INCOME TAX ACT, 1961

Section 14

Head of Income - “Income from business” or “Income from short-term capital gains” - Income arising from sale of equity shares - Equity shares being disclosed as “investments”

Assessee-company was engaged in business of trading in shares as well as investment in shares. Since nature of activity of the assessee was trading in shares, AO treated income arising from sale of equity shares under the head “Income from business” as against the claim of the assessee of “Income from short-term capital gain”. Further, CIT(A) on the basis of audit report of CA upheld the views of the AO. Assessee submitted that in audited financial statement, the entire equity shares purchased by it were disclosed as “investments”, and not as “stock-in-trade”, therefore, the income from sale of equity shares should be treated as “Income from short-term capital gain”, and not as “Income from business'. Held: On perusal of audited statement of account of assessee, it was evident that the assessee classified the equity shares purchased by it as 'investments', and not as 'stock-in-trade' in the Balance Sheet. Therefore, the assessee was right in treating the gain resulting from the sale of its investment in equity shares under the head “Income from short-term capital gain”. Error committed by the CA in his audit report would not alter the intention of the assessee for holding the equity shares purchased by it as “investment”, which was evident from the statement of account/Balance Sheet of the assessee. Accordingly, the AO was directed to treat the income earned by the assessee during the relevant assessment year as “Short-Term Capital Gain” or “Long-Term Capital Gain”, as the case might be.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07

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