2013 (3) TMI 742 - AT - Income Tax

Summary

Issues involved: The judgment involves the issue of treating profit from share transactions as capital gain instead of business income u/s 143(3) of the Income-tax Act, 1961 for Assessment Years 2007-08 and 2008-09.

Assessment Year 2008-09:
The revenue appealed against the CIT(A)'s direction to treat profit from share transactions as Capital Gain instead of Business income, citing the magnitude & frequency of transactions, purchase to sale ratio, multiplicity of transactions, and negligible dividend income compared to the money invested. The AO observed the assessee's transactions in scrips of 60 companies with about 260 trade transactions, holding periods ranging from 1 day to 315 days, and utilization of borrowed funds for share trading. Despite the assessee's claim of maintaining an investment portfolio consistently, the AO treated the short term capital gain as trading income. The CIT(A) analyzed the transactions and upheld the claim of the assessee, noting that the majority of profits were derived from transactions with holding periods exceeding 20 days, rejecting the revenue's contention.

Assessment Year 2007-08:
Similar to the previous year, the revenue raised concerns about the utilization of borrowed funds for share trading, frequency of transactions, and purchase to sale ratio, arguing that the activities in the share market had a trade color. The AO treated the short term capital gain as trading income based on the frequency and magnitude of transactions. The CIT(A) considered the past assessments and accounts, where revenue accepted the income from shares as capital gains, and upheld the assessee's claim, emphasizing the consistent treatment of investments in the books of account. The judgment dismissed the revenue's appeals for both assessment years, affirming the CIT(A)'s decision.

Conclusion:
The Appellate Tribunal upheld the CIT(A)'s decision to treat the profit from share transactions as capital gain instead of business income for both Assessment Years 2007-08 and 2008-09, based on the consistent treatment of investments in the assessee's books of account and past assessments. The appeals of the revenue were dismissed.