2016 (2) TMI 704 - AT - Income Tax

Sale of shares - Profits and Gains from Business or Profession OR Short Term Capital Gains - Held that - The transaction in the shares are also repetitive like in the shares of Zee Telefilms Limited Garware Ship Gammon, Carborundum Universal Simbholi Sugar etc. whereby the assessee indulged in repetitive transactions and also sold the shares after holding for short period . Under these circumstances in order to do complete justice in the instant case based on facts and circumstance of the case we hold that the gains arising from sale of shares held by the assessee up to one month be classified as income from business despite being delivery based transactions while the gains arising from sale of shares held for more than one month and up-to twelve months should be classified as short term capital gain. We have come to the above decision keeping in view the peculiar facts and circumstances of the instant case as we have observed that in large number of transactions of purchase and sale of shares period of holding is from 1 day to 30 days the transactions of purchase and sale of shares being repetitive and the assessee has dealt in large number of companies the prime objective of such transactions which are concluded within one month in our considered view is to earn and maximize profits in shortest period of time which is akin to intention of doing business by maximizing profits while dealing in sale and purchase of shares rather to hold shares as investment with a vision to earn dividend and other benefits attached to holding of shares such as entitlement to right shares bonus shares etc.. House property income - Reduction of Charges on account of society maintenance charges and Municipal Corporation taxes from the gross rental received - Held that - We have observed that the assessee has paid society maintenance charges which is stated to be the obligation of the lessee and the same is duly included in the rent received by the assessee. In our considered view this issue is squarely covered by the decisions of the Tribunal in the cases of Sharmila Tagore (2004 (6) TMI 591 - ITAT MUMBAI) and Bombay Oil Industries (2000 (11) TMI 1225 - ITAT MUMBAI). Respectfully following the decisions of the Tribunal in the cases cited (supra) we hold that assessee is entitled for deduction of 1, 17, 825/- u/s 23 of the Act apart from the standard deduction u/s 24(a) of the Act. We direct the AO to verify the claim of deduction of the assessee of the said society maintenance charges paid by the assessee but stated to be obligation of the lessee and stated to be duly included in the gross rent received by the assessee before allowing the claim of the assessee.

Summary

Issues Involved:
1. Classification of short term capital gains on sale of shares.
2. Restriction of deduction in respect of society maintenance charges while computing income under the head "Income from House Property".

Issue-wise Detailed Analysis:

1. Classification of Short Term Capital Gains on Sale of Shares:

The primary issue was whether the short term capital gains of Rs. 6,76,915/- from the sale of shares should be assessed under "Profits and Gains from Business or Profession" or "Short Term Capital Gains". The assessee argued that they are an investor holding shares as capital assets, consistently offering profits on the sale of shares under capital gains, which was previously accepted by the department. The assessee emphasized that major shares sold were held for 3-4 years, with significant long-term capital gains exceeding short-term capital gains. The AO, however, treated these gains as business income due to the high volume and frequency of transactions, citing CBDT Circular No. 4/2007 and relevant judicial principles. The CIT(A) upheld the AO's decision, noting the substantial number of transactions, short holding periods, and the use of borrowed funds, suggesting a business motive rather than investment.

Upon appeal, the Tribunal observed the assessee's consistent treatment of similar transactions in previous and subsequent years as capital gains. The Tribunal decided that gains from shares held for up to one month should be classified as business income due to the short holding period and repetitive transactions, while gains from shares held for more than one month and up to twelve months should be classified as short term capital gains, considering the peculiar facts and circumstances of the case.

2. Restriction of Deduction in Respect of Society Maintenance Charges:

The second issue involved the restriction of deduction for society maintenance charges and municipal taxes from Rs. 1,80,000/- to Rs. 62,175/- while computing income under "Income from House Property". The assessee argued that the rent received included these charges, and the net rent after deduction exceeded the municipal valuation. The AO restricted the deduction to municipal taxes only, as per the proviso to section 23 of the Act, which does not include society charges. The CIT(A) upheld this view, relying on the Delhi Tribunal's decision in Piccadily Holiday Resort Ltd. v. DCIT.

The Tribunal, however, referred to the decisions in Sharmila Tagore v. JCIT and Bombay Oil Industries Ltd. v. DCIT, which supported the assessee's claim for deduction of society maintenance charges. The Tribunal directed the AO to verify the assessee's claim that these charges were included in the gross rent received and were the obligation of the lessee, before allowing the deduction.

Conclusion:

The appeal was partly allowed. The Tribunal classified gains from shares held for up to one month as business income and gains from shares held for more than one month and up to twelve months as short term capital gains. The Tribunal also allowed the deduction of society maintenance charges, subject to verification by the AO.