2013 (10) TMI 548 - AT - Income Tax

Business income or capital gain - Transaction in shares - Taxed short term capital gain @ 30% - Held that - assessee has specifically stated investment in shares at Rs.55,94,573 and has shown in the current assets the stock in trade of Mutual Fund. However, assessee has also stated specifically in the profit and loss account, details of long term capital gain, short term capital gain and speculative dealings in shares, besides showing interest and dividend income by the assessee in the assessment year under consideration. Further, it is also observed that assessee is maintaining separate details in respect of shares, held by the assessee under the head stock-in-trade and shares held under the head investment - authorities below have not accepted the profit shown by the assessee as short term capital gain mainly for the reason that in respect of some of the shares, the period of holding was small and also considering number of scripts, in which transaction took placed in the assessment year under consideration - The department has not disputed the fact that assessee has not used any borrowed funds for the purpose of purchase of shares and same is also fortified on perusal of profit and loss account, that no interest has been claimed towards expenses - mere volume of transaction does not mean that assessee is a trader. The intention with which purchase has been made has to be seen. It is held that if in earlier year, the department has treated the assessee as an investor , it cannot take a different view in subsequent year - in assessment year 2004-05, assessee has shown short term capital gain as well as long term capital gain and department while making the assessment u/s.143(3) of the Act vide order dated 11.8.2006, copy placed on record, accepted the capital gain shown by the assessee - Following decision of Gopal Purohit vs JCIT 2009 (2) TMI 233 - ITAT BOMBAY-G - Decided in favour of assessee. Disallowance of telephone expenses - Held that - disallowance of 20% of telephone expenses made by authorities below on the ground that some expenses are required to be made in regard to exempt income is on higher side. However, personal use of telephone is not ruled out. Hence, disallowance of expenses reduced to 10%.

Summary

Issues Involved:
1. Taxation of Short Term Capital Gain (STCG) as Business Income.
2. Disallowance of Postage Expenses and Professional Fees.
3. Disallowance of Telephone Expenses.
4. Disallowance of Demat Charges.
5. Disallowance of Stamp Duty Charges.

Detailed Analysis:

1. Taxation of Short Term Capital Gain (STCG) as Business Income:
The primary issue was whether the STCG of Rs.10,16,274/- should be taxed as business income instead of STCG. The deceased assessee had filed a return showing STCG, which was reclassified by the Assessing Officer (AO) as business income due to the high frequency of transactions and short holding periods. The CIT(A) upheld this reclassification. However, the Tribunal noted that the assessee maintained separate portfolios for investment and trading, valuing investment shares at cost and trading shares at market or cost price. The Tribunal referred to CBDT Circular No. 4/2007, which allows for dual portfolios and emphasized that the nature of transactions, maintenance of accounts, and the intention behind the purchases are crucial. The Tribunal found that the assessee's transactions were consistent with investment activities, not trading, and reversed the AO's decision, treating the STCG as capital gain.

2. Disallowance of Postage Expenses and Professional Fees:
The AO disallowed 50% of postage expenses and professional fees, suspecting they pertained to exempt income. The CIT(A) confirmed this disallowance. The Tribunal acknowledged the need for some disallowance for exempt income but found 50% excessive. It reduced the disallowance to 20%, considering the nature of the assessee's transactions.

3. Disallowance of Telephone Expenses:
The AO disallowed 20% of telephone expenses, attributing them to personal use and exempt income. The Tribunal found this percentage high but agreed that personal use could not be ruled out. It reduced the disallowance to 10%.

4. Disallowance of Demat Charges:
The AO disallowed Rs.1,143/- of demat charges. The Tribunal upheld this disallowance, noting that the income was assessed under "Capital Gain" except for speculative profit, justifying the demat charges' disallowance.

5. Disallowance of Stamp Duty Charges:
The AO disallowed Rs.6,565/- for stamp duty charges. The Tribunal found this disallowance unjustified as the genuineness of the expenditure was not contested by the authorities. It deleted the disallowance, allowing this ground of appeal.

Conclusion:
The appeal was partly allowed. The Tribunal held that the STCG should be treated as capital gains, reduced the disallowances on postage, professional fees, and telephone expenses, upheld the disallowance of demat charges, and deleted the disallowance of stamp duty charges. The order was pronounced on June 12, 2013.