2015 (5) TMI 1139 - AT - Income Tax

Income from sale of shares - capital gain or business income - Held that - According to the figures placed in the chart the assessee in earlier year has dealt in number of scrips i.e. 11 and in respect of A.Y 2008-09 the scrips dealt in are 16. There is not much difference in the position of sale and purchase of shares except higher value of the shares the period of holding is also substantial and main income has been earned by the assessee in two scrips only. All these positions have been described in the chart which have been reproduced in the above part of this order. AO has not brought out any substantial difference in the facts between the case for the year under consideration and for assessment year 2007-08. The assessee is an old person and is regularly making investment in the shares and the number of scrips dealt is also not high. We do not find any differential fact for the year under consideration as compared to the immediate preceding assessment year for which similar activity has been held to be assessable under the head capital gain. There is also no substantial difference in the activities carried out by the assessee in individual capacity vis- -vis in the capacity of HUF. The assessee did not utilize the borrowed funds for making investment as the entire investment is made out of own capital of the assessee. Keeping in view all these facts which have been accepted by Ld. CIT(A) by detailed discussion in the case of HUF and also in view of facts of the present case and position depicted in the charts we are of the opinion that Ld. CIT(A) did not commit any error concluding that such income of the assessee was assessable under the head capital gain - Decided against revenue

Summary

Issues Involved:
1. Classification of income from the sale and purchase of shares as either "business income" or "capital gains."

Issue-wise Detailed Analysis:

1. Classification of Income:
The primary issue in both appeals is whether the income from the sale and purchase of shares should be classified as "business income" or "capital gains." The Revenue contends that the Assessee's activities in dealing with shares are substantial and frequent, indicating a business motive rather than investment intent. The Assessee, on the other hand, argues that the shares were held as investments, not as stock-in-trade, and hence the income should be classified under "capital gains."

Facts and Figures:
- The Assessee in ITA No. 3357/Mum/2011, an individual, reported a short-term capital gain of Rs. 8,20,81,356 and a long-term capital loss of Rs. 36,466.
- The Assessee in ITA No. 3359/Mum/2011, an HUF, reported a short-term capital gain of Rs. 6,48,96,080 and a long-term capital loss of Rs. 5,34,055.
- Both Assessees have shown consistent patterns in their transactions and have not used borrowed funds for these investments.

Assessment History:
- For the assessment year 2007-08, the Assessee's income from the sale and purchase of shares was assessed under the head "capital gains."
- The Assessee has consistently reported income from shares under "capital gains" in previous years, and this method has been accepted by the AO in earlier assessments.

CIT(A) Observations:
- The CIT(A) noted that the Assessee's shares were held as investments in the balance sheet, indicating an intent to hold them as investments.
- The Assessee paid Securities Transaction Tax (STT) at rates applicable to investors and conducted transactions based on delivery, as evidenced by the Demat account.
- The CIT(A) emphasized the principle of consistency, citing the case of Gopal Purohit vs. JCIT (29 SOT 117), where it was held that the same view should be adopted for subsequent years unless there is a material change in the facts.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s decision, stating that the Assessee's activities were consistent with those of an investor rather than a trader.
- The Tribunal referenced several judicial pronouncements, including Janak S. Rangwalla vs. ACIT (11 SOT 627) and DCIT vs. SMK Shares and Stock Broking Ltd., which support the view that the volume of transactions alone does not determine the nature of income.
- The Tribunal also noted that the Assessee did not use borrowed funds for these investments, further supporting the classification under "capital gains."

Conclusion:
- The Tribunal concluded that the CIT(A) did not err in granting relief to the Assessee by accepting the income as "capital gains."
- The appeals filed by the Revenue were dismissed, and the order pronounced on 29/05/2015 confirmed the CIT(A)'s decision.

Result:
Both appeals filed by the Revenue were dismissed, affirming the classification of income from the sale and purchase of shares as "capital gains."