2012 (3) TMI 130 - AT - Income Tax

Sale/Purchase of Shares - Capital Gain OR Business Income - Held That - When purchases were from assessee own fund merly because it has entered into huge investments in limited number of shares of Indian Companies, does not merit the stand of the authorities in treating the same as income from business. Decided in favour of assessee.

Summary

Issues:
Income classification - Capital gain vs. Business income

Analysis:
The main issue in this appeal pertains to the classification of income arising from the sale and purchase of shares by the assessee. The Assessing Officer treated the gains as income from business due to systematic activities in share transactions post a specific date, while accepting long term capital gains and short term capital loss differently. The CIT (Appeals) upheld the business income classification for post-specific-date transactions but accepted pre-date transactions as capital gains.

The assessee contested the business income classification, arguing against engaging in trading activities based on the absence of borrowed funds, managing other businesses, and historical acceptance of similar transactions as capital gains. The Revenue supported the CIT (Appeals) decision, highlighting fund parking with brokers and no purchases over a period.

Upon review, the Tribunal analyzed the assessee's income computation, which included business profits from partnerships, capital gains, and speculative losses. Noting consistent investment declarations and assessments as capital gains in prior and subsequent years, the Tribunal found no justification for treating post-specific-date transactions as business income. Emphasizing self-funded investments, absence of loans, and historical practices, the Tribunal concluded that all short term gains should be considered capital gains, overturning the CIT (Appeals) decision.

Consequently, the Tribunal allowed the assessee's appeal on the income classification issue, rejecting the alternate plea for rebate under section 88E. The decision was pronounced on January 5, 2012, partially allowing the appeal in favor of the assessee.