2004 (8) TMI 639 - AT - Income Tax

Assessment of income from trading in shares as capital gains or business income - HELD THAT - It is not correct to say that profit motive alone would distinguish a transaction from investment to trading. Even in the case of investment there may be motive that the assessee should be able to sell the investment at a premium. When household savings are invested in gold etc. the profit motive is there but that does not make a householder a businessman trading in gold. In the case of CIT v. A. Dharma Reddy 1969 (2) TMI 6 - SUPREME COURT the term business has been defined to be continuous exercise of an activity. In the present case the assessee held the shares for certain length of time before selling the same and the funds invested were entirely assessee s own funds. On these facts it is not possible to hold that the assessee carried on trading in shares as a continuous regular activity. We, therefore, do not see any reason to interfere in the order of the ld. CIT(A) in this respect. The same is upheld. Assessee s appeal in ITA has been filed on 2-4-2003 against the order of ld. CIT(A) XXII, New Delhi dated 5-2-2003 in the case of the assessee in relation to assessment order u/s 143(3) for assessment year 1995-96. First ground in this appeal is general and is covered by subsequent grounds of appeal.

Summary

Issues involved:
1. Assessment of income from sale of shares as capital gains or business income.

Judgment Details:
1. The dispute in the case revolved around whether the income arising from the sale of shares should be assessed as capital gains or business income.
2. The assessee conducted business in motor parts under one name and dealt in shares of specific companies under another name, while also engaging in buying and selling shares of other companies.
3. The revenue contended that all share transactions, including individual ones, should be treated as part of the assessee's business activities.
4. The assessee argued that the shares of specific companies were treated as business assets due to agency relationships, while other share transactions were treated as investments.
5. The revenue argued that frequent buying and selling of shares indicated a trading activity, citing relevant case law.
6. The assessee maintained that the holding period of shares and use of own funds indicated investment rather than trading activity.
7. The tribunal upheld the assessee's treatment of income from share transactions as capital gains, considering factors such as holding period and use of own funds.

Separate Judgment:
- The tribunal directed the Assessing Officer to allow the assessee an opportunity to produce relevant documents regarding interest paid to a bank for business purposes, for consideration of deduction.
- Certain grounds of appeal related to disallowances and deductions were rejected based on previous orders and lack of new evidence or arguments.
- In another appeal, the tribunal directed the Assessing Officer to verify if brokerage paid on financiers was actually interest on loans, allowing the assessee to establish facts for reconsideration.

This judgment clarifies the distinction between capital gains and business income in share transactions, emphasizing factors such as intent, holding period, and funding sources. It also highlights the importance of supporting documentation for deductions and the opportunity for reassessment based on verified facts.