2016 (6) TMI 53 - AT - Income Tax

Income from sale of shares and securities - short-term capital gain OR profit and gains of business - Held that - Mere not using interest bearing borrowed funds is not sufficient to conclude that transaction of share sales are not business income. Having regard to the volume and frequency of the transactions, no separate books of accounts or demat accounts and other facts and circumstances, we are of the opinion that overall effect of all the factors revealed that the activity of sale and purchase of shares claimed under the head short-term capital gain cannot be sustained and it is held as the activity in the nature of business and assessable under the head profit and gains of the business . Accordingly, we uphold the finding of the learned Commissioner of Income-Tax(Appeals) on the issue in dispute and the ground of the appeal is dismissed.- Decided in favour of assessee. Disallwoance of credit of security transaction tax under section 88E of the Act in consequence of taxing the short-term capital gain under the head profit and gains of business and profession - Held that - As we have already upheld the findings of learned CIT(A) of taxing the transactions claimed under the head short-term capital gain under the head profit and gains of business and profession , the assessee deserves for credit of Security Transaction Tax under the section 88E of the Act. Accordingly, we direct the Assessing Officer to allow that credit in accordance to law after verification of the security transaction tax paid. Penalty u/s 271(1)(c) - Held that - we are in agreement with the submission of the learned Authorized Representative that all the factual information in respect of transaction of purchase and sale of shares was duly provided to the AO and no part of income was concealed, nor furnished any inaccurate particulars of income by the assessee. We find that in same set of information the income assessed under the head profit and gains of business or profession rather than under the head short-term capital gain . The learned Commissioner of Income Tax(Appeals) relied on the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Private Limited, 2010 (3) TMI 80 - SUPREME COURT wherein held mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing inaccurate particulars regarding the income of the assessee and would, therefore, not automatically result in a penalty order against the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxation of short-term capital gain under the head 'income from business and profession'.
2. Credit of Securities Transaction Tax (STT) under Section 88E of the Income Tax Act.
3. Deletion of penalty under Section 271(1)(c) of the Income Tax Act for the assessment years 2006-07 and 2007-08.

Detailed Analysis:

1. Taxation of Short-Term Capital Gain:
The primary issue was whether the income from the sale of shares, declared as short-term capital gain by the assessee, should be taxed under 'profit and gains of business and profession'. The assessee argued that the company was initially intended for manufacturing and trading in power control equipment but later resolved to invest in the capital market. The assessee maintained separate records for trading and investment activities, using self-generated funds without borrowing. The AO, however, treated the entire activity as business income, citing the volume, frequency, and consistency of transactions, and the lack of separate demat accounts for trading and investment. The Tribunal upheld the AO's decision, emphasizing the holistic consideration of factors like the nature of transactions, the intention behind them, and the maintenance of records.

2. Credit of Securities Transaction Tax (STT):
The assessee contended that if the short-term capital gain is taxed under 'profit and gains of business and profession', then credit for STT paid should be allowed under Section 88E. The Tribunal agreed with this contention and directed the AO to allow the credit for STT after verifying the payment.

3. Deletion of Penalty under Section 271(1)(c):
The appeals also involved the deletion of penalties imposed under Section 271(1)(c) for the assessment years 2006-07 and 2007-08. The AO had levied penalties for concealing income or furnishing inaccurate particulars. The CIT(A) deleted the penalties, noting that the assessee had disclosed all relevant details and the issue was merely a change of opinion by the AO. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Reliance Petroproducts, which stated that making an incorrect claim in law does not amount to furnishing inaccurate particulars.

Conclusion:
- The Tribunal upheld the AO's decision to tax the short-term capital gain as business income.
- The Tribunal directed the AO to allow credit for STT paid under Section 88E.
- The Tribunal upheld the CIT(A)'s deletion of penalties under Section 271(1)(c) for both assessment years, agreeing that there was no concealment of income or furnishing of inaccurate particulars by the assessee.