TITLE: PR. COMMISSIONER OF INCOME TAX- 18 V. M/S WIG INVESTMENT
CITATION: ITA 169/2020
DECIDED ON: 15 JANUARY 2024
CORAM: JUSTICE RAJIV SHAKDHER, JUSTICE GIRISH KATHPALIA
Facts of the case:
The appeal involves the Assessment Year (AY) 2006-07, where the appellant, PR. COMMISSIONER OF INCOME TAX-18, challenges the order dated 16.10.2018 of the Income Tax Appellate Tribunal (the Tribunal). In the first round of litigation, the respondent, M/S WIG INVESTMENT, approached the Tribunal against the order dated 12.03.2011 passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income-tax Act, 1961 (the Act). The CIT, in the first round, set aside the assessment order dated 08.12.2008, asserting that the gain on redemption of mutual funds should be treated as business income and the capital contribution received by the respondent should be taxed as deemed dividend. The Tribunal in the first round allowed the appeal of the respondent, modifying the CIT’s order and directing the Assessing Officer (AO) to reframe the assessment order without being bound by the CIT’s findings. A fresh assessment order was framed on 21.12.2011, adding the gain on redemption of mutual funds and the capital contribution as per the CIT’s directions. The respondent appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal concerning AY 2006-07 and AY 2009-10. The CIT(A) found that the gain on mutual funds should be treated as capital gains, not business income, and the capital contribution made by the companies should not be treated as deemed dividend. Cross-appeals were filed concerning AY 2006-07, and the Tribunal adjudicated on the issues raised by both the appellant and the respondent. The Tribunal, in the impugned order, upheld the CIT(A)’s decision, maintaining that the gain on mutual funds should be treated as capital gains and rejecting the deemed dividend treatment for the capital contribution.
Legal Provisions:
Section 143(3) of the Income-tax Act, 1961 – Pertains to assessment after scrutiny. Section 263 of the Act – Empowers CIT to revise an order if it is erroneous and prejudicial to the interests of revenue. Section 2(22) (e) of the Act – Defines deemed dividend in certain cases. Section 150(1) of the Act – Pertains to recovery of tax in a case of income deemed to be the income of another person.
Issues Involved:
Whether the gain on redemption of mutual funds should be classified as business income or capital gains. Whether the capital contribution received by the respondent should be taxed as deemed dividend under Section 2(22)(e) of the Act. Whether the Tribunal erred in sustaining the CIT(A)’s order.
Court’s Observation and Analysis:
The High Court of Delhi, in ITA 169/2020, upheld the order of the Income Tax Appellate Tribunal (ITAT) dated 16.10.2018, concerning Assessment Year 2006-07. The appellant, the Principal Commissioner of Income Tax, contested the ITAT’s decision, challenging the treatment of gains from mutual funds as capital gains and disputing the addition of a capital contribution by two companies as deemed dividend. The court affirmed the ITAT’s findings that the transactions involving mutual funds were investment-oriented rather than trading activities. The court stressed the importance of ascertaining the assessee’s intent based on factors such as transaction frequency, holding period, and disclosure methods. Regarding the capital contribution issue, the court concurred with the ITAT that such contributions from partner companies did not constitute loans or advances, preventing them from being treated as deemed dividends. The judgment emphasized adherence to factual findings by lower authorities and highlighted the need to establish perversity in such findings for judicial intervention. The court’s analysis relied on legal principles and precedents to affirm the ITAT’s conclusions.
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Written by- Komal Goswami
