2011 (5) TMI 592 - AT - Income Tax

Investment in shares - Capital gain v/s business income - Held that - As decided in CIT v. Sutlej Cotton Mills Supply Agency Ltd. 1975 (7) TMI 2 - SUPREME COURT where the purchase of any article or of any capital investment for instance shares is made without the intention to resell at a profit a resale under changed circumstance would only be realization of capital and would not stamp the transaction with business character. An investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced value motivated the investment. Assessee has not carried out trading in the shares continuously and systematically. She has not conducted a number of transactions. She made investment in one shares and that was sold after two and half months. She has not borrowed the capital for this purpose. She did not take special advise or employed staff and paid salary to carry out this activity - Had there was no STT payment and the rate of tax was 30 per cent then probably Assessing Officer would not disturb the declaration made by the assessee - Decided in favour of the assessee and treated as capital gain.

Summary

Issues:
Assessment of investment in shares as business activity.

Analysis:
1. The appellant challenged the order of the Learned CIT(Appeals) regarding the treatment of investment in shares and capital gain as a business activity. The appellant contended that the investment was made with the motive of earning returns and not as part of a business venture.
2. The Assessing Officer observed that the appellant had purchased shares and made a profit, questioning the nature of the transaction under section 2(13) of the Act. The appellant provided detailed responses stating the investment was personal, not part of a business, and lacked regular trading activities.
3. The Assessing Officer referred to relevant legal precedents and circulars to support the decision. The appeal to the CIT(A) did not favor the appellant, leading to the appeal before the Tribunal.
4. The appellant's counsel argued that the investment was not a business activity based on past investments, tax rates, and the absence of trading income. The counsel highlighted inconsistencies in tax treatment and cited relevant case laws to support the appellant's position.
5. The Departmental Representative supported the CIT(A)'s order, emphasizing the appellant's intention to sell shares quickly as indicative of a trading activity.
6. The Tribunal considered the arguments, emphasizing the challenge in distinguishing between investment and business activities. Citing legal precedents, the Tribunal outlined key factors to determine the nature of share dealings, including intention, frequency, funding sources, holding periods, and risk involvement.
7. The Tribunal analyzed the appellant's case in light of legal interpretations of "business" and concluded that the appellant's actions did not align with continuous and systematic trading activities. The Tribunal noted the absence of borrowing, specialized advice, or staff employment for share transactions.
8. The Tribunal critiqued the Assessing Officer's focus on tax rates and commended the CIT(A) for rectifying inconsistencies but highlighted the importance of focusing on factual analysis rather than judicial decisions.
9. Conclusively, the Tribunal found no evidence of the appellant engaging in business activities related to shares and directed the Assessing Officer to accept the claim of short-term capital gain.
10. Consequently, the Tribunal allowed the appeal in favor of the appellant, overturning the previous decisions and accepting the claim for short-term capital gain.