2021 (7) TMI 224 - HC - Income Tax

LTCG v/s STCG - profits arising from the sale of shares - Period of holding of shares - Whether Tribunal was right in holding that bonus units of Chola Freedom STF Units is to be treated as long term capital gains since the holding period is more than 12 months? - HELD THAT - The Tribunal found that there is nothing on record to show that the assessee was maintaining separate books of account for trading in shares and investment in shares. Further, the bonus units of shares were allotted to the assessee on 26.02.2004 and the same were sold by the assessee on 01.03.2005. Since the holding period is more than 12 months, the Tribunal has rightly come to the conclusion that the same has to be treated as long term capital gains. We do not find any error or irregularity in the findings of the Tribunal.

Summary

Issues:
1. Interpretation of treatment of bonus units of Chola Freedom STF Units as long term capital gains.
2. Determination of treatment of shares held for more than 30 days as capital gains and shares held for less than 30 days as business income.

Analysis:
1. The appellant challenged the order passed by the Income Tax Appellate Tribunal regarding the Assessment Year 2005-06, where the Assessing Officer treated profits from trading in shares, mutual funds, futures, options, and money lending as normal business income taxable at 30%. However, the Commissioner of Income Tax (Appeals) held that profits from the sale of shares held for more than 30 days should be considered as short or long term capital gains based on the holding period. The Tribunal specifically examined the treatment of bonus units of Chola Freedom STF Units as long term capital gains due to a holding period exceeding 12 months, concluding that such profits fall under this category. The Tribunal found no fault in this decision.

2. The Tribunal noted the absence of separate books of account for trading and investment in shares by the assessee. It specifically addressed the issue of shares held for more than 30 days being treated as capital gains and those held for less than 30 days as business income. The Tribunal concluded that the holding period of bonus units allotted on a specific date and sold after more than 12 months should be classified as long term capital gains. The appellant's argument to keep the second question of law open was rejected as the Tribunal had already ruled in favor of the assessee. Consequently, the High Court upheld the Tribunal's decision and dismissed the Tax Case Appeal, refraining from providing a finding on the second question of law raised by the Revenue for potential consideration in a future appeal.

In summary, the High Court affirmed the Tribunal's decision regarding the treatment of profits from trading activities and the classification of shares based on holding periods, emphasizing the importance of maintaining separate books of account and upholding the categorization of bonus units as long term capital gains when the holding period exceeds 12 months.