2012 (12) TMI 720 - AT - Income Tax

Sale of shares - Nature of Income - Business Income v/s Capital Income - Held that - It is a settled legal proposition that mere entry of transactions as investment in the books of accounts of the assessee is not conclusive in matters of deciding the capital nature of the shares transactions. However, it is also settled legal principle, the entries in the books as investment is just one of facets helpful for deciding the said nature. Therefore, the initial intention and consequential entries of transaction in the books of the assessee support the claim of the assessee with regard to the short term capital gains. Regarding the allegation of high frequency, high volume or magnitude, regularity etc, as already discussed, there is no definition for these expressions. It is the opinion of the AO/CIT(A) which is formed not based on any comparable cases or case laws. For somebody, one transaction for a day and many not be high for the others, it is many be a case of insignificant. Neither the CIT(A) nor the AO has brought out any comparable cases to demonstrate that the tranactional frequency or number of transactions have to be bracketed as high and therefore, the dominant intention of the assessee in purchase of the shares is to resell the same and not for investment - set aside the impugned orders to the files of the CIT(A) on this issue, and direct him define the high frequency with the help of the comparable cases on hand. Assessee is also directed to assist the CIT(A) in this regard. If needed, he may file any fresh documents before the CIT(A) that would help the CIT(A) to come to the correct conclusions. On the issue of applicability of the apex court s judgment in the case of Gopal purohit 2009 (2) TMI 233 - ITAT BOMBAY-G there is no adequate data before us at least in the case of assessee. CIT(A) is directed to examine the applicability of the said case after obtaining adequate and relevant data. CIT(A) is also directed to examine each of the criteria set by various courts in various cases including the criterion of dominant intention - the assessees grounds on this issue are adjudicated pro-tanto. Depreciation on UPS and LCD 60% v/s 15% - Held that - Following the decision CIT V/s. Orient Ceramics & Industries Ltd. 2011 (1) TMI 26 - DELHI HIGH COURT that peripherals such as UPS, printers, scanners, modem, NT servers, etc. form integral part of the computer and hence the same are eligible for depreciation at the rate applicable to computers, viz. 60% - Assessees grounds on this issue are allowed.

Summary

Issues Involved:
1. Classification of income from sale of shares as business income or short-term capital gains.
2. Applicable rate of depreciation on computer peripherals, specifically projection devices and UPS.

Detailed Analysis:

1. Classification of Income from Sale of Shares:
Relevant Facts:
- The assessees declared income from the sale of shares as short-term capital gains and paid tax accordingly.
- The assessing officer reclassified this income as business income based on factors such as frequency of transactions, holding period, and volume of turnover.
- The CIT(A) upheld the assessing officer's decision, noting the high volume and frequency of transactions, and the short holding periods.

Arguments by Assessees:
- The shares were reflected as investments in books of accounts.
- Transactions were delivery-based with no intra-day trading.
- Dividends were earned on these shares.
- Purchases were made from own funds, not borrowed funds.
- Consistency in treating such transactions as investments in previous years was cited, with reliance on the case of Gopal Purohit.

Arguments by Revenue:
- High frequency and volume of transactions indicated a trading activity.
- The intention to resell for profit was evident.
- The CIT(A) referenced several judgments to support the view that book entries are not conclusive.

Tribunal's Findings:
- The Tribunal emphasized that no single criterion (e.g., book entries, frequency, magnitude) is decisive in determining the nature of transactions.
- The Tribunal noted that the original intention of the assessees, as reflected in the books of accounts, was to treat the shares as investments.
- The frequency and volume of transactions were not deemed excessively high.
- The Tribunal found that the revenue's inconsistency in treating similar transactions in previous years as investments and now as business income was not justified.
- The Tribunal remanded the matter back to the CIT(A) for a detailed examination, considering all facets cumulatively.

2. Applicable Rate of Depreciation on Computer Peripherals:
Relevant Facts:
- The assessees claimed depreciation on LCD projectors and UPS at 60%, treating them as computer peripherals.
- The assessing officer allowed depreciation at 15%, classifying them as office equipment.
- The CIT(A) upheld the assessing officer's decision.

Arguments by Assessees:
- The assessees argued that LCD projectors and UPS are integral parts of computer systems.
- They relied on several judicial decisions that treated such peripherals as part of computer systems eligible for higher depreciation.

Arguments by Revenue:
- The CIT(A) and assessing officer argued that these items are not integral parts of computers and should be depreciated at the general rate of 15%.

Tribunal's Findings:
- The Tribunal cited several decisions where peripherals like UPS and LCD projectors were considered integral parts of computer systems and eligible for 60% depreciation.
- The Tribunal set aside the CIT(A)'s order and directed the assessing officer to allow depreciation at 60%.

Conclusion:
Both appeals were partly allowed for statistical purposes. The Tribunal remanded the issue of classifying income from the sale of shares back to the CIT(A) for a detailed examination, while it directed the assessing officer to allow 60% depreciation on UPS and LCD projectors.