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DATE: March 18, 2016 (Date of pronouncement)
DATE: April 18, 2016 (Date of publication)
AY: 2008-09
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CITATION:
In view of CBDT Circular No. 6/2016 dated 29.02.2016, if assessee has consistently shown shares as an “investment” and offered gains as capital gains, AO is not entitle to urge that the same constitutes “stock-in-trade” and assess gains as business profits on grounds that there were substantial and frequent transactions and motive was to earn profit and holding period of such shares was very short

Before us the moot question which is required to be decided is whether the income earned by the assessee on account of share is required to be treated as business income or required to be treated as short term capital gain. After the matter was heard on 11.02.2016, the CBDT came out with the Circular No. 6/2016 dated 29.02.2016 in the following manner. In view of the circular, we have clearly noticed that the issue raised in this appeal stands fully covered by the Circular issued by the CBDT. Since the assessee has treated the securities as investment and not as stock in trade in all the years, therefore, in view of the CBDT Circular, the revenue is not permitted to take a contrary view in the present year and claimed that the security is stock in trade and, therefore, the profit/gain caused to the assessee be treated as business income. In our view, there is no merit in the contention of the revenue and is deserves to be dismissed in view of the circular.

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Posted on by shreesh
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DATE: March 29, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S. 45/ 48: Deferred consideration dependent on a contingency does not accrue unless the contingency has occurred and is not liable to capital gains tax in year of transfer

The contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the assessee alongwith its co-owners have not under the agreement dated 25th January, 2006 obtained a right to receive Rs.20 crores or any specified part thereof in the subject assessment year. In the above view there could be no occasion to bring the maximum amount of Rs. 20 crores, which could be received as deferred consideration to tax in the subject assessment year as it had not accrued to the assessee.

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Posted on by itatbar
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DATE: May 8, 2015 (Date of pronouncement)
DATE: April 10, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 48: Interest on borrowed money utilized for acquiring shares can be capitalized as cost of acquisition

Interest payable on moneys borrowed for acquisition of shares should be added to the cost of acquisition of shares for the purpose of computing capital gains (Macintosh Finance Estates Ltd vs. ACIT (2007) 12 S0T 324 (Mum) (Trib) not followed, CIT vs. Trishul Investments Ltd (2008) 305 ITR 434 (Mad) (HC) followed)

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DATE: November 27, 2015 (Date of pronouncement)
DATE: January 13, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 50C: The stamp duty value on the date of agreement & not date of sale deed has to be taken. The nature of the property on the date of agreement has to be considered. Q whether proviso to s. 56(2)(vii)(b) is curative and retrospective left open

The issue is as to whether the date of agreement or the date of execution of sale deed has to be considered for the purpose of adopting the SRO value under S.50C of the Act. We find that this issue is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal V/s. CIT(365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam V/s. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22.6.2010) and Moole Rami Reddy V/s. ITO (ITA No.311/Vizag/2010 dated 10.12.2010). It is therefore, now settled that the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains

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Posted on by editor
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DATE: February 18, 2015 (Date of pronouncement)
DATE: November 23, 2015 (Date of publication)
AY: 2008-09
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CITATION:
The object of introduction of Securities Transaction Tax (STT) was to end litigation on the issue of whether profit earned from delivery based sale of shares is capital gains or business profit. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares

The idea behind introduction of security transaction tax is to end the litigation on the issue, whether the profit earned from delivery based sale of shares is capital gains for business profit. Thus, w.e.f. 01.10.2004; on the share transactions subjected to STT; concessional tax rate of 10% (which has been increased to 15% from AY 2009-10) are applicable in respect of STCG whereas no tax is chargeable in respect of LTCG. It is also noted that the CBDT vide its Circular no.4/2007, dated 15.06.2007 has also recognized possibility of two portfolios, i.e. one ‘Investment portfolio’ comprising of securities which are to be treated as capital assets and the other ‘Trading portfolio’ comprising of stock in trade which are to be treated as trading assets. In view of these facts, profit arose on shares in respect of delivery based transaction are liable to be taxed as capital gain and not as business income.

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Posted on by editor
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DATE: September 24, 2015 (Date of pronouncement)
DATE: October 8, 2015 (Date of publication)
AY: 1994-95
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CITATION:
Entire law on whether leasehold rights constitute a "capital asset" u/s 2(14), whether there is a "transfer" u/s 2(47) of such rights and whether "capital gains" u/s 45 can arise explained in detail

The Court is unable to agree with the above approach of the ITAT to interpreting what appear to be plain and unambiguous provisions of the Act. It is useful to recall that this entire discussion is in the backdrop of what constitutes “transfer” in relation to a capital asset. Further, the entire exercise is for ultimately determining if there has been any capital gains arising from the transaction. Under Section 45(1) ‘capital gains’ are any profits or gains arising from the transfer of a capital asset effected in the previous year. When the word “transfer” itself has been defined under Section 2(47) (vi) and by virtue of Explanation 1 “shall” have the same meaning as Section 269UA(d) then it is not possible to ‘restrict’ Explanation 1 to only those transactions described in Chapter XXC. Explanation 1 is a deeming fiction and incorporates by way of reference the provisions of Section 269 UA (d) in order to understand the meaning of the word ‘transfer’ for the purposes of Section 2 (47) (vi). Therefore, that entire scheme has to be given effect to. In other words, it is not possible to omit the reference to Section 269UA(d) (i) which in turn brings in Section 269UA(f) (i). The ITAT has therefore erred in conveniently choosing to not apply the Explanation 1 to Section 2 (47) in order to arrive at the conclusion there was indeed a ‘transfer’ of a capital asset brought about by the lease agreement in question

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DATE: September 9, 2015 (Date of pronouncement)
DATE: September 16, 2015 (Date of publication)
AY: 2008-08
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CITATION:
Circumstances in which gains from sale of shares can be assessed as short-term capital gains and not as business profits explained

On consideration of the above facts, the CIT (A) and Tribunal rightly concluded that compliance on the part of the assessee in terms of Instruction No.1827 dated 31 August 1989 issued by the Central Board of Direct Taxes laying down the tests for distinguishing the shares held in stock-in-trade and shares held as an investment, the shares held by the assessee was investment and held the income to be treated as short term capital gains

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DATE: July 22, 2015 (Date of pronouncement)
DATE: July 28, 2015 (Date of publication)
AY: 2007-08
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CITATION:
S. 2(47)(v)/(vi): Entire law on whether the entering into a joint development agreement with an irrevocable power of attorney in favour of the developer results in a "transfer" for purposes of capital gains explained

The concept of possession to be defined is an enormous task to be precisely elaborated. “Possession” is a word of open texture. It is an abstract notion. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on rule of law whereas possession is a question dependent upon fact without reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control. He should be actually holding, using and enjoying it, without interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance of the contract in order to fall under Section 53A of the 1882 Act and thus amenable to tax by virtue of Section 2(47)(v) read with Section 45 of the Act

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DATE: June 30, 2015 (Date of pronouncement)
DATE: July 10, 2015 (Date of publication)
AY: 2010-11
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CITATION:
Development Agreement: Tax implications of entering into a development agreement in respect of land held as stock-in-trade explained

What the assessee has got today is only a right to sell the 1,28,940.26 fts of constructed area in the Alexandria project and the profits, howsoever certain they may appear to be, will only fructify and be realized, and can even be quantified, only when this right is exercised- in part or in full. That stage has not yet come, and until that stage comes, such profit cannot be taxed

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Posted on by editor
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COUNSEL:
DATE: May 22, 2015 (Date of pronouncement)
DATE: June 2, 2015 (Date of publication)
AY: 2007-08
FILE: Click here to view full post with file download link
CITATION:
(i) S. 48: Interest paid on moneys borrowed to acquire assets cannot be treated as the 'cost of acquisition' of the asset, (ii) S. 41(1): Unclaimed liabilities are deemed to have been remitted/ ceased and are taxable in the year of discovery by AO

The interest cost is toward the retention of the borrowing and, concomitantly, the retention or the holding of the asset under reference, i.e., is a function of the holding period. It is, thus, rightly described as a holding cost or a period cost, depending upon how one may look at it. This difference is again of relevance in-as-much as the asset may be sold/realized without the repayment of the debt, so that the interest cost continues independent of the asset. Again, the debt may be repaid/liquidated, extinguishing the interest cost, while the holding of the asset continues. That is, even the holding cost relationship is not automatic or follows as a natural corollary. The two, i.e., the interest cost and cost of the asset, are in any case independent of each other

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