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TMI Blog2024 (5) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... t the above two cannot be the basis for determining the character of the income earned by the assessee - whether business or income from capital gains; and considering the fact noted by the ld. CIT(A) that the assessee had consistently from year to year shown shares as investments and not stock-in-trade in its books and returned income therefrom under the head income from capital gains , we are in complete agreement with the ld. CIT(A) that the income earned therefrom had been rightly returned by the assessee under the head capital gains , and there was no case with the AO for treating the same as income from business and profession. Decided in favour of assessee. LTCG - Exemption u/s 54F - investment of the capital gains in a residential house property - claim denied by AO as investment was not made within the time limit prescribed - CIT(A) deleted disallowance - HELD THAT:-By requiring the assessee to claim deduction in the year of earning capital gain, by either investing the entire amount of net consideration in a new asset before the due date of filing of return of income or otherwise depositing the balance unutilized amount in the Capital Gains Accounts Scheme of the prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of the same substantially and only a small portion was returned as Short Term Capital Gain. The Assessing Officer accordingly treated the income of Rs. 54,49,539/- from the trading activity of shares as business income of the assessee, as opposed to Short Term Capital Gain returned by the assessee. The ld. CIT(A), however, deleted the said addition holding at paragraph Nos. 5.2 to 5.9 of his order as under:- 5.2 I have considered the submissions filed by the appellant. Before coming to the merits of this issue, it is worthwhile to note the contention of the appellant that it has been investing in share market since more than 10 years and the resultant profit/loss has been declared as income under the head Capital Gains/loss. It is maintaining personal books of a/cs and at all times. It is holding the said shares as Investment and not as Stock in Trade . This treatment has always been accepted by the AO. Therefore, the intention of the appellant has always been to invest and declare any gain arising from sale of shares as Capital Gains. 5.3 The AO has rejected the submission of the appellant on the following reasons: 1. As the assessee has contended that the basic motive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Investment and not as Stock in Trade . If at all the appellant had been showing as Stock in Trade in all these years, then the position would have been different. Moreover, the appellant categorically stated that it was because of oversight that only in that earlier year such gains were shown as Business Income. None other years have been treated differently. 5.6 The AO has gone by the nomenclature given in the accounts which shows the income as Short Term Share Profit (STT Paid). The AO disregarded the fact that in the very same accounts just as Long Term Share Profit (STT Paid) which was offered as LTCG and claimed as exempt was acceptable to him, the very same Profit and Loss account wherein the income is shown as Short Term Share Profit (STT Paid) is to be treated as Business Income. The nomenclature given in the books of accounts cannot be rejected for one item and acceptable for another item. Even there is no intention which can be gathered that only because gain is described as Short Term Share Profit (STT Paid), it becomes business income. The gain truly describes the nature of income but taxability thereof should have been in accordance with the provision of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities as Investment and not stockin- trade, in view of CBDT Circular, the revenue is not permitted to take a contrary view. 5.9 For the reasons mentioned above, this ground is allowed. The income from sale of shares of Rs. 65,49,765/- is to be treated as Short Term Capital Gains as shown by the appellant and not as Business Income. 4. A perusal of the order of the ld. CIT(A) reveals that he deleted the addition, noting the fact that the assessee had been investing in the share market for more than 10 years, and declaring income therefrom under the head capital gains . He noted the fact that the assessee had held the shares as investment and not as stock-in-trade , which was accepted by the Assessing Officer also. He found that the only basis with the Assessing Officer for treating the income as business income was the fact that the assessee had returned the said income under the head business income in the immediately preceding year. The ld. CIT(A) held that this is no ground for determining the nature of income; that the same had to be determined on the facts of the case and it could be treated as business income only if the shares were shown as stock-in-trade of the assessee. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions in shares in earlier years was identically returned by the assessee as income from capital gains and accepted by the Department also, except for the immediately preceding year. He was unable to controvert the factual findings of the ld. CIT(A) that the assessee had shown all investments in shares under the head investments and not as stock-in-trade . It is also an admitted fact on record that the Assessing Officer s findings treating the income earned as income from business was based merely on the fact that in the immediately preceding year, the assessee had returned the said income under the head business income and also on the basis of nomenclature given by the assessee in its books of accounts. We are in complete agreement with the ld. CIT(A) that the above two cannot be the basis for determining the character of the income earned by the assessee - whether business or income from capital gains; and considering the fact noted by the ld. CIT(A) that the assessee had consistently from year to year shown shares as investments and not stock-in-trade in its books and returned income therefrom under the head income from capital gains , we are in complete agreement with the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the period prescribed as per law, i.e. within two years from the sale of the original asset, there was no case for disallowing the assessee s claim of exemption u/s 54F of the Act. In this regard, he relied upon the decision of the Bangalore Bench of the ITAT in the case of Ramaiah Dorairaj Vs. ITO, reported in [2021] 124 taxmann.com 243 (Bangalore - Trib.) and Chennai Bench of ITAT in the case of Smt. M.K. Vithya Vs. ITO, reported in [2018] 91 taxmann.com 102 (Chennai - Trib.). He also noted the fact that the assessee had invested the entire amount for the new asset under the extended period of filing of return of income u/s 139(4) of the Act and, therefore, also his claim for exemption u/s 54F of the Act was allowable as per law. He referred to various decisions of the Hon ble High Courts holding that return filed u/s 139(4) of the Act, for all purposes, is equivalent to return filed u/s 139(1) of the Act. His findings in this regard are at paragraph Nos. 6.2 to 6.6 of his order as under:- 6.2 I have considered the submissions filed by the appellant. The second ground of appeal pertains to partial disallowance of claim u/s 54F of Rs. 2,50,24,909/-. 6.3 I have gone through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,93,16,750/- and calculate the deduction in accordance with law. 9. We have perused the order of the ld. CIT(A) and also that of the Assessing Officer. We do not find any infirmity in the order of the ld. CIT(A). It is not disputed that the assessee had fulfilled the basic condition for claiming exemption u/s 54F of the Act of investing the net consideration received on the sale of original asset, in a new asset/residential house within the prescribed period of two years of the sale of the original asset. Even the Assessing Officer admits to this fact and notes in his assessment order. Having fulfilled this basic condition, it is highly illogical to deny the claim of exemption during the impugned year, merely for the reason that the majority of the investment was made subsequent to the due date of filing of return of income for the impugned year u/s 139(1) of the Act, and which was not deposited in the Capital Gains Accounts Scheme of the prescribed bank as required by law. Admittedly, the law permits investments in a new asset to be made within two years from the sale of the original asset, which the assessee has complied with. There is no dispute about this fact. The other cond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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