2023 (10) TMI 662 - AT - Income Tax

Correct head of income - income from sale of shares/securities/PMS/Mutual Funds etc - Capital Gains or Income from Business - period of holding shares - HED THAT - As assessee rightly drawn a logical conclusion based on CBDT Circular No.6 dated 29.02.2016 that since the assessee was shown shares in the balance sheet as investments and not as stock in trade and he also took cognizance of the fact stated by the assessee that the assessee held the shares sold for a long period ranging from 3301 days to 1352 days. CIT(A) by retrospectively applying the CBDT Circular No.6 rightly held that the action of the AO treating the income as business income instead of long term capital gain is not correct thus, he negated the same. We are unable to see any valid reason to interfere with the findings arrived by the CIT(A) hence, we uphold the same. Grounds of Revenue are dismissed.

Summary

Issues Involved:

1. Classification of income from sale of shares/securities/PMS/Mutual Funds as "Capital Gains" vs. "Income from Business".
2. Applicability of CBDT Circular No. 6/2016.
3. Treatment of expenses related to income computation.
4. Disallowance u/s 14A.

Summary of Judgment:

1. Classification of Income:
The primary issue was whether the income from the sale of shares/securities/PMS/Mutual Funds should be treated as "Capital Gains" or "Income from Business." The Revenue argued that the Ld. CIT(A) erred in directing the AO to treat the income as "Capital Gains" instead of "Income from Business," citing a jurisdictional High Court decision in the assessee's own case for AY 2007-08 where such income was treated as Business Income. The assessee contended that the shares were held as investments and shown as such in the Balance Sheet, with holding periods ranging from 1352 to 3301 days, distinguishing the current facts from the prior High Court case.

2. Applicability of CBDT Circular No. 6/2016:
The Ld. CIT(A) relied on CBDT Circular No. 6/2016, which provides guidelines for treating income from the sale of shares as "Capital Gains" if shown as investments in the balance sheet. The Revenue contended that this Circular applies to dual portfolios and not to cases where the sole business activity is investment in shares. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the Circular aims to reduce litigation and should be applied retrospectively.

3. Treatment of Expenses:
The assessee argued that if the income from the sale of shares is treated as "Business Income," then the related expenses should be allowed. The Ld. CIT(A) did not address this alternative ground, as the primary issue was resolved in favor of treating the income as "Capital Gains."

4. Disallowance u/s 14A:
The Ld. AO had determined a disallowance u/s 14A, which the assessee contested. The Tribunal noted that since the income was treated as "Capital Gains," the disallowance u/s 14A became infructuous.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decision to treat the income from the sale of shares/securities/PMS/Mutual Funds as "Capital Gains" based on the CBDT Circular and the factual matrix of the case, distinguishing it from the prior High Court judgment. The appeal of the Revenue was dismissed, and the assessee's cross-objections were not pressed.