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2011 (3) TMI 874 - AT - Income TaxBusiness income Vs. Capital gain - speculative income - AO was of the view that considering the volume of transactions, frequency, utilization of borrowed funds the fact that the assessee is carrying out purchase and sale of shares in organized and systematic manner the AO called upon the assessee to show cause as to why the income offered under the head STCG should not be taxed under the head income from business - the conduct of the assessee in showing income from delivery based transactions as STCG and non-delivery based transaction as business income only shows that but for actual delivery even income from those transactions would have been considered as speculative income and business income - In CIT v. Gopal Purohit 2010 -TMI - 35188 - HIGH COURT OF BOMBAY , wherein it was held that assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years - the conclusion of the CIT(A) that the income from sale of shares declared by the assessee as STCG has to be accepted is correct and calls for no interference. - Decided in favor of the assessee
Issues Involved:
1. Classification of income from share transactions as Short-Term Capital Gain (STCG) or Business Income. 2. Application of the principle of consistency in tax assessments. Detailed Analysis: Classification of Income from Share Transactions: The primary issue in this case is whether the income from share transactions should be classified as STCG or Business Income. The Assessee, an individual and director of a securities company, declared STCG on the purchase and sale of shares for the assessment year 2006-07. The Assessing Officer (AO) argued that the income should be treated as Business Income due to the volume and frequency of transactions, use of borrowed funds, and the systematic manner of trading. Key Points: - The Assessee engaged in substantial share transactions, purchasing shares worth Rs. 31,51,52,676 and selling them for Rs. 37,89,50,348, resulting in a net profit of Rs. 6,15,19,949. - The AO noted that the Assessee used borrowed funds amounting to Rs. 7.74 crores and maintained a full office infrastructure for share trading. - The AO applied the guidelines from CBDT Circular No.4/2007 and various judicial pronouncements to conclude that the Assessee's activities resembled a business rather than investment. Assessee's Defense: - The Assessee argued that the shares were intended as investments, aiming for returns through dividends and capital appreciation. - The Assessee pointed out that similar transactions in the previous assessment year (2005-06) were accepted by the AO as STCG. - The Assessee maintained that the shares were treated as investments in the books of accounts and not as stock-in-trade. Application of the Principle of Consistency: The CIT(A) allowed the Assessee's appeal, emphasizing the principle of consistency, as the facts and circumstances for the assessment year 2006-07 were identical to those in the previous year (2005-06). Key Points: - The CIT(A) noted that the AO had accepted the Assessee's claim of STCG in the assessment year 2005-06 despite similar trading activities. - The CIT(A) highlighted that there was no material change in the Assessee's operations between the two assessment years. - The CIT(A) referenced the Supreme Court's decision in Radhasoami Satsang v. CIT, which supports the principle of consistency. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, agreeing that the principle of consistency should apply. The Tribunal noted that the AO in the previous assessment year had accepted the Assessee's claim of STCG on similar facts. The Tribunal also referenced the Bombay High Court's decision in CIT v. Gopal Purohit, which supports uniformity in treatment when facts and circumstances are identical. Key Points: - The Tribunal acknowledged that the Assessee's transactions were substantial but emphasized that the volume of transactions alone does not determine the nature of income. - The Tribunal agreed with the CIT(A) that the Assessee's intention at the time of purchase was to hold the shares as investments. - The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that the income from share transactions should be treated as STCG. Conclusion: The Tribunal concluded that the income from share transactions should be classified as STCG and not Business Income, upholding the principle of consistency in tax assessments. The appeal by the Revenue was dismissed.
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