INCOME TAX ACT, 1961

Section 14 Section 28(i) Section 45

Head of income - Business income or capital gains - Purchase and sale of equity shares under investment port folio -

During the course of assessment proceedings, AO observed that the assessee had sold the share of M/s. FCS which were shown as investment in the balance sheet and gain from the sale of these shares was offered as Long Term Capital Gain which was claimed exempt under section 10(38). In reply to show came notice assessee submitted that it was consistently maintaining two portfolios, one for investment purpose and another for share trading and details of the transactions under both the heads were regularly maintained in the books of account. The reply of the assessee though considered but was not found satisfactory by the AO and he looking to the volume and frequency of the transaction of shares of M/s. FCS framed a view that the motive of the assessee was not investment and earn dividend income but to earn profit. Aggrieved, assessee preferred an appeal before CIT(A) and succeeded. Held: The abridged summary of sales turnover in investment portfolio and sales turnover in trading portfolio, clearly shows that in investment portfolio, of FCS only 4-5 sale transactions during the year had occurred in contrast to comparatively innumerable sale and purchase transactions in the trading portfolio and that too, when the scrip of FCS were carried over by the appellant in its books since financial year 2006-07 in its investment portfolio and therefore the intention of the appellant was always to hold the scrip of FCS as an investment only. The observations of AO, therefore, are contrary to the facts of the case. There was no reason to interfere in the finding of CIT(A) that the gain from sale of equity shares of M/s. FCS at Rs. 1,09,16,692 had been rightly claimed by the assessee was long-term capital gain exempt under section 10(38) as the assessee is consistently carrying out such transactions of purchase and sale and equity shares under the investment portfolio and separate details were maintained for the trading of shares on behalf of the customers. Therefore, there was no merit in the appeal raised by the revenue and the same deserves to be dismissed.

Followed:CIT v. Associated Industrial Development Company (P) Ltd. (1971) 82 ITR 586 (SC) : 1971 TaxPub(DT) 0385 (SC), CIT v. H Holck Larsen, (1986) 160 ITR 67 (SC) : 1986 TaxPub(DT) 1550 (SC), Authority for Advance Rulings (AAR) (2007) 288 ITR 641 (AAR) : 2007 TaxPub(DT) 0886 (AAR), CIT v. Om Prakash Suri (2014) 46 Taxman 242 (MP) : 2014 TaxPub(DT) 0194 (MP-HC). Relied:CIT v. Gopal Purohit SLP (Civil)/2010 (CC16802/2010) CIT v. Gopal Purohit (2010) 188 Taxman 140 (Bom) : 2010 TaxPub(DT) 1272 (Bom-HC) and Gopal Purohit v. Jt. CIT (2009) 29 SOT 117 (Mum-Trib) : 2009 TaxPub(DT) 1431 (Mum-Trib)

REFERRED : Asstt. CIT v. Om Prakash Suri (2010) 16 ITJ 185 (Ind).

FAVOUR : In assessee's favour.

A.Y. : 2010-11 & 2011-12

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