2015 (10) TMI 944 - AT - Income Tax

Tribunal upholds capital gains treatment, allows indexation benefit, and prevents double taxation of interest income

The Tribunal upheld the CIT(A)'s decision to treat the gains from share transactions as 'capital gains', emphasizing the investment intent and actual ... Income from share transactions of the assessee - whether not chargeable to tax under the head ‘business income’ even though consistency, frequency and large volume were involved in the said transactions as held by CIT(A) - Held that:- Merely because there is consistency, frequency and volume in transaction of shares, the same cannot be treated as ‘business income. The intention of the assessee at the time of purchase of such shares/securities are to be seen. Since the assessee in the instant case has made purchases and sold the shares supported by actual deliveries through the Demat account and since there has not been a single transaction of short sale during the entire year, therefore, we are of the considered opinion that the income from such gain cannot be treated as ‘business income’. This view of ours is supported by plethora of decisions of the Coordinate Benches of the Tribunal and different High Courts. In this view of the matter we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed. - Decided in favour of assessee. Indexation of share application money - CIT(A) rejected the claim of the assessee for indexation of share application money on the ground that no right has been created whatsoever in the land - Held that:- Respectfully following the decision in the case of Blue Star Ltd (2007 (3) TMI 290 - ITAT BOMBAY-J) and in absence of any contrary material brought to our notice we hold that the assessee is entitled to indexation benefit on the share application money introduced in M/s. Shristi Hotels Pvt. Ltd. We accordingly set aside the order of the CIT(A) on this issue and direct the AO to allow the benefit of indexation on the share application money and determine the long term capital gain in accordance with law after giving due opportunity of bearing heard to the assessee. - Decided in favour of assessee. Benefit of indexation being share capital denied - Ld.CIT(A) while holding that the assessee could have taken such benefit, however, denied the same on the ground that no shares were transferred, therefore, the assessee is not entitled to benefit of indexation - Held that:- We find the Ld.CIT(A) was not justified on this issue. We have already held in the preceding paragraphs that assessee is entitled to benefit of indexation on account of share application money. Following the same reasonings we hold that the assessee is entitled to benefit of indexation in respect of ₹ 100/- being share capital money in M/s. SHPL. - Decided in favour of assessee. Taxability of interest amount - whether the amount has been taxed twice as interest amount has been offered by the assessee in the past years - Held that:- The Ld. Departmental Representative has no objection if the matter is restored to the file of the AO with a direction to verify the contention of the assessee that the amount has been offered to tax in the preceding years. In our opinion, if the assessee has already accounted for such income on accrual basis in the past, the same cannot be taxed again in the current year on receipt basis. However, the same needs verification at the level of the AO. In view of the above, we remit ground of appeal No.3 to the file of the AO with a direction to verify the past records and find out as to whether the assessee has offered to tax the interest amount of ₹ 13,00,828/-. The AO shall decide the issue in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly - Decided in favour of assessee for statistical purposes Issues Involved:1. Whether the income from share transactions should be treated as 'business income' or 'capital gains'.2. Determination of the nature of receipt and computation of long-term capital gains (LTCG) from the settlement agreement.3. Entitlement to indexation benefit on share application money and share capital.4. Double taxation of interest income.Issue-wise Detailed Analysis:1. Whether the income from share transactions should be treated as 'business income' or 'capital gains':The Revenue contended that the income from the assessee's share transactions should be treated as 'business income' due to the consistency, frequency, and large volume of transactions. The AO observed that the assessee engaged in the sale and purchase of shares throughout the year, with significant volumes, and suggested that the sole purpose was to benefit from lower tax rates on capital gains. The AO rejected the assessee's explanations and treated the gains as 'business income'.On appeal, the CIT(A) directed the AO to treat the gains as 'capital gains', noting that the shares were shown as investments in the assessee's books, no stock-in-trade was recorded, and no interest-bearing funds were borrowed for these investments. The Tribunal upheld the CIT(A)'s decision, emphasizing that the intention at the time of purchase was for investment, not trading, and the transactions were supported by actual deliveries through the Demat account. The Tribunal concluded that the income from such gains could not be treated as 'business income'.2. Determination of the nature of receipt and computation of LTCG from the settlement agreement:The assessee, along with associates, entered into an MOU for developing land into a hotel/resort, forming a company for this purpose. However, the land could not be transferred, leading to a settlement agreement where the assessee received Rs. 49.36 lakhs. The AO treated the entire receipt as LTCG, but the CIT(A) partially allowed the assessee's claim, reducing the taxable amount by excluding share application money and deposits, arriving at a taxable LTCG of Rs. 30.70 lakhs.The Tribunal upheld the CIT(A)'s computation, noting that the amount received represented consideration for relinquishing rights in the land, refund of share application money, and deposits. The Tribunal directed the AO to adopt LTCG at Rs. 30.70 lakhs.3. Entitlement to indexation benefit on share application money and share capital:The CIT(A) denied the assessee's claim for indexation on share application money, stating it was refundable and did not create any rights in the land. The Tribunal, however, allowed the indexation benefit, citing a decision from the Mumbai Bench of the Tribunal in the case of Blue Star Ltd., which recognized the benefit of indexed cost of acquisition for share application money. The Tribunal directed the AO to allow the indexation benefit and recompute the LTCG accordingly.4. Double taxation of interest income:The assessee claimed that Rs. 13,00,828/- of interest income had already been taxed in previous years based on TDS certificates and should not be taxed again in the current year. The Tribunal remitted this issue to the AO for verification, directing that if the interest income had been accounted for on an accrual basis in past years, it should not be taxed again on a receipt basis in the current year.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, directing the AO to verify and recompute the LTCG with the benefit of indexation and to ensure no double taxation of the interest income.