2014 (1) TMI 758 - AT - Income Tax

Sale and purchase of shares - Income from business or income from capital gains - Held that - the gains earned from trading in shares and units of the mutual funds as income from capital gain and not income from profits and gains of business or profession - Decided against Revenue.

Summary

Issues:
1. Classification of gains from trading in shares and units of mutual funds as business income or capital gains.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune revolved around the classification of gains from trading in shares and units of mutual funds for Assessment Year 2008-09. The Revenue contended that the gains should be taxed under the head 'Profits and Gains of Business or Profession,' arguing that the transactions were conducted in a business-like manner with high volume and frequency. The Revenue challenged the CIT(A)'s order, which allowed the assessee's appeal and classified the gains as capital gains.

The Assessing Officer noted that the assessee engaged in regular and recurring trading of shares without using a portfolio manager and concluded that the activity constituted a business. The Assessing Officer treated the profit from capital gains as business income due to the organized and profit-motivated nature of the transactions. However, the CIT(A) relied on previous Tribunal decisions in the assessee's favor for A.Y. 2004-05 and 2005-06 and allowed the claim of the assessee.

The Revenue appealed the CIT(A)'s decision, but the Tribunal upheld the order. The Tribunal cited a High Court decision dismissing the Revenue's appeal and emphasized that the gains from trading in shares and units of mutual funds should be classified as capital gains, not business income. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal, affirming the gains as capital gains.

In conclusion, the Appellate Tribunal ITAT Pune ruled in favor of the assessee, confirming that the gains from trading in shares and units of mutual funds should be treated as capital gains and not business income for Assessment Year 2008-09. The decision was based on established case law and previous Tribunal rulings, ultimately dismissing the Revenue's appeal and upholding the classification of the gains as capital gains.