2019 (11) TMI 351 - AT - Income Tax

Long-term Capital Gains on sale of Equity Shares - Exemption u/s.10(38) - Period of holding - Whether the transaction of purchase of shares by the assessee is to be considered as investment or stock in trade? - HELD THAT - No evidence was filed to show that the contention of the assessee is only to hold the shares as capital asset not as stock in trade. The Circular No.6/2016 dated 29.02.2016 specifically states that where the assessee itself opts to treat the shares as a stock in trade irrespective of the period of holding listed the shares, the income arising from the transfer of such shares could be treated as a business income. In the present case, though the assessee disputes the treatment given in the books of accounts but admittedly fact remains that the shares were shown as a part of stock in trade and therefore the Circular No.6/2016 dated 29.02.2016 issued by the CBDT cannot come to the rescue of the assessee. Is settled position of the law that the intention at the time of acquisition of shares is the determinative factor to decide whether the shares are held on stock in trade or investment account. In the present case, there is a prima facie evidence on record to show that the shares are held as stock in trade on purchase of shares was debited to P L A/c. This would prima facie prove the intention on the part of the assessee that the shares are held on trading account. Nothing is brought on record in rebuttal of this evidence. We have no option but to hold that the investments in shares were held in trading account and the surplus arising on sale of such shares is liable to tax as business income. - Decided against assessee.

Summary

Issues Involved:
Delay in filing appeal condonation, Exemption under section 10(38) for Long-term Capital Gains, Treatment of shares as investment or stock in trade, Application of Circular No.6/2016 issued by CBDT.

Delay in filing appeal condonation:
The appeal was delayed by 28 days, attributed to advice from a Chartered Accountant to file a rectification petition before the Ld.CIT(A). The delay was condoned considering pursuit of alternative remedy as a reasonable cause for the delay, with no serious objection from the Sr.DR.

Exemption under section 10(38) for Long-term Capital Gains:
The assessee claimed exemption under section 10(38) for Long-term Capital Gains on sale of Equity Shares held for more than one year. The contention was that the gains should be exempted as per section 112 of the Income Tax Act, supported by evidence submitted during assessment proceedings.

Treatment of shares as investment or stock in trade:
The main issue revolved around whether the transaction of purchase of shares should be considered as investment or stock in trade. The AO found that shares were shown as stock in trade and debited to the P&L A/c, indicating trading intention. The Circular No.6/2016 issued by CBDT was cited, stating that income from shares treated as stock in trade could be business income. The intention at the time of acquisition was crucial, and in this case, evidence pointed towards shares being held as stock in trade, making the surplus taxable as business income.

Application of Circular No.6/2016 issued by CBDT:
The Circular No.6/2016 dated 29.02.2016 issued by CBDT was referred to by the assessee for treating shares as investment under section 10(38). However, the Circular did not apply as the shares were treated as stock in trade based on evidence, leading to the dismissal of the appeal.

This detailed analysis covers the key issues involved in the legal judgment, providing a comprehensive understanding of the decision made by the Appellate Tribunal ITAT CHENNAI regarding the appeal filed by the assessee.