2014 (9) TMI 1081 - AT - Income Tax

Income from sale of shares - capital gain or business income - Held that - Assessee has been consistently treated as Investor by the department itself while framing scrutiny assessment u/s.143(3) for A.Y.2003-04 & 2005-06. The capital gain so offered was accepted by the department. The Tribunal has also decided the exactly similar issue in assessee s own case in the immediately preceding assessment year 2006-07 in favour of the assessee Respectfully following the order of the Tribunal in assessee s own case as well as the stand taken by the department in assessee s own case in earlier year, we do not find any merit in the order of CIT(A) for bifurcating the investment so made by the assessee and thereby treating the shares held for more than 60 days as short term capital gains and on sale of shares held for less than 60 days as business income. - Decided in favour of assessee

Summary

Issues Involved:
1. Treatment of capital gains as business income.
2. Consistency in the treatment of the assessee as an investor in shares.

Detailed Analysis:

1. Treatment of Capital Gains as Business Income:
The primary issue in the appeals was whether the capital gains declared by the assessee should be treated as business income. The Assessing Officer (AO) observed that the assessee engaged in numerous transactions of purchase and sale of shares, indicating an intention to resell at a profit. Consequently, the AO treated both short-term and long-term capital gains as business income. However, the CIT(A) partially disagreed, holding that profits from shares held for more than 60 days should be treated as capital gains, while those held for less than 60 days should be treated as business income. The CIT(A) noted, "the volume, frequency, period of holding clearly show all the transactions entered into up to the period of 60 days amounting to Rs. 9,39,223/- are a 'business activity' to be assessed as business income."

2. Consistency in the Treatment of the Assessee as an Investor in Shares:
The assessee argued that they were consistently treated as an investor in shares in previous assessment years, which was accepted by the department. The Tribunal in the preceding assessment year 2006-07 had ruled in favor of the assessee, stating, "the assessee was an Investor and not a person dealing shares, therefore, profit on sale of shares were liable to be taxed as short-term capital gain rather than business profit." The Tribunal reiterated that the intention behind purchasing shares, the treatment in books of account, and the consistency in the assessee's approach were crucial factors. The Tribunal emphasized, "If totality of the transaction is looked into, it becomes clear that assessee was an investor not a person dealing in shares."

Tribunal's Conclusion:
The Tribunal reviewed previous decisions and the consistency in the department's treatment of the assessee. It cited several cases supporting the principle of consistency, such as Gopal Purohit and E-cap Partners, which highlighted that the intention and treatment in books of account are decisive factors. The Tribunal concluded that the CIT(A) erred in bifurcating the investment based on the holding period. It stated, "we do not find any merit in the order of CIT(A) for bifurcating the investment so made by the assessee and thereby treating the shares held for more than 60 days as short term capital gains and on sale of shares held for less than 60 days as business income."

Final Judgment:
The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal upheld the treatment of the assessee as an investor in shares, consistent with previous years and the principles laid out in relevant case laws. The judgment was pronounced in the open court on 24/09/2014.