2015 (10) TMI 2595 - AT - Income Tax

Income arising on sale of shares - capital gain or business income - Held that - During the year under consideration, the assessee has dealt in 68 scripts. But the repetitive transactions are few in numbers. The period of holding was less than 30 days in respect of 49 scripts and the same may actually go against the claim of the assessee. However, we notice that the assessee s claim of Long term capital gains has been accepted by the AO. Hence, in our view, the low period of holding in respect of certain scripts may not be considered to be the sole determining factor. The assessee has furnished details of the days spent by the assessee on stock market at page 23 of the paper book. A perusal of the same would show that the assessee has spent on an average only 6 days in a month on share trading activity. The assessee has also earned dividend income of ₹ 46.25 lakhs. All the factors discussed above, in our view, shows that the intention of the assessee was mainly to act as investor only. Accordingly, we are of the view that the gains arising on sale of shares should be assessed under the head Capital gains only. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to assess the profits arising on sale of shares as Capital gains only. - Decided in favour of assessee.

Summary

Issues:
Assessment of Short Term Capital Gains (STCG) from sale of shares as business income.

Analysis:
The appellant challenged the order confirming the AO's decision to treat STCG of Rs. 1.13 crores arising from share sale as business income. The AO observed frequent share trading and short holding periods, concluding it as a trading activity. The appellant argued against this, citing other business activities, lack of borrowed funds for share investment, and past acceptance of capital gains. Reference was made to Gopal Purohit case for consistency. The respondent highlighted high volume and frequency of share transactions, short holding periods, and reliance on specific case laws like Jayashree Pradeep Shah and Karamchand Thapar.

Nature of Transactions:
The Tribunal emphasized determining transaction nature based on various factors, including the assessee's intention at the time of purchase. The balance sheet revealed substantial capital balance and investments, indicating other business activities. Despite short holding periods for some shares, the appellant's claim for Long Term Capital Gains was accepted, suggesting an investor's intent. The Tribunal considered the assessee's limited time spent on share trading, dividend income, and overall conduct to ascertain the investor's role.

Decision:
Considering all factors, the Tribunal concluded that the appellant's main intention was as an investor, warranting assessment of share sale profits as Capital gains. The order of the CIT(A) was set aside, directing the AO to assess the profits under the Capital gains category. The appeal by the assessee was allowed, pronouncing the decision on 16th Oct, 2015.