If Shares were held for more than 12 months, Income must be taxed as Capital Gain: ITAT follows CBDT Circular [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that if the shares have been held by the assessee for a period more than 12 months, then the income shall be subject to tax under the head ‘Capital Gain’ and not as ‘Business Income.’

The Assessing Officer held that the redemption of mutual funds by the assessee during the year should be treated as ‘business income’. The assessee claimed that the income is Capital Gain.

As per the amended partnership deed, the object of the firm was to carry out money lending business, trading, etc. and making investments in shares and securities. However, the assessee firm has not carried out any business activities as per its objects in the relevant year is the first year and had only undertaken the transaction in 15 mutual funds and 2 portfolio investments.

On the first appeal, the CIT(A) decided the matter in favor of the assessee.

Dismissing the departmental appeal, the Tribunal observed that “AO has treated not only the gain on mutual funds as business income but also gain on profit and sale of shares as also as business income. Now in view of the CBDT Circular dated 29.9.2016, if shares are held for more than 12 months which have been treated as the investment, the same has to be taxed under the head ‘capital gain’ and not as ‘business income’. Accordingly, we hold that Ld. CIT (A) has rightly held that gain on account of sale of shares is to be taxed under the long-term capital gain. Consequently, grounds raised by the revenue are dismissed.”