2013 (12) TMI 646 - AT - Income Tax

Shares held for less than 30 days to be treated as investment or trading in shares Held that - Following CIT Vs Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT - Delivery based transactions should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short term or long term capital gain depending upon the period of the holding - The principle of res judicata is not attracted since each assessment year is separate in itself. - There cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income Decided in favour of Revenue.

Summary

Issues involved:
1. Treatment of profit/loss on sale of shares held for less than 30 days as business income/loss and profit/loss on sale of shares held for more than 30 days as capital gains.

Analysis:
1. The appeal by the Revenue challenged the order of the Ld. CIT(A) regarding the treatment of the assessee as both an investor and a trader in shares for the assessment year 2006-07.

2. The Revenue contended that the Ld. CIT(A) erred in categorizing the income from Short Term Capital Gains (STCG) as business income based on the holding period of shares, leading to a dual treatment of the assessee's activities.

3. The Assessing Officer (AO) questioned the nature of the assessee's transactions, suspecting them to be business activities rather than mere investments. Despite the assessee's claims of being an investor and not a trader, the AO assessed the STCG as business income, citing similar treatment in the preceding assessment year.

4. The Ld. CIT(A) directed the assessee to provide a breakdown of STCG transactions based on the holding period of shares. Subsequently, the Ld. CIT(A) differentiated between profits from shares held for less than 30 days (treated as business income) and those held for more than 30 days (treated as capital gains).

5. The Revenue challenged the Ld. CIT(A)'s decision, emphasizing the consistency with the previous assessment year's treatment of the assessee's transactions as business income, which was upheld by the Tribunal.

6. The assessee argued that the current year's transactions differed significantly from the previous year, warranting a distinct treatment. Citing relevant court decisions, the assessee maintained that holding shares as investments should result in STCG/LTCG treatment, not business income.

7. The Tribunal analyzed the facts and submissions, noting the Ld. CIT(A)'s arbitrary 30-day benchmark for categorizing gains. Despite the decline in transaction value, the Tribunal upheld the AO's decision based on the previous year's assessment and lack of substantial differences in the current year's activities.

8. Ultimately, the Tribunal allowed the Revenue's appeal, setting aside the Ld. CIT(A)'s findings and reinstating the AO's assessment of the STCG as business income, in line with the previous year's treatment upheld by the Tribunal.

This detailed analysis highlights the dispute over the treatment of the assessee's share transactions and the judicial interpretation of distinguishing between business income and capital gains based on the holding period, culminating in the Tribunal's decision favoring the Revenue's appeal.