2013 (4) TMI 318 - AT - Income Tax

Profit arising out of the sale of shares - business income v/s short term capital gain - Held that - In the present case assessee has held these shares and units as investment being capital asset. The assessee has not claimed any loss due to fall in value of capital asset or investment, which would have been the case if the said investment is to be treated as stock in trade. Even the assessee is consistently valuing the investment at cost. The assessee is consistently offering the income accruing to him from sale of shares under the head capital gains and the same is accepted by the Income Tax Department during earlier years scrutiny assessments i.e. in AYs 2005-06 and 2006-07. The assessee has filed copies of assessments orders for these two assessment years wherein the said short term capital gain disclosed by the assessee was accepted. The assessee has filed evidences qua that sales of shares are made and on which short term capital gains has accrued are acquired during earlier years. In such circumstances, CIT(A) has rightly treated the sale of shares as short term capital gain. Appeal of revenue is dismissed.

Summary

Issues:
- Treatment of profit from sale of shares as business income or short term capital gain

Detailed Analysis:

Issue 1: Treatment of profit from sale of shares

The appeal by the revenue concerns the order of the CIT(A) reversing the action of the Assessing Officer (AO) in treating profit arising from the sale of shares as business income instead of short term capital gain as disclosed by the assessee. The AO based his decision on the frequency of share transactions by the assessee and the borrowing of funds for share purchase. The AO issued a show cause notice to the assessee, who responded by stating lack of expertise in share trading, previous assessment as short term capital gain, absence of infrastructure, and consistent treatment of income as capital gain. The AO, unsatisfied with the response, treated the sale of shares as business income. The CIT(A) considered the AO's reasons and the assessee's submissions, observing that the number of sale transactions was not indicative of trading, the loan amount was minimal compared to total investments, the assessee earned dividends and long term capital gains, and the AO's case laws were not directly applicable. The CIT(A) noted the consistent treatment of income as capital gain, absence of loss claims due to fall in value, and valuation of investments at cost. The CIT(A) concluded that the shares were held as investments and treated the income as short term capital gain, consistent with previous assessments. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

In conclusion, the Tribunal affirmed the CIT(A)'s decision to treat the profit from the sale of shares as short term capital gain, considering the assessee's consistent treatment of income, valuation practices, and previous assessments. The Tribunal found that the shares were held as investments, not stock in trade, as evidenced by the absence of loss claims and valuation at cost. The decision emphasized the importance of considering all factors, including past conduct and valuation practices, in determining the nature of income from share transactions.