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Intention of Assessee at the time of Purchase of Shares relevant to determine Tax Liability: ITAT
November, 14th 2018

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) in ACIT v. Shri Finance ruled that intention of assessee during the time of purchase of shares is a criterion to determine the tax liability.

In the instant case, the assessee is a partnership firm derives his income from investment activities. The case was selected for scrutiny therein assessing officer opinioned those share transactions entered by the assessee is in the form of business operation not with the object of investment claimed by the assessee.

Accordingly, the AO proceeded to assess the gains derived from share transactions as business income instead of assessee’s claim as capital gain.

Aggrieved assessee approached the CIT (A) challenging the treatment of capital gain as business income. The CIT (A) directed the Assessing Officer to assess the gain from the sale of shares under the capital gain instead business income,

Now the revenue contested the same before this ITAT bench comprising Vice President N.K Saini and Judicial Member Sudhanshu Srivastava and has challenged the order of CIT (A). the counsel for revenue stated that assessee used a colorable device to avoid paying tax at a lower rate by claiming business income as capital gain.

The revenue also added that the partnership firm comprising six partners comes together to put their investment in a collective manner for better utilization and the activity purely meant for business, not of investment.

Revenue stated that even the partnership deed shows the object of the firm is carry on the business of funding and investments. The counsel for Assessee on counterpart pressed the relevance of CBDT circular no.6 where it has been stated that listed shares and securities held more than 12 months immediately preceding the date of transfer, the assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the Assessing Officer.

The bench heard the rival submission and perused the materials on record, the bench pressed the decision of Delhi High Court which dismissed the department appeal and observed that quantum or the total number of transactions may not be determinative, but the period of holding may indicate the intention to make the investment.

Finally, the bench keeping on mind the CBDT circular directed the Assessing Officers to treat capital gains on listed shares and securities held for a period of more than 12 months as income from capital gains if the assessee so desires.

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