2019 (10) TMI 148 - AT - Income Tax

Gain accrued on disposal of shares - Capital gains OR Business income- chargeable to tax u/s 111A - HELD THAT - We are of the considered view that the assessee is entitled for claiming/charging of gains under the provisions contained u/s 111A of the Act, consequently the issue is set aside to the AO to accept the claim of the assessee by giving benefit of charging of short term capital gain to tax u/s 111A of the Act after due verification. Consequently, grounds no.1, 2, 3 4 are determined in favour of the assessee. Addition on account of STT paid on the ground that the assessee has not filed certificate from NSE/BSE in respect of STT paid and thereby denied the credit to the assessee - HELD THAT - It is categoric case of the assessee that when the assessee himself has added back the STT paid by disallowing the expenses in its computation of income, the addition is not sustainable. But AO as well as ld. CIT (A) have dealt with the issue without looking into the facts pleaded by the assessee. So, the issue is set aside to the AO to decide accordingly in view of the stand taken by the assessee and on the basis of computation of income filed by the assessee after providing adequate opportunity of being heard to the assessee. Issue decided in favour of the assessee for statistical purposes.

Summary

Issues:
1. Treatment of business income as long term capital gains by the Revenue.
2. Classification of gains accrued on disposal of shares as Business Income by the Assessing Officer.
3. Disallowance of expenses on account of STT paid.
4. Applicability of CBDT Circular No. 17/2019 on low tax effect cases.

Issue 1: Treatment of business income as long term capital gains by the Revenue:
The Revenue challenged the deletion of an addition of ?40,85,049 by treating business income as long term capital gains. The Revenue argued that the Memorandum of Association of the assessee company stipulated trading in investments, making the income derived from such activity business income. Additionally, the Revenue contended that the assessee's business fell under speculation business as per the Explanation to section 73 of the Income Tax Act, 1961. The CIT(A) had deleted an addition of ?5,71,780 on account of interest, which the Revenue claimed was granted for non-business purposes.

Issue 2: Classification of gains accrued on disposal of shares as Business Income:
The assessee challenged the addition of ?2,75,11,065 treated as business income instead of short term capital gains chargeable under section 111A of the Act. The Assessing Officer and CIT(A) treated the gains on disposal of shares as business income based on previous orders. The assessee argued that the issue was covered by a Tribunal order in their favor for AY 2006-07, emphasizing the intention behind the transactions and the holding period of shares. The Tribunal found in favor of the assessee, directing the AO to accept the claim of charging short term capital gain under section 111A.

Issue 3: Disallowance of expenses on account of STT paid:
The AO made an addition of ?7,54,488 on account of Securities Transaction Tax (STT) paid, as the assessee did not file a certificate from NSE/BSE regarding STT paid. The CIT(A) upheld the addition, stating that the assessee had already disallowed the expense in the computation of income. The assessee argued that they had already added back the STT paid amount in their income computation, making the addition unsustainable. The Tribunal set aside the issue to the AO for further consideration based on the facts pleaded by the assessee.

Issue 4: Applicability of CBDT Circular No. 17/2019 on low tax effect cases:
Due to the low tax effect in the Revenue's appeal, less than ?50,00,000, the appeal was dismissed based on the CBDT Circular No.17/2019. However, the assessee's appeal was disposed of on merits, as the grounds raised required detailed consideration.

This judgment involved disputes over the treatment of income, classification of gains, disallowance of expenses, and the applicability of tax regulations. The Revenue challenged the treatment of business income as capital gains, while the assessee contested the classification of gains on share disposal. The Tribunal favored the assessee based on previous decisions and directed the AO to accept the claim of charging short term capital gain. The issue of disallowance of expenses on STT paid was set aside for further consideration by the AO. The applicability of the CBDT Circular on low tax effect cases led to the dismissal of the Revenue's appeal, while the assessee's appeal was allowed for statistical purposes.