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2012 (12) TMI 1043 - AT - Income TaxTransactions on sale of shares - whether business income or short term capital gain - Held that - assessee has held the shares of various companies as investments only - mere fact that some shares have been held for less than 30 days will not by itself make the appellant a trader - assessee has intention of enjoying the appreciation in value of shares and merely that some shares have been sold in less than 1 year, cannot lead to conclusion that he had a different intention in respect of such shares - assessee has used his own funds for the purchase of shares and no borrowed fund was used by the assessee - it is relevant to see the intention of the assessee as to whether the activity amounts to trading activity or investment activity - thus the intention of the assessee is to hold as investment - also volume of transactions would not alter the nature of transaction from investment to trading hence the profits are to be shown as short term capital gains - Decided in favor of assessee
Issues Involved:
1. Whether the profit on the sale of shares amounting to Rs. 29,04,561/- should be assessed as Short Term Capital Gain or as business income. Detailed Analysis: Background: The Department filed an appeal disputing the order of the Ld. CIT(A) which directed the Assessing Officer (AO) to assess the profit on the sale of shares as Short Term Capital Gain instead of business income for the Assessment Year (AY) 2008-09. Facts: The assessee filed a return showing Short Term Capital Gain of Rs. 29,04,561/-, Long Term Capital Gain of Rs. 36,83,915/-, and interest income of Rs. 38,89,280/-. The AO questioned whether the Short Term Capital Gain should be considered as capital gain or business income. The assessee argued that the shares were held as investments, not as stock-in-trade, and cited past assessments and relevant case laws to support this claim. AO's Findings: The AO noted that the assessee engaged in 91 transactions of purchase and 65 transactions of sale across 50 scripts, with substantial volumes and frequent transactions. The AO, referring to CBDT Circular No. 04/2007, concluded that the Short Term Capital Gain should be assessed as business income due to the nature and volume of transactions. CIT(A)'s Findings: The Ld. CIT(A) considered the assessee's submissions and relevant case laws, including CIT Vs. Gopal Purohit and Sugamchand C. Shah Vs. ACIT. The CIT(A) concluded that: - The number of transactions (65 sales) was not voluminous enough to categorize the assessee as a trader. - The majority of Short Term Capital Gain was from shares held for longer periods. - The assessee had consistently shown shares as investments in past assessments. - The assessee had substantial capital and did not use borrowed funds for share purchases. - The assessee earned substantial dividends, indicating an investment motive. Department's Arguments: The Department contended that the assessee, being a Civil Engineer and partner in a construction firm, engaged in systematic share transactions, indicating a business activity. They cited cases where frequent transactions were treated as business income. Assessee's Arguments: The assessee argued that: - The shares were held as investments, not stock-in-trade. - The transactions were delivery-based and funded by own capital. - The shares were consistently shown as investments in the books and valued at cost. - Past assessments treated similar gains as Short Term Capital Gain. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, agreeing that: - The volume and frequency of transactions did not alter the nature of the transactions from investment to trading. - The assessee's intention, as evidenced by the treatment of shares in the books and past assessments, was to hold shares as investments. - The assessee's substantial dividend income and consistent treatment of shares as investments supported this intention. The Tribunal concluded that the profit of Rs. 29,04,561/- should be assessed as Short Term Capital Gain and not as business income, dismissing the Department's appeal. Conclusion: The appeal of the Department was dismissed, and the profit on the sale of shares was rightly assessed as Short Term Capital Gain by the CIT(A). Order pronounced in the open court on 28th December, 2012.
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