Sections 10(38), 28(i), 45 and CBDT Circular No. 6 of 2016 – If the assessee so desires, the Assessing Officer has to treat the capital gain earned on listed shares and securities held for a period of more than 12 months, as income from capital gains. However, once such a stand is taken by the assessee it shall remain applicable in subsequent assessment years also.

11. [2017] 81 taxmann.com
220 (Chandigarh – Trib.)

Emm Bee Fincap (P.) Ltd.
vs. DCIT

A.Ys.: 2005-06, 2006-07
and 2008-09                           Date of Order: 17^th April, 2017

FACTS

In the return of income, the assessee had declared Long Term
Capital Gain of Rs. 1,14,77,193 as exempt u/s 10(38) of the Act. In the course
of assessment proceedings, the Assessing Officer (AO) found that the assessee
was involved in no other business activities other than transactions in shares.
He further observed that this was its primary business since its inception. The
AO noted that the transaction of shares were being continuously and
systematically undertaken year from year since inception, involving tremendous
volume which pointed out to a profit motive. The AO held that the entire share
transactions were business activity. While coming to this conclusion, the AO
mentioned that neither the details of purchase and sale of shares nor proof of
the same being in the nature of investment or stock-in-trade (referred to CBDT
Circular No. 4 of 2007, dated 15.6.2007) as also the manner and mode of the
transactions were provided nor were books of account for any of the years under
assessment were produced for verification. The AO held the entire share
transactions as business activity and treated the gains earned thereon as the
business income of the assessee and added back the same to the taxable income
of the assessee making an addition of Rs. 1,14,77,193/- in the process.

Aggrieved, the assessee
preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal
where attention of the Tribunal was drawn to Circular No. 6 of 2016 issued by
CBDT and pointed out that CBDT in the said circular had given instructions that
in respect of listed shares and securities held for a period of more than 12
months immediately preceding the date of its transfer, the assessee, at its
option can treat the income derived therefrom as capital gain which shall not
be disputed by the AO.

HELD

The Tribunal found that
CBDT in the said circular, has laid down further guidelines to be followed by
AO while deciding the issue, the objective being reducing litigation on an
issue where there is lot of uncertainty and hence tremendous litigation. The
Tribunal held that it is evident from the said circular that the CBDT has given
instruction to the AO to treat the capital gain earned on listed shares and
securities held for a period of more than 12 months, as income from capital
gains if the assessee so desires. It noted that the said instructions states
that once such a stand is taken by the assessee, it shall remain applicable in
subsequent assessment years also.