2003 (9) TMI 706 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Treatment of capital gains on sale of units as short-term or long-term capital gains.

Analysis:
1. Jurisdiction of Commissioner under Section 263:
The appeal was against the Commissioner of Income-tax's order under section 263 of the Income-tax Act, 1961. The issue revolved around the jurisdiction of the Commissioner to revise the assessment order. The Commissioner found that the assessee had disclosed long-term capital gains on the sale of units of the UTI, but held that these gains should be treated as short-term capital gains as the assets were held for less than three years. The assessee argued that the income from UTI units should be treated as dividend from an Indian company due to legal fictions created by the UTI Act. However, the Commissioner rejected these contentions, stating that the units of UTI were not shares and should be assessed as short-term capital gains. The Tribunal agreed with the Commissioner, holding that the order of the Assessing Officer accepting the gains as long-term was erroneous and upheld the Commissioner's jurisdiction under section 263.

2. Treatment of Capital Gains:
The main issue was whether the gains from the sale of UTI units should be considered as short-term or long-term capital gains. The Commissioner held that the units were not shares and should be assessed as short-term capital gains since they were held for less than three years. The Tribunal concurred with this view, stating that the units were not shares within the meaning of the proviso to section 2(42A). The Tribunal noted that from the assessment year 1995-96 onwards, UTI units were equated with shares held in a company for long-term capital gains treatment. As the Assessing Officer had erroneously accepted the gains as long-term, the Tribunal upheld the Commissioner's decision to invoke section 263. The Tribunal dismissed the appeal, affirming that the gains were taxable as short-term capital gains, and the Assessing Officer's order was prejudicial to the Revenue's interests.

In conclusion, the Tribunal upheld the Commissioner's order under section 263, determining that the gains from the sale of UTI units should be treated as short-term capital gains. The Tribunal emphasized that the legal fiction created by the UTI Act did not extend to deeming the units as shares, and the Assessing Officer's acceptance of long-term gains was erroneous. The Tribunal found no merit in the appeal and dismissed it accordingly.