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2011 (4) TMI 42 - AT - Income TaxBusiness income or Capital gain - The assessee submitted that the same cannot be treated as business income since the assessee is doing investment in shares and securities in recognized stock exchanges - The assessee has not maintained separate bank accounts - It is the case of the revenue that due to volume magnitude frequency continuity regularity the ratio between purchase and sale clearly indicate that income on account of purchase and sale of shares should be treated as income from business and not as income from STCG Assessment Years 2003-04 to 2008-09 the Assessing Officer has consistently accepted the STCG shown by the assessee except for Assessment Year 2006-07 i.e. the impugned assessment year - IN CIT vs Gopal Purohit (2010 -TMI - 35188 - HIGH COURT OF BOMBAY)it was held that the delivery based transactions in the present case should be treated as those in the nature of investment transactions and the profit received there from should be treated either as short term or long term capital gain depending upon the period of holding. - Decided in the favour of the assessee
Issues Involved:
1. Classification of income from Short Term Capital Gains (STCG) as business income or capital gains. 2. Consistency in the treatment of STCG in previous and subsequent assessment years. Detailed Analysis: Issue 1: Classification of Income from STCG The primary issue in this case is whether the income from Short Term Capital Gains (STCG) should be classified as business income or capital gains. The assessee argued that the income from STCG and Long Term Capital Gains (LTCG) should be treated as capital gains because the investments in shares and securities were made with the intention to hold them for a longer period, and not for trading. The assessee highlighted that the method of accounting had been consistently followed and accepted in previous assessments under section 143(3). The Assessing Officer (AO) disagreed, noting that the assessee was engaged in share trading activities. The AO emphasized several factors to classify the income as business income, including the day-to-day business activities, continuous and organized transactions, profit motive, and the volume and frequency of transactions. The AO concluded that the STCG was an offshoot of the primary share trading business and should be treated as business income. Upon appeal, the CIT(A) upheld the AO's decision, referring to CBDT instructions and various criteria to distinguish between stock-in-trade and investments. The CIT(A) observed that the assessee indulged in large-scale, frequent, and regular share transactions, indicating a trading activity rather than investment. The CIT(A) also noted that the assessee failed to provide evidence that the transactions were carried out using own funds and not borrowed funds. Issue 2: Consistency in Treatment of STCG The assessee argued that the income from STCG had been consistently declared and accepted as capital gains in previous and subsequent assessment years. The assessee cited the jurisdictional High Court's decision in CIT vs Gopal Purohit, which emphasized the importance of consistency in tax treatment. The Tribunal noted that the AO had accepted the STCG as capital gains in assessment years 2003-04 to 2008-09, except for the impugned assessment year 2006-07. The Tribunal highlighted that the principle of consistency should be applied, as established by the jurisdictional High Court in the case of Gopal Purohit. Conclusion: The Tribunal concluded that the income from the sale/purchase of shares should be treated as STCG, as declared by the assessee. The Tribunal set aside the order of the CIT(A) and directed the AO to accept the STCG as capital gains. The appeal filed by the assessee was allowed, emphasizing the need for consistency in the treatment of STCG across different assessment years.
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