2014 (7) TMI 507 - AT - Income Tax

Treatment of sale of shares Business income or capital gains - Whether the income arising out of sale of shares is to be treated as business income or it has to be assessed as capital gains Held that - The decision in ACIT Vs. Smt. Vijaya Srinivasan 2014 (7) TMI 124 - ITAT CHENNAI followed - the profit arising from shares held for more than 30 days is to be considered as short or long term capital gain depending upon the period of holding and that where shares have been purchased and sold in less than 30 days, the profit has to be considered as business income - The Income Tax Act only recognizes the period for determining short term or long term capital gain - The criteria of 30 days for determining business income or capital gain is neither recognized nor acceptable under the provisions of the Income Tax Act - The intention of the assessee in purchasing the shares was clearly to earn profits from sale and not to earn dividend or investment - the shares held by the assessee for longer period may be treated as investment and the profit arising to be treated as long term capital gain - as regards shares held for short duration are concerned, the magnitude, frequency and volume of transactions gives flavor of business income and the same is considered to be income from business Decided partly in favour of Revenue.

Summary

Issues:
1. Whether income from the sale of shares should be treated as business income or capital gains?

Analysis:
The appeals were filed by the Revenue against the Commissioner of Income Tax(Appeals)-VI, Chennai's order for the Assessment Year 2006-07 regarding the treatment of income from the sale of shares as either business income or capital gains. The assessees' returns were initially processed under section 143(1) of the Income Tax Act, 1961, and later, assessment was reopened under section 147. The Revenue contended that the gains from the sale of shares should be classified as 'Business Income,' while the CIT(Appeals) determined that the gains from shares held for a longer period should be treated as Long Term Capital Gains and those held for a shorter duration as Short Term Capital Gains.

The Tribunal noted that similar issues had been addressed in previous cases involving the same assessee for different assessment years. Referring to the principles laid down by the Mumbai Bench of the Tribunal and various judgments of the Supreme Court, the Tribunal concluded that the intention behind the purchase of shares was crucial in determining whether the gains should be considered as business income or capital gains. The Tribunal disagreed with the CIT(A)'s approach of categorizing gains based on the holding period alone, emphasizing that the Income Tax Act does not specify a 30-day criterion for distinguishing between business income and capital gains.

Based on the previous decision in the assessee's case for other assessment years, the Tribunal partially allowed the Revenue's appeals, treating gains from shares held for a longer period as Long Term Capital Gains and those held for a shorter duration as income from business. The Tribunal's decision was in line with the principles established by the Supreme Court and previous Tribunal rulings. The appeals of the Revenue were partly allowed, and the Cross Objections of the assessee were dismissed.

In conclusion, the Tribunal's judgment clarified the distinction between business income and capital gains concerning the sale of shares, emphasizing the importance of the assessee's intention behind the transactions. The decision provided a comprehensive analysis based on legal principles and previous rulings, ensuring consistency in the treatment of such cases across different assessment years.