2013 (8) TMI 700 - AT - Income Tax

Business income or capital gain - Investment portfolio - Whether the profit from the shares is a capital gain or business income - Held that - It is seen that the assessee has shown all the purchases under the investment portfolio. It is further seen that the long term capital gain shown by the assessee has been accepted by the AO himself. Under the provision of law, it is clearly provided that if the holding of share is more than one year then the gain on account of sale of shares has to be treated as long term capital gain and if holding period of shares are less than one year then the gain on account of sale of shares has to be treated as short term capital gain. No where it is provided that if the transactions are frequent and voluminous then the claim of the assessee is not allowable as short term capital gain or long term capital gain as the case may be. The only question which is to be examined and seen by the AO as to what treatment has been given by the assessee in respect to purchase of shares. Whether the purchase of shares are shown under the head stock-in-trade or under the head investments. If purchases have been shown under the head stock-in-trade then the sale transactions has to be treated as business transactions and if the sales have been effected from investment account then the gain has to be treated as long term capital gain or short term capital gain, as the case may be. In the present case, the assessee has shown all the purchases under the head investment portfolio - Decided in favour of assessee.

Issues Involved:
1. Treatment of short-term capital gain as business income.
2. Disallowance under Section 14A of the Income Tax Act.
3. Adjustment of loss of Rs.1,28,897/-.
4. Charging of interest under Section 234B & C.
5. Treatment of Rs.13,287/- as speculation income.
6. Non-consideration of capital gain of Rs.72,437/- and disallowance of business expenses of Rs.3,07,616/-.

Issue-Wise Detailed Analysis:

1. Treatment of Short-Term Capital Gain as Business Income:
The first issue in both appeals concerns the non-allowance of short-term capital gain of Rs.11,91,247/- for AY 2006-07 and Rs.5,16,516/- for AY 2007-08, which the AO and CIT(A) treated as business income due to frequent transactions in shares. The Tribunal, citing the case of Tikuchand D. Jogani, emphasized that the nature of the transaction should be determined by how the assessee has classified the purchases (investment portfolio vs. stock-in-trade). Since the assessee showed all purchases under the investment portfolio, the Tribunal directed that the gains should be treated as short-term capital gain.

2. Disallowance under Section 14A:
The second issue pertains to the disallowance under Section 14A. The Tribunal set aside this issue for fresh consideration in light of the Bombay High Court decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which held that Rule 8D is applicable from AY 2008-09 onwards. As the years under consideration are AY 2006-07 and 2007-08, Rule 8D is not applicable. The AO was directed to reconsider the issue after providing an opportunity for hearing to the assessee.

3. Adjustment of Loss of Rs.1,28,897/-:
For AY 2006-07, the assessee raised grounds against not adjusting a loss of Rs.1,28,897/-. The Tribunal noted that the AO's dismissal of this issue was incorrect and set it aside for fresh consideration, directing the AO to afford a reasonable opportunity for hearing to the assessee.

4. Charging of Interest under Section 234B & C:
The issue of charging interest under Section 234B & C was considered consequential and did not require separate adjudication.

5. Treatment of Rs.13,287/- as Speculation Income:
In AY 2007-08, the assessee contested the treatment of Rs.13,287/- as speculation income. The Tribunal, noting that the lower authorities had not considered the issue properly, set it aside for fresh adjudication by the AO after providing a hearing opportunity to the assessee.

6. Non-Consideration of Capital Gain of Rs.72,437/- and Disallowance of Business Expenses of Rs.3,07,616/-:
The issues regarding the non-consideration of capital gain of Rs.72,437/- and disallowance of business expenses of Rs.3,07,616/- were linked to the earlier grounds. The Tribunal restored these issues to the AO for fresh adjudication after affording a reasonable opportunity for hearing to the assessee.

Conclusion:
The appeals were allowed in part and partly for statistical purposes, with several issues being set aside for fresh consideration by the AO. The Tribunal emphasized the importance of correctly classifying transactions and adhering to legal precedents in determining the nature of income and applicable disallowances.

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