2012 (10) TMI 1173 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from the sale of shares as either 'business income' or 'short term capital gains'.

Summary:

Issue 1: Classification of Income from Sale of Shares
The primary issue in this case was whether the income from the sale of shares should be classified as 'business income' or 'short term capital gains'. The assessee argued that the investment in shares was made with the intention of capital appreciation and not for trading purposes. The assessee provided several points to support this claim, including the lack of registration with a stock exchange, the treatment of shares as investments in the books of accounts, and the holding period of shares being more than 100 days for a significant portion of the transactions.

The CIT(A) analyzed the submissions and various case laws, ultimately directing the AO to treat the gains as short term capital gains. The Revenue, aggrieved by this decision, appealed to the ITAT, arguing that the AO had correctly treated the income as business income based on the volume, frequency, and nature of transactions.

The ITAT referred to the decision in the case of CIT Vs. P.V.S. Raju & Anr. and other relevant case laws. The ITAT emphasized that the classification of shares in the books as investments is not conclusive. The intention at the time of purchase, frequency of transactions, and the nature of activities are critical factors. The ITAT found that the assessee's activities exhibited high volume, frequency, and regularity, indicating a business activity rather than mere investment.

Conclusion:
The ITAT set aside the order of the CIT(A) and restored the order of the AO, classifying the income from the sale of shares as 'business income'. The appeal of the Revenue was allowed.