The Tax Publishers2020 TaxPub(DT) 4107 (Guj-HC) : (2021) 431 ITR 0160 : (2020) 275 TAXMAN 0366

INCOME TAX ACT, 1961

Section 14

When there were concurrent findings of fact that assessee had maintained distinction between trading assets and non-trading assets and had treated transaction in shares and securities as investment, then in view of CBDT Circular No. 4 of 2007, dated 15-6-2007. AO could not have treated the same as business transaction so as to treat surplus as business income.

Head of income - Business income or Capital gains - Profit on sale of shares - Assessee having two portfolio

Assessee declared surplus arising from sale of shares as capital gain. AO taxed the same as business income. Tribunal reversed this. Revenue challenged order passed by Tribunal by way of appeal before High Court. Held: Tribunal recorded clear finding of fact that assessee had shown purchase of shares and security under the head of investment in the balance-sheet and not as stock-in-trade. Assessee had valued its investment in shares and securities not lower of cost or market value, but at cost only and had not claimed any deduction under section 88E for security transaction tax paid during the year. Also, assessee had made investment from its own funds and there was no involvement of borrowed funds for transaction in shares and securities carried out by the assessee. Moreover, majority investment was made in the mutual funds and bonds and in shares of group companies of strategic investment and only Rs. 23 Crore were invested in the shares of other companies, out of total investment in shares and securities amounting to Rs. 224 Crore. In such circumstances, purchase and sale of units in mutual funds could not be said to be constituted as trading in shares as same could not be sold in open market. Moreover, the memorandum of association of the assessee company clearly showed that business of purchase of shares and securities was not the main object of company. The assessee had also maintained distinction between trading assets and non-trading assets in the books of account and only net surplus or loss arising out of the shares and securities was reflected in the profit and loss account. Accordinlgy, when there were concurrent findings of fact that assessee had maintained distinction between trading assets and non-trading assets and had treated transaction in shares and securities as investment then in view of CBDT Circular No. 4 of 2007, dated 15-6-2007, AO could not have treated the same as business transaction so as to treat surplus as business income.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12


INCOME TAX ACT, 1961

Section 14A

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