2014 (4) TMI 1274 - AT - Income Tax

Revision u/s 263 - Short Term Capital Gains from the sale of debentures and shares - as per CIT AO did not carry out any enquiry as warranted by facts and circumstances of the case in respect of capital gain arising from the sale of debentures and shares in the period relevant to the AY under consideration - Whether there is any distinction between unlisted shares and shares listed on recognized stock exchange for classifying them as Short Term Capital Asset under the Act? - HELD THAT - The amendment was brought by the Finance Act, 1994 w.e.f. 01- 04-1995 to include the securities listed on stock exchange, units of UTI, units of specified Mutual Funds and Zero coupon bonds to bring them at par with shares. Circular No.684 dated 10-06-1994 spells out the reasons for inclusion of listed securities, units of UTI etc., within the ambit of Section 2(42A). The section does not create any distinction between listed and unlisted shares. However, listing of securities is essential prerequisite to fall within the ambit of the term Short Term Capital Asset defined in section 2(42A). DR has submitted that as per the Securities Contracts (Regulation) Act, 1956, the term Securities include shares. The relevant extract of section 2(h) of the Securities Contract (Regulation) Act, 1956 which defines the term securities . Although, under the Securities Contracts (Regulation) Act, the term Securities include shares, but in section 2(42A) of the Act, shares have been mentioned separately. Thus, the intention of the Legislature while introducing the amendment to the Act was very much clear not to include shares in the term security . From the above discussion, we conclude that there is no distinction between unlisted and listed shares for classifying them as Short Term Capital Asset under the Act.In the present case, undisputedly the holding period of the shares is more than twelve months. Thus, the capital gain arising from the sale of shares is Long Term Capital Gain. We are of the considered opinion that the Commissioner of Income Tax and CIT(Appeals) are two separate authorities exercising their jurisdiction under the different provisions of the Act. The Commissioner of Income Tax exercising his revisional jurisdiction remanded the matter back to Assessing Officer to decide the issue afresh. The Assessing Officer decided the issue in accordance with the directions of Commissioner of Income Tax. The CIT(Appeals) has appellate powers under the Act to examine the assessment order passed by the Assessing Officer. Therefore, we do not agree with the contentions of the ld.DR that the CIT(Appeals) has gone beyond his jurisdiction in reversing the findings of the Commissioner of Income Tax. - Decided against revenue.

Summary

Issues:
1. Classification of shares as Short Term Capital Asset.
2. Jurisdiction of Commissioner of Income Tax and CIT(Appeals).

Classification of shares as Short Term Capital Asset:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax(Appeals) regarding the Assessment Year (AY) 2007-08. The dispute centered around the classification of shares held by the assessee as Short Term Capital Asset or Long Term Capital Asset. The Revenue contended that unlisted shares should be held for more than thirty-six months to qualify as Long Term Capital Asset, contrary to the CIT(Appeals) ruling that a holding period of more than twelve months was sufficient. The Revenue relied on the definition of 'Short Term Capital Asset' in section 2(42A) of the Income Tax Act, emphasizing the distinction between listed and unlisted shares. The CIT(Appeals) had held that the shares in question were Long Term Capital Assets as they were held for more than twelve months. The Tribunal analyzed the relevant provisions and explanatory notes of the Finance Act, 1994, concluding that there was no distinction between listed and unlisted shares for classification as Short Term Capital Asset under the Act.

Jurisdiction of Commissioner of Income Tax and CIT(Appeals):
The Revenue also raised a plea regarding the jurisdiction of the CIT(Appeals) in reversing the findings of the Commissioner of Income Tax. The Tribunal clarified that the Commissioner of Income Tax and CIT(Appeals) are distinct authorities with different roles under the Act. The Commissioner of Income Tax had directed the Assessing Officer to re-examine the issue, following which the CIT(Appeals) modified the assessment order in accordance with the law. The Tribunal held that the CIT(Appeals) was well within his appellate powers to review the assessment order and dismissed the Revenue's contention that the CIT(Appeals) had exceeded his jurisdiction. Consequently, the Tribunal dismissed the appeal of the Revenue for lacking merit.

In conclusion, the judgment addressed the classification of shares as Short Term Capital Asset and clarified the jurisdictional roles of the Commissioner of Income Tax and CIT(Appeals) in the context of the Income Tax Act. The Tribunal's detailed analysis of the legal provisions and precedents led to the dismissal of the Revenue's appeal.