The Ahmedabad SMC Bench of Income Tax Appellate Tribunal recently ruled that the gain on purchase and sales of shares is to be assessed as a short term capital gain/long term capital gain under the provisions of Income Tax Act, 1961. The highlights of the judgment are discussed below.
The assessee M/s.Mas Chemical Industries P.Ltd has filed return for the year 2007-08 by declaring total income of Rs.33,28,990/- and claimed dividend exemption under section 10(33) and also claimed long term capital gain exemption under section 10(38) of the Income Tax Act. The assessee has shown short term capital gain of Rs.33,28,991/-and paid taxes at the rate of 10%.
In the year 2009-10 also, the assessee has filed return declaring total income at NIL.The assessee has claimed long term capital gain of Rs.27,83,688/- and short term capital gain of Rs.4,08,897/-. It has also shown long term capital loss of Rs.6,99,749/- and short capital loss of Rs.26,10,281/-. The ld.AO has treated the activity of the assessee as trading in shares and assessed business loss while assessing total income of the assessee.
The sole issue raised before the Tribunal was that whether the assessee is to be termed as involving in trading of shares or is to be treated as simplicitor investor. In other words, gain on purchase and sales of shares is to be assessed as a short term capital gain/long term capital gain, as the case may be or business income.
The Tribunal found that the assessee has shown the shares as investment in the balance sheet since very inception. It does not have any employee and any business establishment. The investment in share is one of the main objects as mentioned in point no.22 of the Memorandum of Association. It does not have employee and activities are carried out by the PMS provider. The investment was being made in only listed securities. All investments have made in independent companies and no interest bearing funds were used by the assessee company.
In view of the above facts and the decision of Gujarat High Court in Commissioner of Income Tax vs. Riva Sharkar A Kothari, and various decisions of ITAT, the Tribunal held that that the assessee must be treated as an investor and not a trader in the shares.
Read the full text of the order below.
