2016 (1) TMI 217 - AT - Income Tax

Income from Share Sale Classified as Capital Gain; Disallowance Upheld for Tax Deduction Non-Compliance

The Tribunal classified income from the sale of shares as 'Capital Gain', considering the intention, treatment in books, and absence of borrowed funds for ... Income from sale of shares - treated as ‘Capital Gain’ OR ‘Income from Business or Profession' Held that:- the assessee is engaged in trading of Bhusar and Rajma from which he is having turnover of more than ₹ 1.68 Crores during the period relevant to assessment year under appeal. The turnover from sale of shares is ₹ 19.86 Lacs, which is less than 12% of the total business turnover of the assessee. Thus, it is apparent that the main business of the assesse is trading in Bhusar and Rajma and not trading in shares. Thus we hold that in the present case the income from sale of shares is capital receipt. - Decided in favour of assessee. TDS u/s 194A - Disallowance u/s. 40(a)(ia) - deduction of tax at source on payment of interest - Held that:- The provisions relating to deduction of tax at source on interest payment are contained in section 194A of the Act. The provisions of section 194C relate to TDS on payments to the contractors, thus the same are not applicable in the present case. Therefore, the case law Dy. CIT vs. Sri Surve Shriram Krishnaji (2012 (5) TMI 620 - ITAT PUNE) on which the ld. Counsel has placed reliance has no relevance in the facts of the present case. A perusal of first proviso to section 194A of the Act makes it clear that section 194A shall also apply to individuals, where total sales, gross receipts or turnover from business or profession exceed the monetary limit specified u/s 44AB of the Act. The proviso has been inserted by the Finance Act, 2002 w.e.f. 1-6-2002. We find no merit in the submissions of the ld. Counsel for the assessee on the second issue - Decided against assessee. Issues Involved:1. Classification of income from the sale of shares as 'Capital Gain' or 'Income from Business or Profession'.2. Disallowance of Rs. 30,292/- under section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on interest payment.Issue-wise Detailed Analysis:1. Classification of Income from Sale of Shares:The primary issue was whether the income from the sale of shares amounting to Rs. 7,19,166/- should be classified as 'Capital Gain' or 'Income from Business or Profession'. The assessee argued that the shares were held as investments, purchased with idle funds, and recorded as investments in the books of account. The assessee also emphasized that the transactions were delivery-based and intended to earn dividends, not business profits.The Department, however, contended that the systematic manner, volume, and value of transactions indicated that the activities were business-oriented. They argued that the assessee had diverted business funds for purchasing shares while taking loans for business purposes.The Tribunal referred to the CBDT Circular No. 4/2007, which outlines criteria to determine the nature of share transactions, such as the intention at the time of purchase, the use of borrowed funds, the volume and frequency of transactions, and the treatment in the books of account. The Tribunal also cited the Mumbai Bench decision in DCIT v. SMK Shares and Stock Broking Pvt. Ltd., which supports the assessee's case by emphasizing the importance of the intention and treatment in the books of account.The Tribunal concluded that the assessee's intention was to hold shares as investments, evidenced by the treatment in the books and the lack of borrowed funds for share purchases. The turnover from share transactions was also significantly less than the assessee's main business turnover. Therefore, the Tribunal held that the income from the sale of shares should be treated as 'Capital Gain'.2. Disallowance under Section 40(a)(ia):The second issue was the disallowance of Rs. 30,292/- under section 40(a)(ia) for non-deduction of tax at source on interest payment. The assessee argued that the amendment to section 194C, effective from 01-06-2007, should apply, which would exclude individuals from the TDS requirement for the assessment year 2005-06.The Tribunal clarified that the relevant provision for interest payments is section 194A, not section 194C. The first proviso to section 194A, effective from 1-6-2002, mandates TDS for individuals if their total sales, gross receipts, or turnover exceed the specified limit under section 44AB. The Tribunal found no merit in the assessee's argument and upheld the disallowance under section 40(a)(ia).Objection to Departmental Representative:The assessee raised an objection that the author of the assessment order should not defend it in appellate proceedings. The Tribunal rejected this objection, stating there is no conflict of interest in defending one's own order.Conclusion:The Tribunal allowed the appeal in part. The income from the sale of shares was classified as 'Capital Gain', and the disallowance under section 40(a)(ia) was upheld. The other grounds raised in the appeal were dismissed as not pressed. The order was pronounced on October 16, 2015.