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2012 (10) TMI 1106 - AT - Income TaxSurplus arising out of the sale of share held for period of less then 30 days - business profit OR short-term capital gain - Held that - While going through the computation of income for subsequent assessment year we find that though assessee suffered loss on sale of shares, the same has been shown as short-term capital loss and the same was carried forward to the next year instead of treating the same as business loss and taking advantage of this by way of reducing the income of that year. The intention of the assessee is clear that he has treated investment in shares as investment and not for the purpose of trade. The Revenue has not brought any material to show that assessee has invested in shares for trade . We further find that Revenue has not filed any appeal against the order of CIT(A) treating the investment of assessee in shares for more than 30 days and less than 12 months as investment in short-term asset. There is no provision under the Act to indicate that the holding period of 30 days is relevant to decide whether any transaction is made for investment or for trading. Therefore, we have no hesitation in holding that ld. CIT(A) was not justified in treating the surplus arising out of sale of shares held for the period of less than 30 days as business income instead of short-term capital gain shown by the assessee. - Decided in favour of assessee.
Issues Involved:
1. Classification of surplus from the sale of shares held for less than 30 days as business profit or short-term capital gain. Detailed Analysis: Classification of Surplus from Sale of Shares: The primary issue in this case revolves around whether the surplus arising from the sale of shares held for less than 30 days should be classified as business profit or short-term capital gain. The assessee contends that the gains should be considered as short-term capital gains, while the Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated them as business income. Assessing Officer's Observations: 1. Volume and Frequency of Transactions: The A.O. noted that the assessee engaged in a high volume of share transactions, purchasing and selling thousands of shares across 52 different types, with transactions occurring on 316 occasions throughout the year. 2. Systematic and Organized Trading: The A.O. observed that the assessee conducted share transactions in a systematic and organized manner, indicative of trading activity rather than investment. 3. Market Conditions: The A.O. highlighted the fluctuating market conditions during the financial year, suggesting that the assessee's intention was to trade shares for profit rather than holding them as investments. 4. Judicial Precedents and Circulars: The A.O. relied on various judicial decisions and CBDT Circular No. 4/2007, which provided criteria for distinguishing between trading and investment activities. CIT(A)'s Observations: 1. High Frequency of Transactions: The CIT(A) noted the high frequency of transactions and short holding periods, which indicated trading activity. 2. Mixed Characteristics: The CIT(A) acknowledged that the assessee exhibited characteristics of both an investor and a trader, as evidenced by long-term capital gains and the absence of loans for share investments. 3. Demarcation Criteria: The CIT(A) referred to the ITAT decision in the case of Sugamchand C. Shah vs. ACIT, which suggested that shares held for less than a month should be treated as trading transactions, while those held for more than a month should be considered investments. Tribunal's Observations: 1. Intention at the Time of Purchase: The Tribunal emphasized the importance of the assessee's intention at the time of purchasing shares, noting that the assessee intended to invest rather than trade. 2. No Borrowed Funds: The Tribunal observed that the assessee did not borrow funds for share investments, which supported the claim of investment activity. 3. Consistent Treatment in Previous Years: The Tribunal found that the assessee consistently treated similar transactions as short-term capital gains in previous and subsequent years, further supporting the investment intent. 4. No Statutory Basis for 30-Day Criterion: The Tribunal noted that there is no statutory provision or judicial precedent indicating a 30-day holding period as a criterion for distinguishing between trading and investment. Tribunal's Decision: The Tribunal concluded that the CIT(A) was not justified in treating the surplus from the sale of shares held for less than 30 days as business income. The Tribunal directed the A.O. to accept the short-term capital gain of Rs. 8,08,357 shown by the assessee in the return of income. The assessee's appeal was allowed in full. Conclusion: The Tribunal's judgment underscores the importance of the assessee's intention and consistent treatment of transactions in determining the classification of gains from share transactions. The absence of borrowed funds and the consistent treatment of similar transactions in previous years were significant factors in the Tribunal's decision to classify the gains as short-term capital gains rather than business income.
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