2012 (10) TMI 1115 - HC - Income Tax

Gain on sale of shares - capital gain or busniss income - Held that - Commissioner as well as the Tribunal concurrently found as a matter of fact that looking to the relevant factors including the amount of shareholding 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/-. Totality of the facts and circumstances of the case would lead to an inescapable conclusion that CIT (Appeals) as well as the Tribunal correctly applied the factual and legal position.

Summary

Issues:
1. Whether gain on sale of shares should be treated as long-term capital gain or business income?
2. Whether the assessee should be classified as an investor or a trader in shares?

Analysis:
1. The main issue in this case is whether the gain on the sale of shares 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 High Court observed a similar case involving a salaried individual who claimed income from share trading and exempt income from the sale of shares. The Tribunal in that case upheld the view that the individual was not in the business of trading shares but was an investor. The High Court noted that the assessee in the present case sold shares worth a small amount inviting short-term capital gain, while holding a significant amount for a long period resulting in long-term capital gain. Considering the factors like shareholding, purchase and sale frequency, the Court agreed with the Tribunal's factual and legal position, dismissing the appeal.

2. The second issue revolves around whether the assessee should be classified as an investor or a trader in shares. The Tribunal, supported by the CBDT circular, emphasized the intention of the assessee at the time of share purchase. In this case, the assessee, a salaried employee, was found to have clear investment intentions rather than trading intentions. The Tribunal concluded that the assessee maintained an investment portfolio and did not engage in share trading as a business. The Court concurred with the Tribunal's findings, noting the absence of trading intentions and the significant long-term investments made by the assessee. Consequently, the Court upheld the Tribunal's decision, dismissing the tax appeal.

In conclusion, the High Court affirmed the Tribunal's decision regarding the treatment of the gain on the sale of shares as long-term capital gain and the classification of the assessee as an investor rather than a trader in shares. The judgment highlighted the importance of assessing the intention behind share transactions and considering factors like shareholding and frequency of trades in determining the nature of income.