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2014 (1) TMI 846 - AT - Income TaxNature of Income Income for investment in share and house property Held that - Short term capital gain declared by the assessee in respect of share transaction has to be assessed as business income - The assessee has pointed out that the holding period in respect of transactions in shares of Logix Micro has been wrongly taken as less than one year - The shares were held for about two years and therefore, income in respect of these shares has to be assessed as long term capital gain - if the shares have been held for more than a year, it will clearly indicate investment activity gain declared by the assessee has to be accepted as long term capital gain Relying upon Jignesh Indulal Patel vs. ITO 2012 (12) TMI 335 - ITAT MUMBAI Thus, gain earned by the assessee from sale of shares which have been held by the assessee for more than a year has to be accepted as long term capital gain matter restore to the file of AO for verification Decided partly in favour of Assessee.
Issues Involved:
1. Assessment of income from house property. 2. Nature of income earned from share transactions. Detailed Analysis: 1. Assessment of Income from House Property: At the hearing, the appellant's representative did not press the issue regarding the assessment of income from the property at Bellisima. Consequently, this ground was dismissed as not pressed. 2. Nature of Income Earned from Share Transactions: The core dispute revolved around whether the income earned by the assessee from the sale and purchase of shares should be treated as capital gains (short-term and long-term) or as business income. Facts and Arguments: - The assessee, a proprietor of M/s. V.M. Investments, engaged in share trading, declared income from share transactions as short-term and long-term capital gains. - The Assessing Officer (AO) observed high-frequency transactions with significant volumes, suggesting a trading motive rather than an investment motive. - The AO argued that the assessee's intention was to earn profits from trading rather than dividends, citing minimal dividend income relative to the volume of transactions. - The AO treated the entire gain from share transactions as business income based on the assessee's frequent buying and selling activities, involvement in the share trading business, and the infrastructure available for trading activities. Assessee's Contentions: - The assessee maintained that shares were purchased as investments, recorded as such in the books, and funded from own resources, not borrowed funds. - Citing Circular No.4 of 2007 by CBDT, the assessee argued that one could be both an investor and a trader, maintaining separate accounts for each. - The assessee pointed out that similar transactions in previous assessment years (2006-07 and 2007-08) were accepted as capital gains by the department. - The principle of consistency was invoked, referencing the Bombay High Court judgment in CIT vs. Gopal Purohit (336 ITR 287). CIT(A)'s Decision: - The CIT(A) upheld the AO's decision, emphasizing various factors such as intention at the time of purchase, nature of funds used, frequency, and volume of transactions. - Frequent and repetitive transactions in the same scrips, like Aban Lloyd, indicated a trading motive. - The CIT(A) noted that the assessee's minimal dividend income compared to the volume of transactions supported the conclusion that the primary intention was to earn trading profits. - The CIT(A) distinguished the assessee's case from other Tribunal decisions where the nature of transactions was different. Tribunal's Analysis: - The Tribunal acknowledged that the nature of share transactions (investment vs. trading) is a debatable issue, with various factors such as frequency, volume, entry in books, and holding period being relevant. - The Tribunal emphasized that the most crucial factor is the assessee's intention at the time of purchase, inferred from subsequent conduct. - The Tribunal found that the assessee's frequent and repetitive transactions in the same scrips, short holding periods, and minimal dividend income indicated a trading motive. - The Tribunal rejected the argument for consistency, noting that earlier assessments did not examine the nature of transactions in detail. Conclusion: - The Tribunal concluded that the short-term capital gains from share transactions should be treated as business income due to the trading nature of the activities. - However, for shares held for more than a year, the Tribunal accepted the assessee's claim of long-term capital gains, subject to verification by the AO. - The appeal was partly allowed, with the order of the CIT(A) set aside regarding the long-term capital gains on shares held for more than a year. Order Pronouncement: The appeal of the assessee was partly allowed, with the decision pronounced in the open court on 12.6.2013.
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