2020 (2) TMI 979 - AT - Income Tax

Tax Tribunal: LTCG & STCG as Capital Gains, Interest Income Upheld as Real Income. Reconsideration under Section 14A emphasized.

Assistant Commissioner of Income Tax, Circle-26 (1), New Delhi Versus M/s VIC Enterprises Pvt. Ltd

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal. It affirmed the CIT(A)'s decisions on treating Long Term Capital ... Correct head of income - Profits realized on sale of shares - Long Term Capital Gains or business income - period of holding - HELD THAT:- As relying on own case [2015 (12) TMI 1816 - ITAT DELHI] intention of the assessee is very much clear as to what stocks are to be treated as business stock and what to be treated as investment stock. The Policy and treatment of stock transaction are clearly reflected in the Balance sheet of the assessee. We thus fully concur with the finding of the Learned CIT(Appeals) that the profit in respect of shares sold during the year (including gain realized on sale of shares of Dawar India Ltd. ) has been rightly treated by the assessee as long term capital gain and thus the Learned CIT(Appeals) has rightly held that the assessee is eligible for exemption under sec. 10(38) of the Act on the said long term capital gain - Decided against revenue. Issues Involved:1. Deletion of addition on account of Long Term Capital Gains treating it as business income.2. Deletion of addition on account of Short Term Capital Gains treating it as business income.3. Treatment of interest income as real income.4. Disallowance under section 14A of the Income-tax Act.Detailed Analysis:1. Deletion of Addition on Account of Long Term Capital Gains Treating it as Business Income:The revenue contested the deletion of Rs. 4,01,26,422/- added as Long Term Capital Gains (LTCG) treated as business income by the Assessing Officer (AO). The Tribunal noted that the issue had been previously adjudicated in favor of the assessee for earlier assessment years (2006-07, 2008-09, and 2010-11). The assessee had shown shares of Dabur India Ltd. as investment in its books for over two decades, and the profits from the sale of these shares were offered as LTCG. The AO treated these as business income based on high volume and frequency of transactions. However, the Tribunal upheld the CIT(A)'s decision, emphasizing that the shares were held as investment, and the intention of the assessee was to hold them for long-term appreciation and dividends, not for trading. The Tribunal cited the principles laid down in various judicial decisions and CBDT Circular No. 4 of 2007, which clarified that the treatment in books of accounts and intention at the time of purchase are crucial in determining the nature of income. The Tribunal dismissed the revenue's appeal, affirming the treatment of the gains as LTCG eligible for exemption under section 10(38).2. Deletion of Addition on Account of Short Term Capital Gains Treating it as Business Income:The revenue also contested the deletion of Rs. 1,04,43,140/- added as Short Term Capital Gains (STCG) treated as business income. The Tribunal noted that the AO had treated the STCG as business income due to the high frequency and volume of transactions. However, the CIT(A) had allowed the assessee's claim, treating the gains as STCG. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had consistently treated these shares as investments in its books and had paid Securities Transaction Tax (STT) on these transactions. The Tribunal emphasized that the intention behind the transactions was crucial, and the assessee's intention was to invest, not trade. The Tribunal directed the AO to accept the assessee's claim and allow the benefit of charging the gain under section 111A of the Act.3. Treatment of Interest Income as Real Income:The revenue contested the CIT(A)'s decision that Rs. 9 lacs was not real income. The AO had added Rs. 9 lacs based on the special auditor's report, which stated that the assessee had not shown interest income received from Dawar Foods Ltd. The assessee argued that the interest rate was mutually reduced from 10% to 8.5%, and only real income should be taxed. The Tribunal upheld the CIT(A)'s decision, which relied on the principle that only real income is taxable, citing the Supreme Court's decision in CIT vs. Shoorji Ballabdass & Co. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the revenue's appeal on this ground.4. Disallowance under Section 14A of the Income-tax Act:The assessee contested the disallowance of Rs. 5,33,768/- under section 14A. The Tribunal noted that the CIT(A) had upheld the AO's disallowance, treating the expenses incurred to earn exempt income. However, the Tribunal found that the authorities below had not properly considered the assessee's submissions and the details of the transactions. The Tribunal directed the AO to reconsider the disallowance, taking into account the assessee's intention and the nature of the transactions. The Tribunal allowed the assessee's appeal on this ground.Conclusion:The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, affirming the CIT(A)'s decisions on the treatment of LTCG and STCG as capital gains and not business income, and the treatment of interest income as real income. The Tribunal directed the AO to reconsider the disallowance under section 14A, taking into account the assessee's submissions and the nature of the transactions. The decision emphasized the importance of the intention behind transactions and the treatment in books of accounts in determining the nature of income.