2014 (9) TMI 1140 - AT - Income Tax

Income from sale of shares - capital gain or busniss income - Held that - There was no motive of the appellant to take advantage of concessional tax rate applicable to capital gains and also the various ratios worked out in the above manner, clearly establish that appellant was an investor and not a trader in respect of shares held by it and therefore the assessing officer was not justified in computing the income under the head business as against capital gain shown by the appellant. Claim of deduction u/s 37(1) - CIT(A) set aside the disallowance - Held that - We are of the view that the order passed by the CIT(A) does not call for any interference. It deserves to be noticed that it is the primary duty of an appellant to point out the errors in the order passed by the CIT(A) and merely relying upon the order passed by the AO, without bringing on record any material to contradict the findings of the CIT(A), could not serve any purpose except indicating the casual approach of the Revenue in dealing with such matters.

Summary

Issues:
1. Treatment of expenses on purchase and sale of shares as business income.
2. Disallowance of institutional STT and service tax not collected.

Issue 1: Treatment of expenses on purchase and sale of shares as business income:
The appellant, a member of stock exchanges, initially offered income from share trading as capital gains but later claimed it as investment activity. The Assessing Officer (AO) observed delivery-based transactions in over 300 scrips with short holding periods, concluding the appellant was in the business of purchase and sale of shares. The AO treated short term capital gains as business income. The CIT(A) accepted the appellant's plea, citing a previous ITAT decision and various ratios to establish the appellant's investor status. The CIT(A) noted discrepancies in the turnover figures and ratios from the ITAT order, ultimately allowing the appeal. The Revenue failed to provide material challenging the CIT(A)'s findings, leading to the dismissal of the Revenue's appeal by the tribunal.

Issue 2: Disallowance of institutional STT and service tax not collected:
The AO disallowed a sum debited under "Service Tax not collected from clients," stating the liability was on clients, not the appellant. The CIT(A) overturned the disallowance, noting the appellant acted as a collecting agent for STT, which was not an expense as it was paid to the government. The CIT(A) emphasized that STT was not claimed as an expense in the Profit & Loss Account, leading to the deletion of the disallowance. The Revenue's appeal lacked material to challenge the CIT(A)'s decision, resulting in the tribunal dismissing the Revenue's appeal.

In summary, the tribunal ruled in favor of the appellant on both issues. The treatment of expenses on the purchase and sale of shares as business income was overturned based on the appellant's investor status. Additionally, the disallowance of institutional STT and service tax not collected was reversed as the STT was collected and paid to the government as a collecting agent, not as an expense of the appellant. The Revenue's appeals were dismissed due to the lack of material challenging the CIT(A)'s decisions.