2014 (6) TMI 429 - AT - Income Tax

Nature of gain Purchase and sale of shares STCG or Business income Held that - Following ACIT Circle-4(2), Versus Upendra K. Doshi 2014 (2) TMI 505 - ITAT MUMBAI the assessee is in respect of the shares held and disclosed by him as an investment in his accounts, to be treated as an investor, so that the same are capital assets, yielding capital gains, whether long-term or short-term, i.e., depending upon the period of holding - assessee s disclosure in accounts is not conclusive by itself, and a number of relevant parameters, viz. regularity, frequency, volume, trading and financing pattern, etc., also specified by the Board per its Circular, are required to be looked into to determine the nature of an asset, which is thus primarily a factual matter the assessee is to be treated as investor and the shares held as investments - The shares brought forward from the earlier years would only be capital assets thus, the contention of the assessee is accepted that the shares transferred as representing capital assets, so that the gain/loss is assessable under the head capital gains and not as business income Decided in favour of assessee.

Summary

Issues: Nature of gains on purchase and sale of shares, Disallowance u/s. 14A

Nature of gains on purchase and sale of shares:
The judgment revolves around two appeals by the Assessee challenging assessments under section 143(3) of the Income Tax Act for the assessment years 2007-08 and 2009-10. The primary issue is determining the nature of gains from the purchase and sale of shares amounting to Rs.57.43 lacs and Rs.22.20 lacs for the respective years. The question is whether these gains should be treated as short term capital gain/loss or as business income. The Tribunal had previously decided similar issues for other assessment years, consistently treating the Assessee as an investor in shares held as investments, thereby categorizing them as capital assets. The Tribunal emphasized that the nature of the asset, whether 'capital' or 'trading', is crucial in determining the nature of the gain upon transfer, i.e., 'capital gains' or 'business income'. The length of holding alters the category of capital gains (long-term or short-term) but not the fundamental nature of the gain itself.

The Tribunal acknowledged that the Assessee's disclosure in accounts is relevant but not conclusive on its own. Various parameters like regularity, frequency, volume, trading, and financing patterns need to be considered to ascertain the nature of an asset, which is primarily a factual matter. However, in this case, the Tribunal found the Assessee to be an investor in shares held as investments based on previous decisions. Therefore, shares carried forward from earlier years are considered capital assets. Consequently, the gains/losses from the shares are assessable under the head 'capital gains' and not as business income, aligning with the consistent view of the Tribunal.

Disallowance u/s. 14A:
The only other issue in the appeals pertains to disallowance under section 14A for the assessment year 2007-08. However, during the hearing, the Assessee's representative did not press this issue. As a result, the Tribunal dismissed the disallowance under section 14A as not pressed. The final decision allowed the Assessee's appeal for the assessment year 2007-08 partially and fully for the assessment year 2009-10. The judgment was pronounced on May 28, 2014.