2014 (2) TMI 1156 - AT - Income Tax

Business Income or short term capital gain - profit on transactions of shares - Held that - CIT(A) has very elaborately dealt with the appeals of assessee and has examined all the objections raised by the Assessing Officer and has rightly held the income as short term capital gain instead of business income and we do not find any infirmity in the same. The case law relied upon by Ld DR do not have similar facts and circumstances. The contention of Ld DR that in succeeding years assessments were completed u/s 143(1) therefore assessee cannot claim the benefit of continuity also does not carry much force as for all practical purposes. Assessments u/s 143(1) remains assessment and moreover otherwise also assessee has strong case in her favour as she had been classifying the cost of shares as investment and not as stock in trade which is important indication of intention of the assessee. - Decided against Revenue.

Summary

Issues:
- Classification of profit on transactions of shares as short term capital gain or business income.

Analysis:
The appeals before the Appellate Tribunal ITAT Delhi involved three separate orders of the CIT(A) dated 24.9.2010, where the revenue challenged the classification of profit on transactions of shares as short term capital gain instead of business income. The Assessing Officer had initially treated the income as business income due to various factors including the magnitude of transactions, lack of response to queries, and the absence of shares in the Demat Account. However, the CIT(A) disagreed, considering the assessee's employment status, source of funds, use of broker's Demat Account, absence of borrowed funds, and holding period of shares, concluding that the intention was investment, not business. The CIT(A) highlighted the assessee's lack of expertise in the share market, reliance on the broker's advice, absence of borrowed funds, and consistent treatment of shares as investments, supporting the contention of investment intent.

The revenue, aggrieved by the CIT(A)'s decision, argued that the frequency of transactions, reinvestment of sale proceeds, and absence of withdrawals indicated a business motive, citing judicial pronouncements to support their stance. In response, the assessee emphasized the source of funds, lack of withdrawals, age, lack of infrastructure for trading, and absence of borrowed funds as evidence of investment intent. The assessee relied on case laws emphasizing delivery-based transactions, financial security motive, capital gain treatment, and past acceptance of shares as investments to support their position. The Tribunal, after considering both parties' arguments and the record, upheld the CIT(A)'s decision. The Tribunal found the CIT(A)'s analysis comprehensive and reasoned, noting the absence of similar facts in the revenue's cited case laws and rejecting the argument regarding assessments under section 143(1) in succeeding years. The Tribunal emphasized the consistent treatment of shares as investments by the assessee, ultimately dismissing the revenue's appeals and affirming the classification of profit as short term capital gain.

In conclusion, the Tribunal's detailed analysis and consideration of the relevant factors led to the dismissal of the revenue's appeals, upholding the CIT(A)'s decision to classify the profit on transactions of shares as short term capital gain based on the assessee's investment intent and consistent treatment of shares as investments.