2015 (2) TMI 1204 - AT - Income Tax

Income from sale of shares - capital gain or business income - Held that - The assessee has not used any borrowed funds and the transactions done by him are within the assessee s financial capacity. The entries in the books of account reveal that the shares are shown as investments. Assessing Officer has not brought any case of repetitive transactions too. The decision of the ITAT in the case of Naishadh V. Vachharajani 2011 (2) TMI 84 - ITAT MUMBAI is relevant for the proposition that the transaction as a whole has to be taken in consideration and the magnitude of the transaction does not alter the nature of transaction. Considering the same, we are of the opinion that the CIT (A) has rightly adjudicated the issue in directing the Assessing Officer to treat the said amount as short term capital gains only and not as the business income. Therefore, the decision of the CIT (A) is fair and reasonable and we find no infirmity in the order of the CIT (A). - Decided against revenue

Summary

Issues:
- Determination of short term capital gain as business income
- Application of CBDT Circular No.4/2007
- Interpretation of volume of transactions, period of holding, and frequency of transactions

Analysis:

Issue 1: Determination of short term capital gain as business income
The appeal filed by the Revenue challenged the CIT (A)'s direction to treat the short term capital gain declared by the assessee as such and not as business income. The Assessing Officer initially treated the short term capital gain as business income based on the volume of transactions and the period of holding. However, the CIT (A) considered the absence of borrowed capital, the nature of transactions within the assessee's financial capacity, and the treatment of shares as investments in the books of accounts. The CIT (A) also highlighted that the majority of shares were delivery-based and that more than 50% of transactions exceeded 180 days. The Tribunal upheld the CIT (A)'s decision, emphasizing that the nature of the transaction should be considered as a whole, and the magnitude of the transaction does not alter its nature.

Issue 2: Application of CBDT Circular No.4/2007
The Revenue contended that the CIT (A) failed to appreciate the guidelines laid down in CBDT Circular No.4/2007. However, the Tribunal did not find merit in this argument, as the decision was primarily based on the specific facts and circumstances of the case, such as the absence of borrowed funds, the nature of transactions, and the treatment of shares as investments.

Issue 3: Interpretation of volume of transactions, period of holding, and frequency of transactions
The Revenue raised concerns regarding the volume of transactions, period of holding, and frequency of transactions in determining the nature of income. The CIT (A) and the Tribunal emphasized that the volume of transactions alone is not determinative, especially if there are no repetitive buying and selling activities. The Tribunal highlighted that more than 50% of the transactions exceeded 180 days, indicating a long-term investment approach. The absence of borrowed funds and the delivery-based nature of transactions were also crucial factors considered in determining the nature of income.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision to treat the short term capital gain as such and not as business income. The judgment focused on the specific facts of the case, the nature of transactions, and the absence of repetitive trading activities, highlighting the importance of considering the transaction as a whole in determining the nature of income.