ITO v. Dilip B. Desai, HUF - Taxpublishers.in

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The Tax Publishers2017 TaxPub(DT) 0825 (Kol-Trib) ITO v. Dilip B. Desai, HUF INCOME TAX ACT, 1961 --Head of income--Business income or capital gainsGains arising on short-term investments in shares and units----Where assessee had earned dividend income which, was very substantial indicating assessee's intention to always remain as an investor and not to exit the scrip with a short term profit motive and AO had treated assessee an as investor to the extent of long-term capital gains declared by the assessee and it was never the case that assessee was having dual portfolio, AO could not take a different stand by treating the assessee as a trader in respect of short-term capital gains alone and therefore, gains arising on short term investment activities had to be assessed as capital gains only and not as business income.--Assessee claimed short term capital gains (STCG) arising on sale of equity shares and units of mutual funds held as investment. AO treated the assessee as a trader in shares as against the status of investor claimed by assessee on the ground that the assessee had dealt with more number of scrips and hence frequency of transactions was more which proved that it had only traded in shares. Apart from this, holding period of shares were less than 4 months and hence the assessee never had any intention to stay on with the investment in shares and mutual funds with an intention to earn dividend income and was only interested in making short term business gains.Held: It was evident that shares before the date of its sale were held for a period ranging from 13 days to 356 days and to this extent, factual inaccuracy on the part of AO on the holding period of shares could not be appreciated. AO had treated assessee as an investor to the extent of long term capital gains declared by the assessee and claim of exemption under section 10(38) had also been granted. It was never the case of the AO that assessee was engaged in dual portfolio, i.e., one held for trading and other held for investments. Accordingly, AO could not take a different stand by treating the assessee as a trader in respect of short term capital gains alone. Assessee had earned dividend income which was very substantial indicating assessee's intention to always remain as an investor and not to exit the scrip with a short term profit motive. Assessee had been consistently showing the amount invested in shares and mutual funds under the head 'investments' in its books and there were no borrowings in the balance sheet filed by the assessee for earlier years. AO had already accepted the assessee to be an investor in the earlier years. Though principle of res judicata is not applicable in income tax proceedings, the principle of consistency, however, could not be given a go by in the absence of any changed circumstances. Hence, gains arising out of investment activities of the assessee had to be assessed only as capital gains and not business income. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 0825 (Kol-Trib)

ITO v. Dilip B. Desai, HUF

INCOME TAX ACT, 1961

--Head of income--Business income or capital gainsGains arising on short-term investments in shares and units----Where assessee had earned dividend income which, was very substantial indicating assessee's intention to always remain as an investor and not to exit the scrip with a short term profit motive and AO had treated assessee an as investor to the extent of long-term capital gains declared by the assessee and it was never the case that assessee was having dual portfolio, AO could not take a different stand by treating the assessee as a trader in respect of short-term capital gains alone and therefore, gains arising on short term investment activities had to be assessed as capital gains only and not as business income.--Assessee claimed short term capital gains (STCG) arising on sale of equity shares and units of mutual funds held as investment. AO treated the assessee as a trader in shares as against the status of investor claimed by assessee on the ground that the assessee had dealt with more number of scrips and hence frequency of transactions was more which proved that it had only traded in shares. Apart from this, holding period of shares were less than 4 months and hence the assessee never had any intention to stay on with the investment in shares and mutual funds with an intention to earn dividend income and was only interested in making short term business gains.Held: It was evident that shares before the date of its sale were held for a period ranging from 13 days to 356 days and to this extent, factual inaccuracy on the part of AO on the holding period of shares could not be appreciated. AO had treated assessee as an investor to the extent of long term capital gains declared by the assessee and claim of exemption under section 10(38) had also been granted. It was never the case of the AO that assessee was engaged in dual portfolio, i.e., one held for trading and other held for investments. Accordingly, AO could not take a different stand by treating the assessee as a trader in respect of short term capital gains alone. Assessee had earned dividend income which was very substantial indicating assessee's intention to always remain as an investor and not to exit the scrip with a short term profit motive. Assessee had been consistently showing the amount invested in shares and mutual funds under the head 'investments' in its books and there were no borrowings in the balance sheet filed by the assessee for earlier years. AO had already accepted the assessee to be an investor in the earlier years. Though principle of res judicata is not applicable in income tax proceedings, the principle of consistency, however, could not be given a go by in the absence of any changed circumstances. Hence, gains arising out of investment activities of the assessee had to be assessed only as capital gains and not business income.