2010 (3) TMI 1208 - AT - Income Tax

Summary

Issues involved: Determination of whether share transactions should be treated as business income or capital gains for assessment year 2004-05.

Department's Ground of Appeal:
The department challenged the CIT(A)'s decision regarding the treatment of share transactions as "business income" based on the repetitive nature of the transactions and the intention to earn a profit, citing a relevant decision of the ITAT, Ahmedabad Bench.

Assessment by AO:
The AO observed frequent transactions of shares and categorized them based on the average holding period into three classifications. Transactions with an average holding period up to six months were treated as business income, while those held for more than six months were considered short-term capital gains. The AO also allowed a deduction for shares held for business purposes.

Assessee's Appeal:
The assessee contended that the AO did not consider various criteria outlined by the CBDT, including the source of funds, infrastructure, treatment of shares in the books, purchase/sales ratio, dividend income, and the nature of other business activities. The assessee, a Doctor by profession, argued that lack of time for share market analysis indicated an investment intent, supported by the source of funds and dividend income.

CIT(A)'s Decision:
After reviewing the submissions and evidence, the CIT(A) found the AO's classification unjustifiable and contrary to CBDT guidelines. Considering the overall purpose of the share transactions, the CIT(A) agreed with the assessee that the transactions were for investment, not business income. The CIT(A) directed the AO to treat the transactions as capital gains, leading to the department's appeal before the Tribunal.

Tribunal's Decision:
After hearing arguments from both sides, the Tribunal found no merit in the department's appeal. The Tribunal upheld the CIT(A)'s decision, emphasizing that the findings were based on facts and CBDT guidelines. The Tribunal confirmed the order to treat the share transactions as capital gains, dismissing the department's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to treat the share transactions as capital gains, rejecting the department's appeal. The order was pronounced on March 18, 2010.