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| DATE: | January 14, 2013 (Date of publication) |
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| Click here to download the judgement (avinash_jain_shares_STCG_Biz_profits_CBDT_circular.pdf) |
Gains on shares held in investment portfolio not assessable as business profits
The assessee was maintaining separate portfolios for shares in the trading account and for those in the investment account. This was accepted by the department in the earlier years. In AY 2007-08, the assessee sold all the shares in the investment portfolio and offered the gains to tax as long-term and short-term capital gains. The AO held that as the volume (Rs. 52 crores) and frequency of transactions was large, the LTCG & STCG were assessable to tax as business profits. The CIT(A) and Tribunal (order attached) reversed the AO by relying on CBDT Circular No. 4 of 2007 dated 15.06.2007 (291 ITR (Stat) 35). On appeal by the department to the High Court, HELD dismissing the appeal:
The intent and purport of Circular No. 4 of 2007 dated 15.06.2007 is to demonstrate that a tax payer could have two portfolios, namely, an investment portfolio and a trading portfolio. In other words, the assessee could own shares for the purposes of investment and/or for the purposes of trading. In the former case whenever the shares are sold and gains are made the gains would be capital gains and not profits of any business venture. In the latter case any gains would amount to profits in business. This has been made clear by the CBDT circular in the remaining portion of the circular itself. On facts, the finding of the CIT(A) & Tribunal that the short term capital gains and long term capital gains were out of the investment account and were not related to the trading account does not call for any interference
1. “…..In other words, the assessee could own shares for the purposes of investment AND / OR for the purposes of trading. In the former case whenever the shares are sold and gains are made the gains would be capital gains and not profits of any business venture. In the latter case any gains would amount to profits in business. This has been made clear …”
If clinically read, the highlighted use of the conjunction,- “and/or” is rather confusing.
2. For a critique on the Circular F. No. 149 /287/2005 -TPL (issued supplementing the earlier Instruction No. 1827 dated 31-8-1989) , explaning why, acording to a view, the controversial subject deserved a fresh look, one may refer the article – (2006) 153 Taxman 126 (Mag).
AS urged therein, In one’s long standing conviction, with a view to simplifying and thereby putting an end once for all to , the subject still ongoing controversies, sitable provisions require to be enacted, if not earlier, at least in the pending DTC.