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2014 (2) TMI 366 - AT - Income TaxIncome from share trading - Business income or capital gains - Held that - The assessee had been consistently trading in shares for the last 25 years and the income arising from F&O transactions and daily trading in shares had been reflected consistently as speculative business - In the case of deliver based transaction of sale and purchases of shares had been shown as capital gains i.e. LTCG ad STCG, depending upon the period of holding - If the balance sheet of the assessee is analysed, it reflects holidng of shares as investment (one portfolio) - The Department consistently had been accepting the claim of the assessee from long term capital gain - Relying upon the decision in The Commissioner of Income Tax Versus Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT - Even when the doctrine of res judicata does not apply to income tax proceedings, where a issue has been decided consistently in earlier assessment years in particular manner, the same view should prevail in subsequent years unless there is a material change in facts. Relying upon the decision in Shantilal M Jain vs ACIT 2011 (4) TMI 42 - ITAT MUMBAI - Despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG - The assessee made investment in shares with intention to earn dividend income on appreciation of price of shares - It cannot be said that the assessee was doing business - The assessee has hold the shares in his books as investor, was not having office or administrative set up, no interest was paid on the funds and there was not a single instance where the assessee squared up the transactions on the same without taking the delivery of shares. As per the Board Circular No. 4.2007 dated 15- 06-2007 - It is possible for a tax payer to have two portfolios namely, an Investment Portfolio, comprising of Securities, which are to be treated as capital assets and Trading Portfolio comprising of stock in trade which are to be treated as trade assets - No single principle would be decisive and the fact has to be considered in entirety - Decided against Revenue.
Issues Involved
1. Justification of the CIT(A)'s decision to treat business income from share trading as short-term capital gain. 2. Consistency in the treatment of income from share transactions in prior and current assessment years. 3. Applicability of judicial precedents and CBDT circulars on the classification of income from share transactions. Detailed Analysis 1. Justification of the CIT(A)'s Decision The primary issue in this appeal is whether the CIT(A) was justified in deleting the addition of Rs. 25,43,812/- and treating the business income earned from share trading as short-term capital gain. The Revenue argued that the income should be taxed at 30% as business income, citing information from NSE and BSE that inferred the transactions were business activities. The CIT(A), however, treated the income as short-term capital gain, applying a concessional tax rate of 10%. 2. Consistency in Treatment of Income The Tribunal considered the consistency in the treatment of income from share transactions over the years. It noted that the assessee had been consistently showing income from F&O transactions and daily trading in shares as speculative business, while delivery-based transactions were shown as capital gains (either short-term or long-term). The balance sheet reflected the holdings of shares as investments, and the Department had consistently accepted the assessee's claims in previous years. The Tribunal emphasized that the rule of consistency should prevail unless there is a material change in facts. 3. Applicability of Judicial Precedents and CBDT Circulars The Tribunal referred to several judicial precedents and CBDT Circular No. 4 of 2007, which recognized the possibility of maintaining two portfolios: an investment portfolio and a trading portfolio. The Tribunal cited multiple cases, including ACIT vs Om Prakash Suri and Gopal Purohit, to support the view that income from delivery-based share transactions should be treated as capital gains. The Tribunal also noted that the assessee did not pay any interest on borrowed funds, and the transactions were consistently shown as investments in the balance sheet. Conclusion The Tribunal concluded that the CIT(A) rightly directed the Assessing Officer to treat the short-term capital gain as earned from investment in shares, following the rule of consistency and judicial precedents. The appeal of the Revenue was dismissed, affirming the CIT(A)'s decision to treat the income as short-term capital gain. Final Order The appeal of the Revenue stands dismissed, and the order of the CIT(A) is confirmed. This order was pronounced in the open Court on 30.1.2014.
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