2011 (4) TMI 1362 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from sale of shares as either business income or capital gains.
2. Treatment of shares held for less than 30 days.
3. Condonation of delay in filing Cross Objection by the assessee.

Summary:

1. Classification of Income from Sale of Shares:
The primary issue was whether the income from the sale of shares should be treated as business income or capital gains. The assessee declared a total income of Rs. 21,64,772/- from house property, other sources, and capital gains. The Assessing Officer (AO) argued that the frequency and volume of transactions indicated that the assessee was trading in shares rather than investing, thus treating the income as business income. The assessee contended that the shares were purchased with the intention of deriving dividend income and had been consistently treated as investments in previous years. The CIT(A) concluded that the assessee acted both as an investor and a trader, directing the AO to treat shares held for less than 30 days as business income and those held for more than 30 days as capital gains.

2. Treatment of Shares Held for Less than 30 Days:
The CIT(A) directed that shares held for less than 30 days should be treated as business income, while those held for more than 30 days should be treated as short-term capital gains. The revenue appealed against this decision, arguing that the 30-day holding period was arbitrary and not in line with CBDT instructions. The assessee filed a Cross Objection, challenging the treatment of shares held for less than 30 days as business income.

3. Condonation of Delay in Filing Cross Objection:
The assessee filed a Cross Objection with a delay of 89 days, which was condoned by the Tribunal after considering the reasons provided by the assessee.

Judgment:
The Tribunal, after considering the rival submissions and various judicial precedents, held that the transactions of purchase and sale of shares by the assessee should be treated as investments. The Tribunal noted that the assessee had declared long-term capital gains on shares held for periods ranging from 14 to 134 months and that the AO had accepted such gains in previous and subsequent years. Following the decision in the case of Nagindas P Sheth (HUF), the Tribunal directed that the profit from these transactions should be assessed under the head 'capital gains'. Consequently, the appeal filed by the revenue was dismissed, and the Cross Objection filed by the assessee was allowed.