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2013 (1) TMI 313 - HC - Income TaxProfit on sale of shares - capital gain v/s income from business - assessee is a share broker and main business of the assessee was purchase and sale of the shares - Held that - CIT (Appeals)-I Kanpur held that the assessee was maintaining separate accounts of portfolio of trading and investments and separate bank accounts for them. The books of the account of the assessee has been accepted by the AO as this issue was also involved in the AY 2004-05 and 2005-06 and have been decided in favour of the assessee by CIT (A) as well as by ITAT and there was no reason for the AO in not accepting the previous orders. On these findings AO directed to treat the amount as long term capital gain and short term capital gain as shown by the assessee in his return. Revenue filed appeal against ITAT orders which has been dismissed on 02.01.2013 for the AY 2004-05 and in the matter of the Assessment Year 2005-06, the Revenue filed Income Tax Appeal No. 201 of 2010 which has been dismissed on 14.12.2012.
Issues:
1. Interpretation of profit on sale of shares as capital gain or income from business. Analysis: The judgment by the High Court of Allahabad pertains to an appeal filed under Section 260-A of the Income Tax Act, 1961. The appellant challenged the order of the Income Tax Appellate Tribunal, Lucknow Bench 'A', Lucknow, which dismissed the appeal filed by the Revenue and upheld the order of the Commissioner Income-tax (Appeals)-I, Kanpur. The primary issue revolved around whether the profit on the sale of shares should be treated as capital gain or income from business. The appellant contended that the ITAT erred in directing the Assessing Officer to treat the profit as capital gain, contrary to judicial precedents. The case involved the assessment year 2006-07, where the assessee, a share broker, declared income from business and substantial capital gains from the sale of shares. The Assessing Officer added the share sale proceeds to the assessee's income, alleging it was a colorable device to evade tax. However, the CIT (A) and ITAT accepted the assessee's separate accounting for trading and investments, directing the treatment of the gains as capital gains in line with the return. The Tribunal's decision was consistent with previous rulings in favor of the assessee for the assessment years 2004-05 and 2005-06. The High Court noted the Revenue's unsuccessful appeals in previous years regarding similar issues, reinforcing the consistency of decisions in favor of the assessee. The Court emphasized the importance of maintaining separate accounts for trading and investments, which the assessee had diligently done. The Assessing Officer's disregard for previous orders and insistence on treating the gains as business income was deemed unjustified by the CIT (A) and ITAT, leading to the dismissal of the Revenue's appeal. The judgment highlighted the significance of following established legal principles and precedents in determining the nature of income, especially in cases involving complex financial transactions like share trading. The Court's decision reaffirmed the assessee's right to have the gains treated as capital gains based on the evidence presented and consistent accounting practices, ultimately upholding the lower authorities' orders in favor of the assessee.
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