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2013 (6) TMI 572 - AT - Income TaxProfit arriving from purchase & sale of shares - Capital gain v/s business income - Held that - From the detail as produced it find that 73.75% of investments transacted were held for more than 6 months, despite the fact that numbers of transactions were 61 in 46 scrips, which resulted in only 13.95% shares held as investments. Based on these facts applying the decisions of Gopal Purohit 2009 (2) TMI 233 - ITAT BOMBAY-G which now has found approval even by the Hon ble Supreme Court 2010 (11) TMI 222 - Supreme Court of India , the Hon ble Bombay High Court had insisted upon intention at the time of purchase and consistency in the nature of holdings. On both these grounds, the issue is squarely covered by the decision. Coming to the charts and the details in the Balance Sheet, with regard to the holding pattern of shares, held under investments and trading, it is evidently clear that the assessee was maintaining separate distinct portfolios. This fact, not having been denied by the AO, is basically the spine of the submissions of the assessee, before the revenue authorities. Hence the facts gets squarely covered by the decision of Gopal Purohit (supra). Thus Respectfully following the decisions above no reason to disturb the order of the CIT(A)stating that profit arising on sale of such shares cannot be assessed under the head business and the claim of the assessee that it is assessable under the head long term capital gains has to be accepted. Against revenue.
Issues Involved:
1. Classification of income from share transactions as either business income or capital gains. 2. Determination of whether the assessee's transactions in shares constitute an organized business activity or investment activity. 3. Evaluation of the assessee's intent at the time of purchasing shares and consistency in the nature of holdings. Issue-wise Detailed Analysis: 1. Classification of Income from Share Transactions: The primary issue in this case is whether the income from share transactions should be classified as business income or capital gains. The Assessing Officer (AO) classified the income as business income based on the frequency and volume of transactions, suggesting an organized activity with a profit motive. The AO did not accept the assessee's claim of short-term capital gains (STCG) and long-term capital gains (LTCG) and assessed the entire income as business income. 2. Organized Business Activity vs. Investment Activity: The AO argued that the assessee was engaged in an organized business activity of share trading due to the large volume and frequency of transactions. The AO relied on various judgments, including those from the Supreme Court, to support the view that mere entries in the books of accounts showing shares as "investment" are not determinative of the real nature of transactions. The AO also noted that the assessee had a full-fledged office for share trading and relied on Circular No. 4/2007 issued by the Central Board of Direct Taxes. 3. Intent at the Time of Purchase and Consistency in Holdings: The assessee contended that the shares were held as investments, as evidenced by the balance sheet and the lack of borrowed funds for share purchases. The assessee argued that the volume and frequency of transactions do not determine the nature of the asset. The CIT(A) agreed with the assessee, noting that the investment in shares as on 31.3.2006 was Rs. 88,28,688/- and as on 31.3.2007 was Rs. 71,59,978/-. The CIT(A) found that the assessee's transactions were not frequent enough to constitute a business activity and that the majority of short-term capital gains were earned by holding shares for more than five months. The CIT(A) also noted that the assessee paid Securities Transaction Tax (STT) at a higher rate applicable to investors, further supporting the claim of investment activity. Judgment: The CIT(A) allowed the assessee's claim of STCG and LTCG, reversing the AO's decision. The CIT(A) relied on the decisions of the Hon'ble Mumbai Tribunal in the case of Gopal Purohit vs JCIT and Janak S. Rangwalla vs ACIT, which held that delivery-based transactions should be treated as investment transactions and that the frequency and magnitude of transactions cannot determine the head of income. Upon appeal, the ITAT upheld the CIT(A)'s decision. The ITAT found that 73.75% of investments were held for more than six months, and the assessee maintained separate portfolios for investment and trading, which was not disputed by the AO. The ITAT applied the principles from the Gopal Purohit case, which emphasized the intention at the time of purchase and consistency in the nature of holdings. The ITAT concluded that the assessee's claim of STCG and LTCG should be accepted and dismissed the department's appeal. Conclusion: The ITAT upheld the CIT(A)'s decision to classify the income from share transactions as capital gains rather than business income, based on the assessee's intent, holding period, and consistency in maintaining separate portfolios for investment and trading. The appeal filed by the department was dismissed.
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