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2013 (1) TMI 11 - AT - Income TaxIncome on sale of shares - Capital gain vs. business income - assessees contented that it always treated the shares as investment, and there is no business activity carried on by the assessees with reference to shares - Held that - While deciding whether the sale of shares is income from business or income from capital gain, one has to go by the criteria as held in the case of PVS Raju v. Addl. CIT 2011 (7) TMI 818 - ANDHRA PRADESH HIGH COURT that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. The frequency of buying and selling of shares, period of holding, quantum of turnover on account of frequency of transactions, intention of the assessee, No. of scrips shares held for fewer days or engaging in dealing in the same scrips frequently, indulgement in multiple transactions,Repeated transactions, coupled with the subsequent conduct of the assessee to re-enter the same scrip. Mere classification of these share transactions as investment in the assessee s books of accounts was not conclusive need to be looked. Thus on perusal of the statements incorporated by the AO in the assessment order it is found that the assessees have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessees in a systematic manner, it would partake the character of business activities carried on by the assessee in shares, and it cannot be said that the assessees have merely made investments in shares. The findings of the CIT(A) cannot be sustained in the eyes of law, as he has not considered relevant facts to decide the issue. Thus reverse the order of the CIT(A) and restore the order of the AO - in favour of revenue.
Issues Involved:
1. Classification of income from the sale of shares as capital gains or business income. Issue-wise Detailed Analysis: 1. Classification of Income from Sale of Shares: The core issue in these appeals is the classification of income arising from the sale of shares-whether it should be treated as capital gains or business income. The facts in both cases are similar, so the analysis is based on the case of Shri Anil Kumar Jain. Facts and Arguments: The assessee filed a return of income admitting various sources of income, including short-term capital gains from the sale of shares. The assessing officer reclassified this income as business income, which the CIT(A) reversed, treating it as short-term capital gains. The Revenue appealed against this decision. Revenue's Argument: The Revenue argued that the assessees engaged in the business of shares systematically and regularly, with high volumes and frequency. They contended that the treatment in the books of accounts is not conclusive and that the real intention behind the transactions should be examined. They cited the Tribunal's decision in *Spectra Shares & Scrips v. Dy. CIT*, where similar activities were classified as business income. Assessee's Argument: The assessee maintained that the transactions were investments, not business activities. They argued that frequency and volume do not change the nature of the income from capital gains to business income. They cited the decision in *Janak S. Rangwala v. Asstt. CIT* and emphasized that sales were made from earlier purchases, not intra-day trading. They also pointed out errors in the assessing officer's arithmetic and the improper use of demat accounts for recording transactions. The assessee relied on the Gujarat High Court's decision in *CIT v. Vaibhav J. Shah (HUF)* and the Bombay High Court's decision in *CIT v. Gopal Purohit*, supporting their stance that the income should be classified as capital gains. Legal Principles and CBDT Circular: The CBDT Circular No. 4/2007 was cited, which distinguishes between capital assets and trading assets. The circular emphasizes that the nature of transactions, the manner of maintaining books, and the intention behind transactions are crucial in determining whether shares are held as investments or stock-in-trade. The circular also allows for the possibility of having dual portfolios-investment and trading. Tribunal's Analysis: The Tribunal noted that the distinction between fixed assets (investments) and stock-in-trade (business assets) is crucial. They emphasized the intention behind acquiring shares and the treatment in the books of accounts. They referred to the jurisdictional High Court's decision in *PVS Raju v. Addl. CIT*, which laid down criteria for determining the nature of transactions, such as frequency, holding period, turnover, and intention. Conclusion: Based on the high volume, frequency, and systematic manner of transactions, the Tribunal concluded that the activities partook the character of business activities. They found that the CIT(A) did not consider relevant facts and reversed their order, restoring the assessing officer's classification of the income as business income. Judgment: Both appeals by the Revenue were allowed, and the income from the sale of shares was classified as business income, not capital gains.
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