2016 (11) TMI 959 - AT - Income Tax

Treatment of gains arising out of sale of shares - whether short term capital gains or business profit - Held that - No infirmity in the order of CIT(A) for treating gain arising out of sale of shares held for more than 12 months as long term capital gains. This issue is also covered by the order of Tribunal dated 21.02.2014 in assessee s own case. Addition u/s 14A - Held that - We have carefully gone through the orders of the authorities below and found that CIT(A) has recorded a clear finding to the effect that AO has made disallowance without giving any finding as to whether there was any expenditure claimed as deduction in relation to exempt income. The findings so recorded by CIT(A) has not been controverted, accordingly we do not find any reason to interfere in the order of the CIT(A). Treatment to rental income - Held that - Rental income so received by assessee was in respect of fixtures and fittings which was either part of residential unit or attached to the house property. The CIT(A) observed that these fixtures and fittings cannot be let out independently without letting out the flat in question to which these are attached. Under these circumstances, we do not find any infirmity in the order of CIT(A) for treating the rental income in respect of these amenities as income from house property.

Issues Involved:
1. Treatment of gains arising out of the sale of shares: Whether they should be classified as short-term capital gains or business profits.
2. Disallowance under Section 14A read with Rule 8D.
3. Treatment of profits from sales of shares held for more than 12 months as long-term capital gains or business income.
4. Deletion of disallowance under Section 14A.
5. Classification of rental income and amenities charges.

Detailed Analysis:

1. Treatment of Gains Arising Out of Sale of Shares:
The primary issue revolves around whether the gains from the sale of shares should be treated as short-term capital gains or business profits. The Tribunal observed that the determination depends on several factors, including the intention of the assessee while purchasing the shares, the treatment given in the books of account, the volume and frequency of transactions, and whether the shares were held as investments or stock in trade. The Tribunal cited precedents and emphasized the principle of consistency, noting that the assessee had been treated as an investor in previous years. The Tribunal concluded that the gains from delivery-based transactions should be treated as capital gains, aligning with prior assessments and judicial principles.

2. Disallowance Under Section 14A Read With Rule 8D:
For the assessment year 2007-2008, Rule 8D was not applicable, but a reasonable disallowance was required. For the assessment year 2008-2009, Rule 8D was applicable. The Tribunal directed the AO to recompute the disallowance under Section 14A by excluding the amount blocked in shares meant for trading purposes, referencing the decision in the case of Indian Advantage Securities Limited and the Karnataka High Court's ruling in CCL Limited.

3. Treatment of Profits from Sales of Shares Held for More Than 12 Months:
The CIT(A) held that the profits from shares held for more than 12 months should be treated as long-term capital gains. The decision was based on the history of assessments, where the assessee had been consistently treated as an investor in previous years. The CIT(A) noted that the assessee had earned substantial long-term capital gains over several years, indicating an intention to invest rather than trade. The Tribunal upheld this finding, emphasizing that the classification should be based on the period of holding and the nature of transactions.

4. Deletion of Disallowance Under Section 14A:
The CIT(A) deleted the disallowance of ?2,67,243 made by the AO under Section 14A, as the AO had not provided a finding on whether any expenditure was claimed as a deduction in relation to exempt income. The Tribunal upheld this decision, referencing the Bombay High Court's ruling in Godrej & Boyce Manufacturing Ltd., which requires the AO to determine the correctness of the assessee's claim before applying Rule 8D.

5. Classification of Rental Income and Amenities Charges:
The AO had treated the income from amenities charges as income from other sources. However, the CIT(A) held that the amenities were inseparable from the house property and should be assessed as income from house property. The Tribunal agreed with this view, referencing the Supreme Court's decision in Shambhu Investments, which held that income from letting out a building along with amenities should be treated as income from house property.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all counts, directing the AO to treat the gains from delivery-based transactions as capital gains, recompute the disallowance under Section 14A by excluding shares meant for trading, treat profits from shares held for more than 12 months as long-term capital gains, and classify the rental income and amenities charges as income from house property. The appeals of the assessee were allowed in part, while the revenue's appeal for the assessment year 2009-2010 was dismissed.

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