2013 (6) TMI 730 - AT - Income Tax

Sale of shares and securities - Short term capital gain OR Income from Business or Profession - Held that - It cannot be said that the assessee was fully devoted to the stock market transaction. Considering the nature of profession and the facts in totality, in our considered view, the lower authorities have erred in treating the Short Term Capital gains as business income. We accordingly direct the AO to treat the STCG as declared by the assessee. On that note, we reverse the findings of the Ld. CIT(A). - Decided n favour of assessee.

Summary

Issues involved:
1. Treatment of short term capital gain on sale of shares and securities under the head "Income from Business or Profession."

Analysis:
The appeal was directed against the order of the Ld. CIT(A)-27, Mumbai for the assessment year 2010-11. The assessee raised grounds related to the treatment of short term capital gain on the sale of shares and securities. The Assessing Officer questioned the nature of the assessee's share transaction activities, considering whether they should be classified as business activity or investment activity. The AO concluded that the income from short term capital gain should be taxed under the head "Income from Business or Profession."

Upon appeal, the Ld. CIT(A) upheld the AO's decision, noting that the assessee had carried out transactions in shares on a significant number of working days and had engaged in repetitive transactions in the same scrips during the year. The assessee argued that as a full-time doctor, he did not have the time to engage in trading activities in the stock market. The dispute revolved around whether the income from the sale and purchase of shares should be treated as capital gain or business income.

The Tribunal considered the conflicting decisions on this issue and emphasized that each case should be evaluated based on its factual circumstances. It noted that the assessee, being a doctor, was primarily engaged in his profession and should be able to provide evidence distinguishing between shares held as investments and those forming part of the stock-in-trade. The Tribunal highlighted that all transactions by the assessee involved actual delivery of shares and money, unlike typical trading transactions settled without actual delivery.

The Tribunal further observed that the assessee's long term capital gains had been accepted by the AO, indicating an investment approach. It emphasized that repetitive transactions and reshuffling of the portfolio to mitigate risks did not necessarily indicate trading activity. Additionally, the absence of bank borrowings and interest payments suggested that the investments were not made from borrowed capital. Considering the nature of the assessee's profession and the overall facts, the Tribunal concluded that the lower authorities erred in treating the short term capital gains as business income. Consequently, the Tribunal directed the AO to treat the short term capital gains as declared by the assessee, reversing the Ld. CIT(A)'s findings. Grounds No. 1 & 2 were allowed, rendering the additional grounds raised by the assessee irrelevant.

In conclusion, the appeal filed by the assessee was allowed by the Tribunal, and the decision was pronounced in open court on 12.6.2013.