2012 (12) TMI 1006 - AT - Income Tax

Summary

Issues Involved:

1. Classification of Gains as Business Income or Capital Gains.
2. Treatment of Long Term Capital Gains (LTCG).
3. Treatment of Short Term Capital Gains (STCG).

Summary:

Issue 1: Classification of Gains as Business Income or Capital Gains

The Revenue contended that the gains from the sale of shares should be treated as business income, citing the average holding period of shares (15-30 days) and the number of transactions (200 odd) as indicative of business activity. The Assessing Officer (AO) concluded that the profits from the sale of shares constituted business income, not capital gains, based on factors such as the time devoted, the normal activity of the assessee, the motive/intention, the source of funds, the period of holding, the frequency of transactions, and the number of stocks invested.

Issue 2: Treatment of Long Term Capital Gains (LTCG)

The assessee argued that the gains from the sale of shares held for more than 12 months should be treated as LTCG. The CIT (A) agreed, noting that the shares were held as investments and not as stock-in-trade. The CIT (A) found that the assessee's intention was to earn dividends and appreciate capital investment, and the shares were held for a longer period without any intra-day trading. The CIT (A) allowed the claim of Rs. 22,46,495/- as LTCG.

Issue 3: Treatment of Short Term Capital Gains (STCG)

The assessee claimed that the gains from shares held for less than 12 months should be treated as STCG. The CIT (A) examined various parameters, including the period of holding, the absence of borrowed funds, and the nature of transactions, and concluded that the gains of Rs. 84,88,017/- should be treated as STCG. The CIT (A) noted that the assessee maintained two separate portfolios for investment and trading, and the shares were shown as investments in the books of accounts.

Conclusion:

The ITAT upheld the CIT (A)'s decision, dismissing the Revenue's appeal. The ITAT agreed that the gains from the sale of shares held for more than 12 months should be treated as LTCG and those held for less than 12 months as STCG. The ITAT found that the assessee's activities were consistent with investment rather than business, considering factors such as the absence of borrowed funds, the nature of transactions, and the holding period of shares. The appeal of the Revenue was dismissed, and the order of the CIT (A) was upheld.