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2016 (7) TMI 843 - AT - Income TaxTreatment to profit on sale of shares - business income or investments - Held that - In view of the clarification issued by the CBDT regarding determination of income under the head business income or capital gains, it stands clarified that it is upto the assessee as to how he derives income from share transactions- whether as business income or as capital gains. This clarification has been given by the CBDT with the sole objectives of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. In view of this clarification, the decisions relied upon by the AO are distinguishable on facts. The AO itself has accepted the identical nature of income in the assessment year 2006-07 u/s. 143(3). Therefore, there being no change in the facts and circumstances of the case and adopting the rule of consistency as also clarified by the CBDT Circular above, there appears to good reason to give a different treatment to the income shown by the assessee as capital gain. - Decided against revenue
Issues involved:
1. Treatment of business income from sale/purchase of shares as capital gain. 2. Application of the decision of Bombay High Court in a similar case. 3. Determination of income from dealing in securities as business income or capital gains based on facts and circumstances. 4. Interpretation of CBDT Circular regarding taxability of surplus on sale of shares and securities as capital gains or business income. Issue 1: Treatment of business income from sale/purchase of shares as capital gain: The appellant, a teacher, declared income from short term capital gain and interest income in the return of income, which was later questioned by the Assessing Officer. The AO treated the capital gain as income from business and profession. However, the CIT(A) deleted the additions, stating that the transactions represented investments and should be taxed as capital gains. The AR supported this view, highlighting the appellant's consistent returns and reliance on past assessments. The Tribunal agreed with the CIT(A), emphasizing the appellant's intention to earn on investments, leading to the dismissal of the Revenue's appeal. Issue 2: Application of the decision of Bombay High Court in a similar case: The Revenue contested the CIT(A)'s decision, arguing that the facts of the case differed from the Bombay High Court decision cited by the CIT(A). The AO's reliance on the frequency of transactions and dividend receipts to determine the nature of shares holding was challenged by the AR, who presented the appellant's history of filing returns without business activities. The Tribunal upheld the CIT(A)'s order, emphasizing the appellant's investment intention and consistency in returns. Issue 3: Determination of income from dealing in securities as business income or capital gains based on facts and circumstances: The CBDT Circular provided instructions on distinguishing between capital gains and business income from shares and securities transactions. The AR argued that the appellant's investments, generating income over the years, should be treated as capital gains. The Tribunal supported this view, citing the CBDT's objective of reducing litigation and maintaining consistency in tax treatment, leading to the dismissal of the Revenue's appeal. Issue 4: Interpretation of CBDT Circular regarding taxability of surplus on sale of shares and securities as capital gains or business income: The Tribunal considered the CBDT Circular's guidance on treating income from share transactions as business income or capital gains. It emphasized the appellant's consistent returns and investment intention, in line with the Circular's objective of reducing litigation. The Tribunal concluded that there was no reason to deviate from the treatment of income as capital gains, as accepted in previous assessments, leading to the dismissal of the Revenue's appeal. This detailed analysis covers the issues raised in the legal judgment, focusing on the treatment of income from share transactions, application of relevant case law, interpretation of CBDT Circular, and the Tribunal's decision based on the facts and circumstances presented.
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