2013 (11) TMI 159 - AT - Income Tax

Capital gain on sale of shares Taxable under the profits and gains from business or Capital Gains Held that - The assessee has effected the sale of shares maximum within 30 days of purchase of such shares which clearly indicates that the assessee was carrying on the business by applying in shares through IPO and thereafter selling them immediately on allotment This shows that the intention of the assessee was not to hold the allotted shares but to sell the same on allotment to take advantage of market imperfection - If the purchases and sales are effective within 90 days then they should be treated as trading of shares and if the transactions are held more than 90 days then those purchase and sales should be treated as investment portfolio - Decided against assessee.

Summary

Issues:
1. Treatment of short-term capital gain as profit from share business.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the treatment of a short-term capital gain as profit from share business for the assessment year 2006-07. The assessee, a director in a company, earned short-term capital gains on the sale of shares, which the Assessing Officer treated as business income. The assessee contended that similar transactions in previous years were treated as capital gains. The Commissioner of Income-tax (Appeals) considered the intention of the assessee at the time of purchase of assets, frequency of transactions, and legal principles from various court cases. The Commissioner noted that the assessee applied for shares in various companies, immediately sold the allotted shares, and held them for a short period, indicating a trading activity rather than investment. The Commissioner held that the short-term capital gains should be treated as business profit based on market imperfections and the assessee's trading behavior.

Before the Tribunal, the assessee's representative reiterated the contention that the shares were part of an investment portfolio, not for trading activity. The Departmental representative supported the Commissioner's order, emphasizing the short period between purchase and sale of shares. The Tribunal reviewed the purchase and sale details, noting that shares were immediately sold after allotment, with transactions completed within 5-10 days. The Tribunal observed that all 40 transactions were within 30 days, indicating a trading activity. Considering the short duration of transactions, the Tribunal upheld the decision to treat the short-term capital gain as trading income, confirming the Commissioner's order and dismissing the assessee's appeal.

In conclusion, the Tribunal affirmed the Commissioner's decision based on the short duration of transactions and the pattern of immediate sale after allotment, concluding that the short-term capital gain should be treated as trading income. The judgment highlights the importance of assessing the intention behind transactions, frequency of trades, and the duration of holding assets in determining the nature of income for taxation purposes.