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2016 (1) TMI 400 - AT - Income TaxSurplus of sale and purchase of shares - CIT(A) treated as Income from STCG on which STT is paid - whether A.O. had established that the assessee was engaged in purchase and sale of shares and, hence the trading activity was business activity? - Held that - The investment is not made out of borrowed funds. The value of investment as on 31/03/2006 is at ₹ 6.02 lacs. The volume of transactions is also not very high. The ld.CIT(A) has observed that in the case of Dineshkumar Kunjbihari Almal, Ahokkumar Babulal Almal and in the case of assessee himself during AY 2005-06, similar transactions were held to be as investment and not as business. This finding of the ld.CIT(A) is not controverted by the Revenue and no change into facts is pointed out as to why in this year under appeal the transactions are not treated as investment. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, all the grounds of Revenue s appeal are rejected. - Decided in favour of assessee
Issues Involved:
- Appeal against the orders of the Ld. Commissioner of Income Tax(Appeals)-VII, Ahmedabad for AY 2006-07. - Treatment of Short Term Capital Gain (STCG) as business income. - Disallowance of interest expenditure. - Dispute regarding trading activity in shares. - Assessment of income based on STT paid. - Interpretation of CBDT Circular dated 15/06/2007. - Determination of income from capital gains vs. business income. Analysis: 1. Treatment of STCG as Business Income: - The Revenue challenged the direction of the Ld. CIT(A) to assess STCG as business income on which STT is paid. - The Ld. CIT(A) considered various factors such as the number of transactions, capital investment, value of investments, and volume of shares transacted. - The Ld. CIT(A) noted that the assessee maintained shares as investments in the books and not as stock in trade, with investments made from net worth and not borrowed funds. - Citing relevant case laws and legislative intent, the Ld. CIT(A) directed the AO to treat the income as STCG. - The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the consistency in treatment of similar transactions in previous years as investments and not business income. 2. Dispute on Trading Activity in Shares: - The Revenue argued that the assessee was engaged in trading shares as a business activity. - The AO treated the surplus from sale and purchase of shares as business profit based on the CBDT Circular. - The assessee contended that the shares were held as investments, not for trading purposes. - The Tribunal considered the facts, including the nature of transactions, investment value, and maintenance of books as investments. - Relying on past judgments and the absence of changes in facts, the Tribunal rejected the Revenue's appeal, affirming the treatment of transactions as investments. 3. Disallowed Interest Expenditure: - The AO disallowed interest expenditure in the assessment under section 143(3) of the Income Tax Act, 1961. - The Ld. CIT(A) partly allowed the appeal, confirming the disallowance while directing the AO to allow the STCG claim. - The Tribunal did not disturb the disallowance of interest expenditure but upheld the direction to treat STCG as income based on STT paid. 4. Interpretation of CBDT Circular and Legal Precedents: - The Tribunal considered the CBDT Circular dated 15/06/2007 and various legal precedents supporting the treatment of income from capital gains. - Emphasis was placed on the intention of the legislature to tax capital gains and distinguish them from business income. - Reference to specific judgments highlighted the importance of maintaining consistency in treating similar transactions as capital gains. In conclusion, the Tribunal dismissed the Revenue's appeals in both cases, affirming the Ld. CIT(A)'s decisions to treat the income from shares as Short Term Capital Gains based on the nature of transactions and relevant legal principles. The orders were pronounced on October 21, 2015, in Ahmedabad.
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