2012 (10) TMI 1028 - HC - Income Tax

Profit on sale of shares - busniss income or capital gain - Held that - Looking to the relevant factors including the amount of share holding of the assessee, the volume and the frequency of the purchase and sale of shares etc., it cannot be stated that the assessee was in the business of trading of shares. More significantly, we find that the assessee had sold shares only worth ₹ 83,712/- during the year under consideration inviting short term capital gain. As against that, bulk of the shares were held by the assessee for a long period of time inviting long term capital gain for a total sum of ₹ 53,84,239/-.

Summary

Issues Involved:
1. Classification of gain on sale of shares as long-term capital gain or business income.
2. Determination of whether the assessee is an investor or a trader in shares.

Issue 1: Classification of Gain on Sale of Shares
The High Court considered whether the gain on the sale of shares amounting to a specific sum should be treated as long-term capital gain or business income. The Tribunal had treated the gain as long-term capital gain, contrary to the AO's classification as business income. The Court examined the intention of the assessee at the time of purchase of shares, emphasizing the distinction between investment and trading in shares. Notably, the Court highlighted a circular by CBDT and the assessee's status as a salaried employee. The Court concluded that the assessee's intention was investment, supported by the holding period of shares and the volume of transactions. The Court upheld the lower authorities' decision to classify the gain as long-term capital gain, dismissing the appeal by the revenue.

Issue 2: Determination of Investor vs. Trader Status
The second issue revolved around whether the assessee should be considered an investor or a trader in shares. The Court analyzed the assessee's financial activities, considering the nature of transactions, the amount of share holding, and the frequency of purchase and sale. The Court noted that the assessee, being a salaried employee, did not maintain separate investment portfolios due to having a single source of income. The Court emphasized the intention of the assessee at the time of purchase, concluding that the assessee's actions aligned with an investment strategy rather than trading. The Court affirmed the findings of the lower authorities, stating that the assessee was not engaged in the business of trading shares. Consequently, the Court dismissed the tax appeal, confirming the classification of the gain as long-term capital gain.

In summary, the High Court upheld the Tribunal's decision to classify the gain on the sale of shares as long-term capital gain, considering the assessee's status as a salaried employee and the intention behind the share transactions. The Court emphasized the importance of assessing the nature of transactions to determine whether an individual is an investor or a trader in shares, ultimately dismissing the revenue's appeal.