2012 (8) TMI 961 - AT - Income Tax

Summary

Issues Involved:
1. Whether the short-term capital gain shown by the assessee should be taxed under the head "Income from Business & Profession".
2. Whether the short-term capital gain should be taxed at a concessional rate of 10%.

Summary:

Issue 1: Taxation of Short-term Capital Gain as Business Income

The revenue contended that the short-term capital gain of Rs. 1,49,83,284/- shown by the assessee should be treated as business income due to the volume and nature of transactions, which indicated an adventure in the nature of trade. The Assessing Officer (A.O.) observed that the assessee engaged in frequent buying and selling of shares, with 91 transactions spread over the year, and concluded that the intention was to earn profit rather than to invest. The A.O. also noted that the assessee did not maintain separate books for investment and trading and used borrowed funds for share trading.

On appeal, the Ld. CIT(A) held that the transactions were investments and not business activities, noting that the assessee was in full-time employment and the transactions were unconnected with his employment. The CIT(A) emphasized that the intention of the assessee was to make investments and earn gains, not to trade shares. The CIT(A) also considered the fact that in the previous year, the department accepted similar transactions as short-term capital gain.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee's transactions did not exhibit continuity and regularity typical of business activities. The Tribunal referenced several judicial decisions, including CIT Vs Rewashanker A Kothari and CIT Vs Gopal Purohit, which supported the assessee's position. The Tribunal concluded that the surplus from the transactions should be treated as short-term capital gain, not business income.

Issue 2: Concessional Tax Rate

The revenue argued that the short-term capital gain should not be taxed at the concessional rate of 10%. However, the CIT(A) directed the A.O. to treat the income as short-term capital gain taxable at the concessional rate, considering the assessee's intention and the nature of transactions.

The Tribunal agreed with the CIT(A), noting that the assessee's investment in shares was shown as investment in the balance sheet and not as stock in trade. The Tribunal found no justification for changing the department's stand from the previous year, where similar transactions were taxed as short-term capital gain at the concessional rate.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to treat the short-term capital gain as such and tax it at the concessional rate of 10%.