2012 (7) TMI 680 - AT - Income Tax

Whether a transaction of sale and purchase of shares were trading transactions or whether they were in the nature of investments -Treatment in the books by an assessee will not be conclusive. If the volume, frequency and regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be a case of business profits and not capital gain Held that - Purchase without an intention to resell where they are sold under changed circumstances would be capital gains - Purchase with an intention to resell would render the gain profit on sale business profit depending on the circumstances of the case like nature and quantity of article purchased, nature of the operation involved matter needs reexamination - Revenue authorities have proceeded on wrong facts and figures - issue remanded to the AO for fresh consideration Income from House Property addition on account of notional rent - appellant was owning three flats - claim of self occupied property - matter remanded back for correct ascertainment of facts. Accrual of income on government bonds - 8% GOI Bonds - assessee submitted that the interest as per scheme of GOI Bonds would accrue on 30th June and 31st December of every year and interest accrued and received as on 31/12/2005 was offered for taxation and the interest for the period from 1/4/2006 to 31/3/2006 would only accrue on 30th June as per the scheme and, therefore, the appellant has not accounted for the same and the said interest is offered for taxation as and when accrued and due to the appellant s wife Held that - AO has not incorporated the explanation of the appellant on this point in the assessment order - Without a legally enforceable right, it cannot be said that the income has accrued. As the interest relating to the period 1/1/2006 to 31/3/2006 was not yet accrued as on 31/3/2006 but would accrue only on 30th June, 2006 - AO directed to delete the addition and the same will be brought to tax in the next year on accrual basis.

Issues Involved:
1. Classification of income from sale of shares as either "income from business" or "income from capital gains."
2. Determination of income from house property.
3. Disallowance under Section 14A.
4. Accrual of interest income on 8% GOI Bonds.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Shares:
The primary issue was whether the income declared by the assessee under the head "income from capital gains" should be assessed as "income from business." The AO, relying on various judicial pronouncements and CBDT Circular No.4/2007, concluded that the income should be assessed under the head "income from business." Consequently, the claim of exemption of long-term capital gains was denied. The CIT(A) upheld the AO's decision. However, the Tribunal found that the AO and CIT(A) did not properly consider the facts and figures. The Tribunal cited several judicial precedents, emphasizing that whether transactions are trading transactions or investments is a mixed question of law and fact. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for fresh consideration, instructing the AO to take into account the correct facts.

2. Determination of Income from House Property:
The assessee contested the AO's determination of income from house property for properties in Kandivili and Pune, arguing they should be considered self-occupied with interest income determined at Rs. Nil. The CIT(A) in AY 2006-07 accepted the assessee's claim that the Oberoi Park View property was not occupied until after 31/3/2006, thus no notional rent should be assessed. For the Pune property, the CIT(A) agreed that notional rent should be based on municipal valuation, which the assessee had reasonably estimated at Rs. 50,000/-. The Tribunal found inconsistencies in the facts presented for AY 2005-06 and AY 2006-07 and remanded the issue to the AO for fresh examination.

3. Disallowance under Section 14A:
The disallowance under Section 14A was contested by the revenue. The Tribunal noted that this issue needed to be decided afresh in light of judicial pronouncements by the Hon'ble Bombay High Court. Consequently, the Tribunal remanded this issue to the AO for fresh consideration.

4. Accrual of Interest Income on 8% GOI Bonds:
The CIT(A) had ruled that interest on GOI Bonds accrues only on 30th June and 31st December, and since the interest for the period 1/1/2006 to 31/3/2006 had not accrued by 31/3/2006, it should not be taxed in that year. The Tribunal upheld the CIT(A)'s decision, agreeing that the right to receive the interest accrues only on the specified dates and without a legally enforceable right, it cannot be said that the income has accrued.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes and remanded the issues of classification of income from sale of shares and determination of income from house property back to the AO for fresh consideration. The revenue's appeal was partly allowed for statistical purposes, with the issues of disallowance under Section 14A and classification of income from sale of shares remanded to the AO for fresh consideration. The Tribunal upheld the CIT(A)'s decision regarding the accrual of interest income on 8% GOI Bonds.

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