2006 (12) TMI 261 - AT - Income Tax

Disallowed set off - Long term capital loss adjust against with short term capital gain - Purchase and sale of shares - nature of transaction - HELD THAT - The mere volume of transaction transacted by the assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does not alter the nature of transaction. Though the principle of res judicata does not apply to the Income-tax Proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is a material change in the facts. Assessee is holding the shares as investment from year to year. It is the intention of the assessee which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceeding years have been held to be income from Capital Gains both on Long Term and Short Term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. There is no basis for treating the assessee as a Trader in shares, when his intention was to hold the shares in Indian companies as an investment and not as stock-in-trade. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as Income from Capital Gains in the past several years. The Assessing Officer is directed to set off the Long Term Capital Loss against the Short Term Capital Gain of the year under consideration. The grounds of appeal raised by the assessee are allowed. In the result, the appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Allowance of set off of long-term capital loss against short-term capital gains.
2. Treatment of short-term capital gains as profit from share trading business.
3. Disposal of additional grounds of appeal.
4. Relief in respect of the appellant's plea regarding being held as a trader or investor in shares.
5. Charging of interest under sections 234B and 234C of the Income-tax Act, 1961.

Analysis:

1. The appellant contested the order of CIT(A) regarding the disallowance of set off of long-term capital loss against short-term capital gains. The appellant argued that the long-term capital loss should be allowed to be set off against the short-term capital gains. The appellant presented evidence of similar transactions in previous years that were accepted as income from capital gains. The Tribunal found in favor of the appellant, stating that the intention of the appellant to hold shares as investments should determine the nature of the transaction. The Tribunal directed the Assessing Officer to allow the set off of long-term capital loss against short-term capital gains.

2. The appellant also challenged the treatment of short-term capital gains as profit from share trading business. The appellant argued that the nature of the transactions, as evidenced by the entries in the books of account and previous assessments, supported the classification of income as capital gains. The Tribunal agreed with the appellant, emphasizing that the volume of transactions does not alter the nature of the transaction. The Tribunal ruled in favor of the appellant, directing that the short-term capital gains be treated as such and not as profit from share trading business.

3. The appellant raised concerns about the additional grounds of appeal not being disposed of by the CIT(A). However, the Tribunal did not find merit in this issue and did not provide relief to the appellant in this regard.

4. Regarding the appellant's plea to be recognized either as a trader or investor in shares, the Tribunal analyzed the appellant's history of transactions and held that the appellant's intention to hold shares as investments was clear. The Tribunal emphasized consistency in assessments unless there is a material change in facts. The Tribunal directed the Assessing Officer to set off the long-term capital loss against the short-term capital gain based on the appellant's status as an investor in shares.

5. Lastly, the issue of charging interest under sections 234B and 234C of the Income-tax Act was raised by the appellant. The Tribunal dismissed this ground of appeal as consequential in nature, resulting in the partial allowance of the appeal filed by the appellant.