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2024 (11) TMI 1103 - AT - Income TaxCorrect head of income - Gain on sale of shares - 'Short Term Capital Gain OR Business Income - HELD THAT - CBDT unequivocally accepted that it is possible for the assessee to have two portfolios i.e. an Investment Portfolio and a Trading Portfolio. The income from sale of shares held in investment portfolio is liable to be taxed under the head capital gains and the income from sale of shares held under trading portfolio is subject to tax as Business Income . After examining the documents on record in the instant case, we have already held that the assessee was holding shares under investment portfolio. Accordingly, the assessee rightly offered gain on sale of shares as Short Term Capital Gains. The action of the AO in treating gain on sale of shares as, Business Income is unwarranted and without any basis. The AO completely disregarded the intention of assessee and the accounting treatment. Hon'ble Jurisdictional High Court in the case of CIT vs. Rohit Anand 2010 (8) TMI 232 - DELHI HIGH COURT ; CIT vs. Ess Jay Enterprises P Ltd. 2007 (8) TMI 709 - DELHI HIGH COURT ; CIT vs. Gulmohor Finance Ltd. 2008 (2) TMI 867 - DELHI HIGH COURT in similar set of facts has upheld the order of Tribunal, wherein income from sale of shares was declared by assessee as capital gains, the Revenue re-characterised it as Business Income. On appeal the Tribunal allowed appeal of assessee, accepting gain on sale of shares as capital gains. Appeal of the assessee is allowed.
Issues:
1. Determination of whether Short Term Capital Gain on sale of shares should be treated as Business Income. Detailed Analysis: The appeal before the Appellate Tribunal ITAT Delhi was regarding the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The main issue raised by the assessee in the appeal was the treatment of Short Term Capital Gain on the sale of shares as Business Income. The Assessing Officer had treated the gain on the sale of shares as Business Income based on CBDT Instructions, resulting in an addition to the assessee's income. The assessee contended that the intention was always to hold the shares as investments, as reflected in the audited Balance Sheet. The counsel for the assessee argued that there can be two separate portfolios - one for investments and one for trading assets, citing CBDT Circulars and various judicial decisions to support this argument. On the other hand, the department representative supported the findings of the Assessing Officer and the Commissioner of Income Tax (Appeals) regarding the treatment of the gain on the sale of shares as Business Income. After hearing both sides and examining the documents, the Tribunal noted that the assessee had consistently shown the shares as part of the Investment Portfolio in the Balance Sheet and had treated the income from the sale of shares as Short Term Capital Gain. The Tribunal highlighted the CBDT's acceptance of the possibility of taxpayers having two portfolios - Investment Portfolio and Trading Portfolio. It emphasized that income from shares held in the Investment Portfolio should be taxed as capital gains, not as Business Income. The Tribunal concluded that the Assessing Officer had disregarded the intention of the assessee and the accounting treatment in treating the gain on the sale of shares as Business Income. The Tribunal referred to previous judgments where similar issues were dealt with, and the Tribunal had allowed the appeal of the assessee, accepting the gain on the sale of shares as capital gains. Ultimately, the Tribunal set aside the impugned order and allowed the appeal of the assessee. In conclusion, the Tribunal held that the gain on the sale of shares should be treated as Short Term Capital Gain and not as Business Income, based on the intention of the assessee and the accounting treatment of the shares as part of the Investment Portfolio.
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