ACIT Vs M/s. Wig Investment (ITAT Delhi)
AO has treated not only the gain on mutual funds as business income but also gain on profit and sale of shares as also as business income. Now in view of the CBDT Circular dated 29.9.2016, if shares are held for more than 12 months which have been treated as investment, the same has to be taxed under the head ‘capital gain’ and not as ‘business income’. Accordingly, we hold that Ld. CIT (A) has rightly held that gain on account of sale of shares is to be taxed under the long-term capital gain. Consequently, grounds raised by the revenue are dismissed.
FULL TEXT OF THE ITAT JUDGMENT
The appeal for the assessment year 2006-07 has been filed by the Revenue and cross objection by the assessee; and the appeal for the assessment year 2009-10 has been filed by the assessee, against common impugned order dated 27.1.2014, passed by Ld. CIT (Appeals)-XXVI, New Delhi. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order.
2. We will first take up revenue’s appeal for the assessment year 2006-07 wherein revenue has raised following grounds: –
“(i) The CIT(A) has erred in directing the AO to treat profit of Rs. 4,28,82,839/- from sale of shares/mutual funds under the head ‘capital gain’ instead of business income without appreciating the fact that this is the core and only business activity of the assessee.
(ii) The CIT(A) has erred in law and on facts in deleting an addition of Rs. 21,08,38,530/- u/s 2(22)(e) in the hands of appellant firm without appreciating the fact that the assessee firm is beneficial owner of shares of companies through its partners (Pradeep Wig – 55% & Neera Wig-45%) and is benefitted by the amount made available by the companies in the guise of capital contribution.)”
3. Apart from that an additional ground has also been filed by the Revenue, which reads as under: –
“(i) Without prejudice to the ground No. 2 the CIT(A), while holding that deemed dividend u/s 2(22)(e) should be taxed in the hands of Shri Pradeep Wig and Ms. Neera Wig erred in not mentioning I explicit terms that his directions are directions u/s 150(1) of the Income Tax Act, 1961.”
4. Brief facts are that, earlier the assessment in the case of the assessee was completed u/s 143(3) vide order dated 8.12.2008 whereby the income declared in the return of Rs. 4,18,84,945/- was accepted. Thereafter, such an assessment order was set aside by the Ld. CIT in his revisionary jurisdiction u/s 263, vide order dated 15.3.2011 on the ground that, provision of deemed dividend u/s 2(22)(e) has not been examined; and redemption of mutual funds by the assessee during the year should be treated as ‘business income’ as against the capital gains declared by the assessee. The assessee is a partnership firm and one of the clauses in the Partnership Deed was to invest in equity and debt funds and other kinds of securities. During the year assessee has shown gain of Rs. 4,88,00,000/- on redemption of Mutual Funds which was declared as short-term capital gain and also certain dividend income was earned on the said investment. The firm came into existence vide partnership deed dated 12.7.2005 which was later on amended on 31.8.2005. The assessee firm consists of four partners sharing profit and loss as under: –
