2018 (10) TMI 1349 - AT - Income Tax

Gain from the sale of shares - to be assessed under capital gains or under business income - period of holding - intention of the assessee at the time of purchase of shares - Held that - Period of holding may indicate intention to make investment. We also find that CBDT Circular no. 6 dated 29.02.2016 also comes to the aid of the assessee wherein it has been clarified by the CBDT that where the assessee treats the securities as investment and not has stock-in- trade in earlier years, the revenue is not permitted a contrary view. It is evident from this Circular that CBDT has given instructions to the Assessing Officers to treat capital gains on listed shares and securities held for a period of more than 12 months as income from capital gains if the assessee so desires. The dismissal of the Special Leave Petition of the department by in the case of Pr. Commissioner of Income Tax vs. Bhanuprasad D. Trivedy (HUF) (2018 (7) TMI 1236 - SUPREME COURT OF INDIA) also comes to the aid of the assessee wherein the Hon ble Apex Court upheld the Hon ble High Court s impugned order that intention of the assessee at the time of purchase of shares is paramount. - Decided against revenue.

Summary

Issues:
Whether the gain from the sale of shares is to be assessed under capital gains or business income.

Analysis:
The case involved a partnership firm deriving income from investment activities, filing a return declaring income including short term capital gains, interest, and exempt income under certain sections. The Assessing Officer (AO) assessed the gains from share trading as business income instead of capital gains, disallowing set off of short term capital loss. The Commissioner of Income Tax (Appeals) directed the gains to be assessed under the head 'capital gain,' providing relief to the assessee.

The department challenged the CIT (A) order, arguing that the nature of the assessee's activity was business trading based on the partnership deed and substantial turnover. The department claimed the assessee used a strategy to avoid tax. The department cited various judicial precedents to support its contention.

In response, the assessee argued that the shares were held for investment purposes, not trading, supported by the period of holding, substantial dividend income, and maintaining separate investment and trade portfolios. The assessee relied on legal requirements for trade and the intention of being an investor at the time of share purchase.

The ITAT considered the facts, noting the holding periods of shares, disclosure in balance sheet, separate portfolios, and substantial dividend income. The ITAT found no factual errors in the CIT (A) findings and distinguished the judicial precedents cited by the department. Referring to a Delhi High Court judgment and a CBDT Circular, the ITAT upheld the CIT (A) decision, emphasizing the intention of the assessee at the time of share purchase and the treatment of securities as investments. The ITAT dismissed the department's appeal, citing the CBDT Circular and the Supreme Court's decision, concluding that the CIT (A) findings were appropriate.

In conclusion, the ITAT dismissed the department's appeal, upholding the CIT (A) order to assess the gain from the sale of shares under the head 'capital gain.'