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2022 (3) TMI 1193 - AT - Income TaxCorrect head of income - treatment to be given to the profit arising to the assessee from the transactions in shares whether capital gain or business income? - assessee has mainly relied on Circular No.6/2016 dated 29.02.2016 issued by the CBDT in which the guidelines have been provided for dealing with the issue as to whether the profit arising from the transactions in shares is to be assessed as business income or capital gain - HELD THAT - Since the applicability of the said circular as well as the decisions of the Hon ble jurisdictional High Court in the two cases cited by the learned Counsel for the assessee to the facts of the present case is required to be verified/examined as rightly contended by the learned DR, we set aside the impugned order of the CIT(A) on this issue and restore the matter back to the file of the Assessing Officer for fresh consideration in the light of CBDT Circular No. 6/2016 dated 29.02.2016 and the decisions in the case of PCIT vs. Ramniwas Ramjivan Kasat 2017 (6) TMI 351 - GUJARAT HIGH COURT and PCIT vs. Bhanuprasad D. Trivedi 2017 (9) TMI 840 - GUJARAT HIGH COURT . AO is directed to verify the relevant facts of the case and decide the issue afresh in accordance with law after giving the assessee proper and sufficient opportunity of being heard. Appeal of the assessee is treated as partly allowed for statistical purposes.
Issues Involved:
1. Treatment of profit from share transactions as either capital gain or business income. 2. Treatment of dividend income as business income. Detailed Analysis: 1. Treatment of Profit from Share Transactions: The core issue in this appeal is the classification of profit from share transactions as capital gain or business income. The assessee, engaged in manufacturing tin containers, reported income from share and derivatives trading. The profits were declared under various heads: Short Term Capital Gains (?24,74,201), Long Term Capital Gains (?13,47,806), Speculation Profit (?98,590), and Loss on Trading in Derivatives (?8,62,256). During the assessment, the Assessing Officer (AO) scrutinized the details and observed that the assessee's claim of holding shares as an investment lacked intrinsic value. The AO noted that the assessee had declared his nature of business as "Futures & Options in shares" and inferred that the classification of shares as 'investment' was a deliberate attempt to benefit from lower tax rates. The AO argued that the assessee's activities in shares were organized, systematic, and continuous, thus fitting the definition of "Business" under Section 2(13) of the Act. Consequently, the AO treated the entire profit from share transactions as business income, including the dividend income, and brought the total amount of ?41,83,637 to tax under "profits and gains of business or profession." On appeal, the CIT(A) upheld the AO's treatment of the profits from share transactions as business income. The CIT(A) emphasized that the volume, frequency, and nature of transactions indicated a business activity rather than an investment. The CIT(A) also noted discrepancies in the demat accounts and the lack of supporting evidence for the claimed investments. The CIT(A) concluded that the assessee's transactions were in the nature of an adventure in trade, thus justifying the treatment of the profits as business income. However, the CIT(A) directed the AO to give credit for the Security Transaction Tax (STT) paid. 2. Treatment of Dividend Income: The AO had treated the dividend income of ?2,63,040 as business income. The CIT(A) disagreed with this treatment, citing Sections 10(35) and 10(38) of the Act, which exempt such dividend income from tax. Therefore, the CIT(A) deleted the addition made by the AO in this regard. Tribunal's Decision: The Tribunal considered the arguments and noted that the assessee relied on CBDT Circular No.6/2016 dated 29.02.2016, which provides guidelines for determining whether profit from share transactions should be assessed as business income or capital gain. The Tribunal also acknowledged the judgments of the Hon’ble Gujarat High Court in similar cases, which relied on the same circular. However, since the CIT(A)'s order was passed before the issuance of the circular and the relevant judgments, the Tribunal found it necessary to re-examine the case in light of these developments. The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for fresh consideration, directing the AO to verify the facts and decide the issue afresh in accordance with the CBDT Circular No. 6/2016 and the relevant High Court decisions. The AO was instructed to provide the assessee with a proper and sufficient opportunity to be heard. Conclusion: The appeal was treated as partly allowed for statistical purposes, with the Tribunal remanding the case back to the AO for re-evaluation of the treatment of profits from share transactions and ensuring the correct application of the law regarding dividend income. The Tribunal's order emphasizes the need for a thorough examination of facts in light of updated guidelines and judicial precedents.
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