2013 (4) TMI 967 - AT - Income Tax

Summary

Issues Involved:
1. Whether the profit arising from the sale of shares, mutual funds, etc., is to be treated as business income or capital gain.
2. Disallowance of expenditure of Rs. 18,57,355/- for A.Y. 2005-06.
3. Treatment of profit on sale of bonus units in Chola Freedom STF units as long-term capital gains.

Summary:

Issue 1: Treatment of Profit from Sale of Shares and Mutual Funds

The assessee filed returns for A.Y. 2005-06, 2008-09, and 2009-10, treating gains from the sale of shares as capital gains. The Assessing Officer (AO) treated these gains as business income, leading to appeals by both the assessee and the Revenue. The Tribunal had to decide whether these profits should be treated as business income or capital gains.

The assessee argued that they maintained two separate portfolios for investment and business, and that delivery-based transactions should be treated as capital gains. The CIT(A) had ruled that profits from shares held for more than 30 days should be considered as capital gains, while those held for less than 30 days should be treated as business income. The Tribunal disagreed with this 30-day criterion, stating it is neither recognized nor acceptable under the Income Tax Act, 1961.

The Tribunal remitted the matter back to the AO to determine if the assessee maintained separate books of accounts and bank accounts for the two portfolios, the objective of acquiring the shares, the ratio of dividend earned to profits from sales, the volume, frequency, and regularity of transactions, and the list of shares transacted in each portfolio.

Issue 2: Disallowance of Expenditure of Rs. 18,57,355/- for A.Y. 2005-06

The assessee failed to produce any documentary evidence to substantiate the claim of expenditure before the AO or CIT(A). The Tribunal upheld the disallowance of the expenditure, as the assessee did not discharge the duty of providing relevant documents.

Issue 3: Treatment of Profit on Sale of Bonus Units in Chola Freedom STF Units

The CIT(A) held that the profit on the sale of bonus units amounting to Rs. 91.43 lakhs should be treated as long-term capital gains, as the holding period was more than 12 months. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the Revenue's appeal on this ground.

Conclusion:

ITA No.1685/Mds./12 of the assessee and ITA No.1755/Mds./12 of the Revenue for A.Y. 2005-06 are partly allowed for statistical purposes. ITA No.1686/12 & ITA Nos.1687/Mds./12 for A.Ys. 2008-09 & 2009-10 of the assessee are allowed for statistical purposes. ITA No.1756/Mds./12 & ITA No.1918/Mds./12 for A.Ys. 2008-09 & 2009-10 of the Revenue are allowed for statistical purposes.

Order pronounced on Tuesday, the 30th April, 2013 at Chennai.