2014 (5) TMI 142 - HC - Income Tax

Nature of income STCG/LTCG OR business income - dealing in shares for the last 3-4 years while engaged in trading of educational books Held that - Both the CIT(A) and Tribunal was of the view that even though separate books of accounts were not maintained, the assessee had kept details of the share transactions with respect to each transaction of the sale of shares claimed as an investment which yielded income by way of capital gain - apparently dividend income was returned to the tune of Rs.2,65,634/- which was also offered for taxation - CIT(A) analysed every transaction and treated the profit arising on account of sale within a month from the date of purchase as a business income and the rest as capital gain - The Tribunal rightly held that out of the total capital gains claimed by the assessee to the tune of Rs.65,70,492/-, Rs.63,30,607/- was in respect of shares held as investment and disclosed as such in the audited balance sheet - this is itself indication that the volume-frequency-regularity test was applied thus, no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Determination of income as business income or capital gain for AY 2006-07.

Analysis:
In the case at hand, the primary issue revolves around the classification of income as either business income or capital gain for the assessment year 2006-07. The assessee, engaged in trading educational books, also dealt in shares, leading to the sale of some shares. The assessing officer categorized the proceeds from the sale of shares as business income based on a detailed analysis of the facts. However, the CIT (Appeals) observed that the assessee maintained transaction details and treated the profit from shares sold within a month of purchase as business income and the rest as capital gain. The ITAT upheld this decision, emphasizing the importance of the volume, frequency, continuity, and regularity of transactions in relation to the total business, as established in CIT vs. Associated Industrial Development Co. Pvt. Ltd. (1971) 82 ITR 586.

Furthermore, the ITAT determined that a significant portion of the capital gains claimed by the assessee was related to shares held as investments and disclosed in the audited balance sheet. This analysis, conducted by the CIT (Appeals) on each sale transaction, indicated that the "volume-frequency-regularity" test was indeed applied. Consequently, the court found no substantial question of law warranting consideration and dismissed the appeal. The judgment underscores the importance of applying established tests to differentiate between business income and capital gains, with a focus on the nature and circumstances of the transactions involved.