2009 (4) TMI 556 - AT - Income Tax

Income from share trading - business income or capital gain - Principle of consistency - shares and other securities have been shown under the head Investment - Apart from that the assessee had also shown long-term capital on shares and mutual funds - earned substantial dividend income and the investment in shares was made out of owned funds and not borrowed capital - average period of holding in respect of shares from the short-term capital gains was stated to be 122 days - AO did not find any weight in this submission and held that simply because in the earlier years income was shown under the head Capital gains , which fact was admitted by the Revenue, was not binding in the subsequent years - AO hold that the income shown by the assessee as short-term capital gain was liable to be taxed under the head Profits and gains of business or profession - CIT(A) upheld the assessment order. HELD THAT - We hold that since in identical circumstances the Revenue authorities have accepted the profit arising from the sale of shares as short-term capital gain in the assessment made u/s 143(3), there is no reason as to why a different treatment be given in this year. It is true that res judicata is not applicable in the income-tax proceedings, but at the same time we cannot brush aside the principle of consistency , which requires that when the facts and circumstances continue to remain the same, then there should not be any variation in the treatment from the earlier year. We therefore, respectfully following the orders in Gopal Purohit v. Jt. CIT 2009 (2) TMI 233 - ITAT BOMBAY-G , set aside the impugned order and direct that the profit on sale of shares offered by the assessee as short-term capital gain be accepted as such. It is however directed that AO shall ensure that the transactions resulting into the amount of long-term capital gain claimed as exempt u/s 10(38) and the short-term capital gain taxable at the reduced rate of 10 per cent u/s 111A have duly suffered the securities transactions tax (STT) and further the assessee has not claimed any benefit u/s 88 in respect of such STT. This ground is allowed for statistical purposes. Disallowance on set off - short-term capital loss on mutual funds against the short-term capital gain on shares - rectification order by AO u/s 154 by which the short-term capital loss was considered while calculating the business income - HELD THAT - As No copy of the said order passed u/s 154. Thus it is clear that the relevant material about the allowing of set off of the loss from the short-term capital gain is not available before us. We, therefore, set aside the impugned order on this issue and remit the matter to the file AO for considering the allowability or otherwise of set off of short-term capital loss subject to the provisions of section 94(7), after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Treatment of share trading income as 'business income' instead of short-term capital gain.
2. Disallowance of set off of short-term capital loss on mutual funds against short-term capital gain on shares.

Analysis:

Issue 1: Treatment of share trading income
The appeal concerned the treatment of share trading income as 'business income' instead of short-term capital gain. The Assessing Officer observed numerous daily share transactions with profits shown as short-term capital gain. The assessee argued being an investor with a long-standing portfolio, supported by substantial dividend income and no borrowed funds for share purchase. The CIT(A) upheld the assessment. The Tribunal reviewed balance sheets for three years, noting shares under 'Investment' without borrowed funds. Prior year assessments accepted short-term capital gains. Citing Gopal Purohit v. Jt. CIT, the Tribunal emphasized consistency in treatment and rejected changing to 'business income'. Relying on Mrs. Amita A. Kapadia v. ITO, the Tribunal held for the assessee, maintaining short-term capital gain treatment. The Tribunal directed verification of tax compliance for exempted long-term gains and directed no double benefit claim. The ground was allowed for statistical purposes, ensuring the assessee's hearing in fresh proceedings.

Issue 2: Set off of short-term capital loss
The second ground challenged the disallowance of setting off short-term capital loss on mutual funds against short-term capital gain on shares. The assessment order lacked discussion on this. A rectification order was mentioned, but its details were unavailable. The Tribunal set aside the decision, remitting the matter to the Assessing Officer for reconsideration, allowing the assessee a hearing. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal's judgment favored the assessee on both issues, emphasizing consistency in treatment and ensuring proper consideration of tax implications and set-off provisions.