2013 (12) TMI 1414 - AT - Income Tax

Whether transactions of purchase and sale of shares constitutes business income - Held that - The facts in the impugned year do indicate that the transaction cannot be considered as investment in shares - Regarding transactions in F&O - There is no delivery of the shares - Shares of Cybermedia were purchased and sold on the same day - Therefore these should also be treated as business income - The authorities are of the view that remaining transactions should also be treated as business activity - There can not a situation where part of transaction can be treated as business and other as investment - The period of holding has never exceeded 150 days - It cannot be considered that assessee s intention is to invest in shares as there is large turnover within a short period - The intention is not to make investments for long periods as the frequency of transactions is very high - Decided against assessee.

Summary

Issues:
1. Whether short term capital gain received by the assessee should be treated as business income.

Analysis:

Issue 1: Whether short term capital gain received by the assessee should be treated as business income.

The assessee contested the treatment of short term capital gain as business income, raising three main grounds. The Assessing Officer rejected the claim of the assessee as short term capital gains under section 111A of the I.T. Act, considering the assessee as a 'trader' rather than an 'investor' in shares. The CIT(A) upheld the decision of the Assessing Officer, emphasizing the frequency of transactions, period of holding, and volume of shares. The CIT(A) observed that the appellant's actions indicated a trading activity rather than investment, as evidenced by quick transactions, reinvestment of gains, and monitoring market fluctuations. The appellant's failure to demonstrate an intention for enduring profit and the absence of long-term holdings supported the conclusion that the transactions were speculative and aimed at quick profits. The Tribunal concurred with the Assessing Officer and CIT(A), holding that the transactions were in the nature of trade, not investment, based on the short holding periods and frequent turnover. The Tribunal upheld the orders of the authorities, dismissing the appeal of the assessee and directing the treatment of the transactions as business income.

In conclusion, the judgment analyzed the issue of treating short term capital gain as business income, focusing on the intention behind the transactions, frequency of trades, period of holding, and volume of shares involved. The decision highlighted the distinction between trading and investment activities based on the appellant's behavior and market interactions, ultimately affirming the characterization of the transactions as business income rather than capital gains.