A Division Bench of the Calcutta High Court has recently dismissed the Income Tax Appeal of the revenue against M/s Century Plyboards (I) Ltd, holding that the income from transfer of listed shares held more than a year are taxable as capital gains at the desire of the assessee.
The assessee placed reliance on the CBDT Circular 4/2007 dated 15.06.2207 had stated the following: –
CBDT also wishes to emphasize that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio comprising securities which are to be treated as capital assets and a trading portfolio comprising stock-in-trade which are to be treated as trading assets.
Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income.
Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits).
The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade.
It was further argued by Om Narayan Rai that the circulars cannot be applied ipso facto when the matter has a cascading effect. We are of the view that there can be no quarrel as to such propositions.
He further stated “Equally well settled is that the benefit of the circular should be extended to the assessee especially when it is a beneficial circular in favour of the assessee. As noticed from the relevant paragraphs of the circular, the department has clarified that the assessee can have investment portfolio and also a trading portfolio and may have income under the head capital gains as well as business income. “
The circular dated 29.02.2016 clarifies that in respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer if the assessee desires to treat the income arising from transfer thereof as capital gains, the same shall not be put to dispute by the assessing officer.
He thus contended that, “It was further stated that once such a stand is taken by the assessee in a particular assessment year, shall remain applicable in subsequent assessment years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. In the instant case, the assessee had treated the income arising from transfer thereof as capital gains consistently, accepted by the department.”
The revenue counsels J.P. Khaitan, Swapna Das and S. Bhowmik submitted that, “it is submitted that the assessee had purchased and sold shares either the same day or after a few days and in most cases they were intra-day transactions not involving delivery of shares and the said assessee’s plea based on past assessment was not accepted as it was not shown that the transactions were identical.”
It was also observed that the circulars can be referred to by the assessee and they being at least partially beneficial to the assessee has to be held to be retrospectively applicable in so far as the instructions/clarifications which enure in favour of the assessee’s.
It was thus held by the bench of Justices T S Sivagnanam and Hiranmay Bhattacharyya that, the income from transfer of listed shares held more than a year are taxable as capital gains at the desire of the assessee.
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