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2022 (8) TMI 598 - AT - Income TaxCorrect head of income - sale consideration received by the appellant on sale of shares - business income or capital gain - HELD THAT - From the transactions and covenants of agreement mentioned, it clearly emanates that the business was being carried out by M/s KLIPL and assessee was simply a shareholder and not directly into the business so it can be affirmed that the transactions of assessee with LOPAREX BV was transfer of shares and not of business itself. The assessee had rightly declared income under the head Capital gains. No portion of considerations can be attributed for the purposes of sec 28(va) hence we set aside the finding of Ld. CIT(A)., attributing 5% of the consideration as income covered by sec 28(va). Exemption income u/s 10(35) on dividend income received on the units of Mutual fund - assessee also claimed short term capital loss (STCL) - whether said transactions are not hit by the provisions of sec 94(7)? - HELD THAT - In the assessee s case, units were purchased much before 3 months period prior to record date, hence condition prescribed in clause (a) of sec 94(7) is not satisfied hence sec 94(7) can t be applied to the assessee s case. A.O. has not brought any evidence on record about motive of the assessee in indulging the transaction to earn loss. It is also on record that the transactions entered into by the assessee is with the SEBI regulated mutual fund scheme of a very big and reputed asset management company. Even remotely it can t be assumed that the intentions of the assessee are to earn the loss with the gloves in hand with a reputed AMC. We are in agreement with a finding of Ld. CIT(A) and sustained the deletions made by him. Hence this ground of appeal filed by revenue is dismissed.
Issues Involved:
1. Applicability of Section 28(va) of the Income Tax Act, 1961. 2. Treatment of sale consideration received on sale of shares as non-compete fees. 3. Determination of the appropriate head of income for the sale consideration. 4. Application of Section 94(7) of the Income Tax Act, 1961 regarding short-term capital loss. Detailed Analysis: Issue 1: Applicability of Section 28(va) of the Income Tax Act, 1961 - The primary issue was whether the provisions of Section 28(va) were applicable to the sale consideration received by the assessee. - The Assessing Officer (AO) held that the difference between the certified value per share and the actual consideration received was income under the head "business and profession" by applying Section 28(va). - The ITAT concluded that the transaction was essentially a transfer of shares and not a business transaction, thereby not attracting Section 28(va). The Tribunal relied on various judgments, including CIT Vs New India Assurance Company Ltd and CIT Vs West Coast Chemicals and Industries Ltd, to support this view. Issue 2: Treatment of Sale Consideration Received on Sale of Shares as Non-Compete Fees - The AO and CIT(A) treated a portion of the sale consideration as non-compete fees despite the agreement not explicitly mentioning it. - The ITAT examined the share sale agreement and found no specific consideration assigned to any covenant, including non-compete clauses. - The Tribunal noted that the transaction was primarily for the transfer of shares and the non-compete clause was incidental. It cited the case of Hami Aspi Balsara Vs ACIT to support that Section 28(va) applies where the assessee is carrying on business, not merely holding shares. Issue 3: Determination of the Appropriate Head of Income for the Sale Consideration - The assessee declared the sale consideration under "long-term capital gain," while the AO treated part of it as business income. - The ITAT held that the entire consideration should be treated as capital gains, as the assessee was not directly involved in the business but was merely a shareholder. - The Tribunal set aside the CIT(A)'s finding that attributed 5% of the consideration as income under Section 28(va), thereby allowing the assessee's appeal. Issue 4: Application of Section 94(7) of the Income Tax Act, 1961 Regarding Short-Term Capital Loss - The Revenue appealed against the CIT(A)'s decision to allow a short-term capital loss claimed by the assessee, arguing that it was hit by the provisions of Section 94(7). - The ITAT examined the conditions under Section 94(7) and found that the units were purchased outside the specified period, thereby not attracting the section. - The Tribunal relied on judgments like CIT Vs Shambu Mercantile Ltd and CIT Vs Kailash Chandra Dhanuka to support its decision. - The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground. Conclusion: - The ITAT ruled in favor of the assessee, holding that the entire sale consideration should be treated as capital gains and not business income. - The Tribunal dismissed the Revenue's appeals, affirming that the provisions of Section 94(7) were not applicable to the assessee's transactions. - The appeals filed by the assessee were allowed, and those filed by the Revenue were dismissed.
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