2016 (2) TMI 1004 - AT - Income Tax

Income from sale of shares - capital gain or business income - Held that - In view of the above discussion and keeping in view the decision of Tribunal in case of Gopal Purohit 2009 (2) TMI 233 - ITAT BOMBAY-G which was confirmed by Hon ble Bombay High Court 2010 (1) TMI 7 - BOMBAY HIGH COURT as well as decision in the case of SMK Shares & Stock Broking, 2010 (11) TMI 714 - ITAT, MUMBAI and in the case of Vinod K. Nevatia (2010 (12) TMI 73 - ITAT, MUMBAI), which have already been discussed by the lower authorities in their respective orders, we do not find any merit for deviating from the conclusions drawn by the department in earlier year while framing the assessment u/s.143(3) without change in facts and circumstances during the year under consideration. It is pertinent to mention here that assessee was investing in shares and continuously showing not only short term but huge long term capital gains as well as dividend income which has been accepted by the department in their scrutiny assessment. - Decided against revenue

Summary

Issues involved:
Treatment of capital gains as business income.

Analysis:
The judgment pertains to appeals filed by the assessee and revenue against the order of CIT(A), Mumbai, for the assessment year 2006-07. The main issue raised by both parties relates to the treatment of capital gains offered by the assessee, which the Assessing Officer (AO) treated as business income. The jurisdictional Commissioner of Income Tax -5, Mumbai issued a show-cause notice under section 263 of the Act, leading to a fresh assessment order being passed by the AO. The AO directed the assessee to explain why the profit earned on the sale of shares should not be taxed as business income instead of under the head of short-term capital gains. The assessee argued that its main objective is to invest in shares, not trade them, but the AO disagreed, deeming the assessee a trader in shares. The CIT(A) allowed the claim for long-term capital gains but upheld the treatment of short-term capital gains as business income. Both parties appealed this decision.

Upon considering the contentions and reviewing the orders of the authorities below, the Tribunal analyzed the nature of the assessee's investments. It noted that the assessee's investments were in line with its permitted activities and not its primary objective to trade in shares. The assessee consistently classified shares as investments in its books and did not borrow funds for share investments. The majority of short-term gains were from shares held for a significant period, and the assessee did not engage in Futures & Options transactions. The Tribunal observed that the AO had previously accepted the assessee as an investor for the preceding assessment year and found no change in circumstances for the current year.

Referring to relevant legal precedents, including the Gopal Purohit case and decisions from the Bombay High Court and ITAT Mumbai Bench, the Tribunal concluded that there was no justification to deviate from the department's previous assessment under section 143(3) without any change in facts. The Tribunal highlighted that the assessee consistently showed substantial long-term capital gains and dividend income, which had been accepted in previous scrutiny assessments. Consequently, the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.

In conclusion, the Tribunal's judgment favored the assessee by allowing the appeal and dismissing the revenue's appeal, emphasizing the consistency of the assessee's investment activities and the lack of grounds to alter the treatment of capital gains as business income.