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2010 (10) TMI 367 - AT - Income TaxCapital gain vs. Business income - Investment in shares - CBDT Circular No. 4 of 2007, dated 15th June, 2007 - Burden of proof on the assessee - Held that it can be seen that the shares are held for a few days and in very few case for a few months but in no case it is exceeding 85 days. Purchase of shares during the year and selling them frequently in short period, in our opinion, do indicate that the assessee has purchased the shares with a motive to earn profit in a short period. - activity of frequent buying and selling of shares over a short span of period during the impugned year has to be treated as business being adventure in the nature of trade and the income has to be treated as business income and not as capital gain. Principle of res judicata does not apply to income-tax proceedings and every assessment is independent - Decided against the assessee.
Issues Involved:
1. Classification of income from sale of shares as either capital gains or business income. Issue-wise Detailed Analysis: 1. Classification of Income from Sale of Shares: The primary issue in this case revolves around whether the income from the sale of shares should be classified as capital gains or business income. Facts of the Case: The assessee is engaged in trading shares and securities and providing financial consultancy services. For the assessment year 2007-08, the assessee reported a total income of Rs. 1,45,49,690, which included short-term capital gains of Rs. 1,39,29,733 from the sale of shares and business profits of Rs. 6,19,960. The Assessing Officer (AO) noted that the assessee's business primarily operated with loan funds and had significant transactions in shares, indicating a trading activity rather than investment. Arguments by the Assessee: The assessee argued that: - All share transactions were delivery-based and conducted through a de-mat account. - Shares were sold through authorized dealers, and Securities Transaction Tax (STT) was paid. - The motive for purchasing shares was investment. - The source of funds was internal, with no loans from financial institutions. - Shares were classified as investments in the de-mat account and valued at cost, indicating an investment intention. - The spirit of the law at the time of STT introduction supported treating such transactions as capital gains. - The company acted as a prudent investor, selling shares when prices rose to earn profit. Assessing Officer's Analysis: The AO, referring to CBDT Circular No. 4 of 2007, concluded that the assessee's activities indicated a trading motive due to: - Utilization of borrowed funds for share trading. - High volume and frequency of transactions. - Organized manner of transactions. - Lack of evidence for STT payment. - The intention inferred from the conduct and relevant factors. CIT(A)'s Findings: The CIT(A) upheld the AO's decision, noting: - Arbitrary treatment of share transactions by the assessee. - Shares of the same companies were treated inconsistently as trading income and investment. - Transactions completed within a short period indicated a trading motive. - Entries in books of accounts are not determinative of the nature of transactions. - Negligible dividend income and lack of long-term capital gains indicated a trading intention. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing: - The nature of activity, frequency, and magnitude of transactions suggested a trading motive. - The assessee's classification of shares as investments was not conclusive. - Frequent buying and selling of shares over a short period indicated trading activity. - The principle of res judicata does not apply to income-tax proceedings, and each assessment year is independent. - The case of Gopal Purohit, relied on by the assessee, was distinguishable due to different facts. Conclusion: The Tribunal concluded that the assessee's frequent and short-term transactions in shares indicated a trading activity, and the income should be classified as business income rather than capital gains. The appeal of the assessee was dismissed.
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