2011 (5) TMI 315 - AT - Income Tax

Business income or short term capital gain - trading of shares - Held that - even though the assessee has traded in one script only, but the frequency of transaction is very high and shares have been held for very short time and the same had been sold immediately after a short period of purchases is clearly indicative of assessee s intention of trading in shares - profit arising out of purchase and sale of shares, which have been shown by the assessee as capital gains in its return of income have been correctly assessed by the revenue Authorities as income from business - Appeal is dismissed

Summary

Issues:
- Treatment of profit on sale of shares as business income instead of short term capital gains.

Analysis:
1. The appeals were filed against the order of CIT(A) for the assessment years 2005-06 & 2006-07 regarding the treatment of profit on sale of shares. The Assessing Officer considered the profit as business income due to the frequency of transactions, short holding period, and intention to earn profit without dividend income. The CIT(A) upheld this decision.

2. The appellant argued that the shares were treated as investments in the balance sheet and profit was earned as capital gains. They emphasized dealing with only one script and cited relevant case laws. The revenue contended that shares were purchased for immediate profit, not investment for dividends.

3. The Tribunal considered various tests to determine if the profit should be taxed as capital gains or business income. Factors included volume, frequency, continuity of transactions, intention at acquisition, treatment in books, and motive for sales. The onus was on the assessee to prove the nature of holdings.

4. The Tribunal found that despite dealing in one script, the high frequency of transactions indicated a trading intention. Lack of dividend income and short holding periods supported the view of business income. The appellant failed to provide evidence contradicting the lower authorities' findings.

5. Ultimately, the Tribunal agreed with the revenue authorities that the profit from share transactions should be treated as income from business, dismissing the appeals of the assessee. The decision was based on the nature of transactions, intention, and lack of evidence to support capital gains treatment.

This detailed analysis covers the issues involved in the judgment comprehensively, highlighting the key arguments and legal principles considered by the Tribunal.