepted sale 19,06,393 shares sold out of the stock as capital gain. However the Assessing Officer treated the remaining sale of shares namely 32,76,952 shares as business income due to high value of transaction. The Assessing Officer failed to consider that the assessee consistently classified these shares as investment in the balance sheet which has been accepted by the Assessing Officer for the Assessment Year 2008-09 while passing regular assessment order u/s. 143(3) of the Act. Thus the Assessing Officer cannot step into the shoes of the assessee to determine the nature of purchase of shares either as inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res with its intention to hold the same as an investment. With a view to safeguarding the investment made in SIL shares and also to see the investment does not erode due to volatile conditions of the share market at all times and depending upon the favourable situation, the assessee disposed of a part of its investment in SIL Shares. Considering the market conditions during 14/07/2010 to 19/07/2010, the assessee sold SIL shares which was held as investment and resulted in short term capital gain to the assessee. Thus, the sale of shares and consequential short term capital gain does not partake the character of business income as held by the Assessing Officer. As rightly stated by the assessee, the above shares, if the assessee retained and sold in April, 2011, the above transaction would be long term capital gain, which is also exempt u/s. 10(38) of the Act. This submission of the assessee cannot be ignored. In such a situation, the assesse is not bound to pay tax, as the same exempt from payment of any taxes on sale of such shares as long term capital gain. But the assessee with a view to safeguarding the investment held by it and also in order to see the value of its invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities held by the assessee for a period of more than 12 months before transfer, if the assessee desires to treat the income from transfer of the shares as capital gain, the Assessing Officer would not dispute the same. Relying on such materials, the Tribunal confirmed the view of the CIT (Appeals) making following observations: 12. Considering the facts in hand, in the light of the aforementioned circular at the Board, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares of investment we do not find any reason to disturb the intention of the assessee. The assessee under consideration is investor and therefore, any gain arising out the transfer of shares should be treated as capital gains be it short term or long term. 4. The CIT (Appeals) and the Tribunal having applied such parameters on the facts of the case and having come to the conclusion that the assessee's stand that the shares were held by way of investment and therefore the sale thereof should result in long term capital gain instead of business income, calls for no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital loss or any other sham transactions. 5. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as engaged in two different types of transactions, first set of transactions involving investment in shares and second set of transactions involving dealing in shares (without delivery) for purposes of business, it had correctly held that delivery-based transactions should be treated as those in nature of investment transactions and profit received therefrom should be treated either as short-term or as long-term capital gain, depending upon period of holding and profit from other transactions should be treated as business income Held, yes 14. Similarly, Delhi High Court in the case of CIT vs. M.G. Share Stock (P) Ltd. cited (supra) wherein held as follows: Section 28(i), read with section 45, of the Income-tax Act, 1961 - Business Income -Chargeable as (Business income v. Capital gains/Share dealings) - Assessment year 2006-07 - Assessee was a sub-broker and maintaining two separate portfolios in respect of shares, one as investment and other as stock-in- trade - Revenue emphasised that all shares held should be treated as stock-in- trade and income earned should be treated as business income - However; it was found that shares were not transferred from one portfolio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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