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2012 (5) TMI 418 - AT - Income TaxCapital gain or business income - assessee is an individual and the sources of income are trading in shares and salary income. - held that - the assessee was holding the shares as investment from year to year. - There was no basis for treating the assessee as a trader in shares when his intention was to hold the shares in the Indian companies as an investment and not as stock-in-trade. - In the instant case number of transactions is stated to be 1000 in 255 scrips while in the preceding year their number was 533 in 275 scrips. Even for frequency it was explained by learned counsel that the assessee was mostly making the investment in B-Group scrips and to avoid risk he made investment in several scrips instead of investing in one scrip - the assessee disclosed income from capital gains/dividends in earlier years and the shares have all along been treated as investments in the books of account/balance-sheets. - Decided in favor of the assessee
Issues Involved:
1. Treatment of income from the sale of shares as short-term capital gain or business income. 2. Treatment of income from the sale of shares as long-term capital gain or business income. Detailed Analysis: 1. Treatment of Income of Rs. 15,53,886 as Short-Term Capital Gain or Business Income: The Revenue contested that the income of Rs. 15,53,886 should be treated as business income rather than short-term capital gain due to the frequency and magnitude of transactions. The Assessing Officer (AO) referred to the Central Board of Direct Taxes (CBDT) Circular No. 4 of 2007, which provides guidelines to determine whether the activity of buying and selling shares constitutes a business activity. The AO concluded that the assessee's activities were for profit-making and thus taxable as business income. The Commissioner of Income-tax (Appeals) [CIT(A)], however, directed the AO to treat the income as short-term capital gain. The CIT(A) noted that the assessee took delivery of shares, which were held in a demat account and sold after a period, indicating that these were not business transactions. The CIT(A) emphasized that the shares were bought and sold with a gap of time and were not treated as stock-in-trade. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, emphasizing that the intention at the time of purchase, the treatment in books of accounts, and the frequency of transactions are crucial factors. The ITAT noted that the assessee had consistently shown share trading income as capital gain in past years, which was accepted by the Department. The ITAT found no reason to change the treatment of the income from short-term capital gain to business income, affirming the CIT(A)'s decision. 2. Treatment of Income of Rs. 2,88,757 as Long-Term Capital Gain or Business Income: Similar to the first issue, the Revenue argued that the income of Rs. 2,88,757 should be treated as business income. The AO observed that the assessee had frequent transactions in shares, suggesting a business activity rather than investment. The CIT(A) directed the AO to treat the income as long-term capital gain, noting that the assessee held the shares for more than a year and took delivery in the demat account. The CIT(A) highlighted that the assessee paid securities transaction tax and held the shares as investments, not as stock-in-trade. The ITAT agreed with the CIT(A), reiterating that the assessee's intention at the time of purchase, the manner of maintaining books of accounts, and the treatment of shares as investments were critical factors. The ITAT noted that for the assessment year 2005-06, the assessee's long-term capital gain was accepted by the Department. The ITAT found no material change in the facts to justify treating the income as business income for the current year. The ITAT emphasized the principle of consistency, as highlighted in several judicial precedents, including the decision of the Bombay High Court in CIT v. Gopal Purohit. The ITAT concluded that the assessee's transactions should be treated as capital gains, not business income, as there was no substantial change in the nature of transactions from previous years. Conclusion: The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to treat the income from the sale of shares as short-term and long-term capital gains rather than business income. The ITAT emphasized the importance of consistency and the assessee's intention at the time of purchase, the treatment in books of accounts, and the frequency of transactions in determining the nature of income.
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