2012 (8) TMI 35 - AT - Income Tax

Treatment of long term capital gain as business income - Held that - Persuing the material on record except of few shares, all the shares were held for 10 years or more, it cannot be said that these shares were held by the assessee as business asset or stock in trade, thus it has to be admitted that the profit earned by the assessee after holding the shares for such a long period cannot be assessed as business income - as decided in Commissioner of Income-Tax Versus Rewashanker A. Kothari 2006 (1) TMI 80 - GUJARAT HIGH COURT to treat the gain under the head Capital gains and not as Income from business - in favour of assessee.

Summary

Issues:
- Determination of whether a sum should be treated as long term capital gain or business income for assessment year 2006-07.

Analysis:
1. The revenue's appeal was against the order of Ld. CIT(A) XIV, Ahmedabad, challenging the classification of a sum as long term capital gain instead of business income. The revenue contended that the assessee's main activity was dealing in shares, supported by the volume and frequency of share transactions, indicating a business motive. The revenue argued that the dividend income earned was minimal compared to the capital gains, suggesting a profit-seeking intention. The AO treated the capital gains as business income due to the nature of transactions and the assessee's involvement in share trading activities.

2. The assessee explained that the family had a history of investing in shares for dividends since 1960, emphasizing the intention to invest and earn dividends. The assessee highlighted the consistent declaration of dividend income over the years and provided details of shares held as investments. The assessee's involvement in other businesses was also mentioned, along with the rationale for obtaining an overdraft to apply for IPOs. The assessee argued against taxing the capital gains as business income, citing the long-term nature of investments and the minimal sale amount compared to the total investment value.

3. The Ld. CIT(A) held that the long term capital gain should not be treated as business income but upheld the classification of short term capital gain as business income. The revenue appealed against the relief granted by Ld. CIT(A), while the assessee did not contest the decision on short term capital gain. The revenue's argument was supported by the assessment order, emphasizing the increase in share transactions in recent years and the treatment of interest expenses against income.

4. The Ld. CIT(A) relied on the duration of share holdings, with most shares held for 10 years or more, to determine that the profit earned cannot be considered business income. The judgment cited by the Ld. A.R. further supported the assessee's case, leading to the dismissal of the revenue's appeal. The tribunal concluded that the long-term holding period indicated investment intent rather than a business motive, aligning with the judgment's principles.

5. In conclusion, the tribunal dismissed the revenue's appeal, emphasizing that the extended holding period of shares indicated an investment purpose rather than a business activity, in line with the judgment cited and the assessee's explanations. The decision highlighted the significance of the duration of share holdings in determining the nature of income for taxation purposes.