If you are also amongst those who invest a considerable amount in shares then you need to know this!! If the frequency of transactions is high, then that has always been a debatable issue in income tax that whether income is to be treated as capital gain or business income. Recently, the Same issue happened with India’s Master Blaster – Mr. Sachin Tendulkar.
But before having a look on his case, let’s first quickly understand the Impact on your taxes under both the situations : 1. When your Investments are taxable as Capital Gain:
If your investments are termed as long-term capital gains then there is no tax till the gain of Rs. 1,00,000. However, if listed shares are held for over a year and over and above tax @ 10% shall be levied. Further, if they are sold within a year then 15% tax is payable.
2. When your Investments are taxable as Business Income:
If your investments are declared as business income then the individual tax slabs rates would apply along with the claim of various expenses eligible for deduction. So, if you earn above Rs. 10,00,000 then the tax shall be levied upon you @ 30%.
Recently, Sachin Tendulkar also faced the same issue regarding his investments. Let’s get the deep insight into the case and know what happened exactly.
Facts of the Case :
- In the ITR of A.Y 10-11, Mr. Tendulkar showed long-term capital gains of Rs 85.56 lakh and long-term capital loss of Rs 23.82 lakh. Further, he also showed short-term capital gains of Rs 90.89 lakh and short-term capital loss of Rs 7.78 lakh. He disclosed the amounts invested in shares under the head investments.
- Now, while processing the ITR, instead of treating the gain from the sale of shares as the capital gain, the assessing officer treated such gain as business income. The ground taken by him for such an action was that Mr. Tendulkar had availed the services of portfolio managers and for which he paid them a considerable sum of Rs. 52 lakhs as fees.
- Afterward, the sportsman then filed an appeal with the Commissioner of Income Tax (Appeals), where he won. In counter to this, the revenue (income tax department) filed an appeal to the ITAT, Mumbai.
- The ITAT gave a reference of the circular by the Central Board of Direct Taxes (CBDT) in 2016 and said that action taken by Mr. Tendulkar is absolutely correct. As per the circular, the choice of specifying the share portfolio as an investment or stock-in-trade is with the assessee. However, the assessee must follow his choice on a consistent basis. Further, the assessing officer(AO) do not have the liberty under the law to impose his opinion upon the assessee. Mr. Tendulkar also followed his choice on a consistent basis for the previous four assessment years and consequently won the case.
As per ITAT, merely availing the services of portfolio manager for managing your investments does not validate such income as Business income. Therefore, ITAT upheld the action of Mr. Tendulkar, who declared his investments under head capital gains.