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2014 (7) TMI 124 - AT - Income TaxGain from sale of shares Capital gain or business income - Whether the gain arising from sale of shares is capital gain or business income Held that - A person can be investor as well as trader in shares at the same time - Whether the assessee is an investor or a trader in shares is a question of fact to be decided on the facts and circumstances of each case - shares of blue chip companies have been purchased by the assessee on the same day at different rates at different times - The assessee herself has admitted the fact that she traded in shares of listed companies and in some of the cases the sale and purchase of shares have taken place on the same day - she had no intention to keep the shares to earn dividend or capital appreciation - All these facts clearly show that the assessee has been dealing in shares to earn quick profits. The assessee may have been earning income from salary but this does not defy the fact that the sizeable income of the assessee is from trading of shares - The scale of activity is substantial - The period of holding being very short shows the intention of the assessee on quick profits - The transactions were continuous and regular in a systematic manner - the dividend income of the assessee vis- - vis her investment in shares is too meager - the assessee has not taken any ground to specifically assail the findings of the AO in holding that the nature of business of the assessee is trading in shares. Once the assessee has not taken any steps to rectify the wrong observation, it is deemed that the same is correct - in the Audit Report (in Form 3CD) the nature of business stated is trading in shares - Even though the shares were shown in the balance sheet as investments and not as stock-in-trade - the shares held by the assessee for longer period may be treated as investment and the profit to be treated as long term capital gain - the magnitude, frequency and volume of transactions gives flavour of business income and the same is considered to be income from business Decided partly in favour of Revenue.
Issues Involved:
1. Whether the gain arising from the sale of shares is capital gain or business income? Issue-wise Detailed Analysis: 1. Whether the gain arising from the sale of shares is capital gain or business income? The present set of appeals, ITA No.1846/Mds/2012 and ITA No.1847/Mds/2012, relevant to the assessment years 2005-06 and 2008-09 respectively, have been filed by the Revenue impugning the orders of the CIT(A)-VI, Chennai dated 9.7.2012. The assessee filed Cross Objections in the aforementioned appeals. The brief facts of the case are that the assessee, trading in shares, filed its return of income for the assessment year 2005-06 on 31.8.2005, declaring a total income of Rs. 29,27,964/-. The assessee claimed profit arising on the sale of shares as capital gain. However, the Assessing Officer, in the assessment order dated 31.12.2010, held that the income arising from the sale of shares is business income and not long term/short term capital gains. Similarly, for the assessment year 2008-09, the assessee filed its return of income on 28.07.2008, declaring a total income of Rs. 58,50,180/-. The Assessing Officer again held the income from the sale of shares as business income. The CIT(A), following the order of the Jaipur Bench of the Tribunal in the case of ACIT vs. Kavita Devi Agarwal, held that if shares are held for more than 30 days, the profit arising from the sale of such shares is to be considered as short or long term capital gain depending upon the period of holding. In cases where shares have been purchased and sold within 30 days, the profit is to be considered as business income. The CIT(A) directed the Assessing Officer to obtain complete details and compute taxable income under the head business income and capital gain as held above. Aggrieved against the order of the CIT(A), the Revenue preferred the present appeals. The assessee also filed cross objections for both assessment years, contending that the CIT(A) erred in holding that shares held for less than 30 days should be treated as business income and that the period of 30 days fixed by CIT(A) is against the provisions of the Income Tax Act. The learned DR submitted that the CIT(A) erred in concluding that gain arising from shares held for more than 30 days is short term capital gain, and profit from shares purchased and sold within 30 days is business income. The DR argued that as per the Act, there is no such distinction for considering short term capital gain or business income, and Section 2(42A) of the Act stipulates a period of twelve months for determining short term capital gain. The DR further submitted that the assessee's transactions were of a large volume, indicating the motive of quick profits rather than investment. The DR supported his contentions with various judgments, including those of the Hyderabad Bench of the Tribunal, the Hon'ble Andhra Pradesh High Court, and the Hon'ble Supreme Court of India. On the other hand, the assessee's representative argued that the assessee had earned a sizeable amount of dividend, indicating investment in shares rather than trading. The AR contended that the CIT(A) and the Assessing Officer wrongly concluded that the assessee was in the business of trading in shares. The AR relied on the judgments of the Hon'ble Bombay High Court and the Hon'ble Gujarat High Court to support his contentions. After hearing both parties and perusing the orders of the lower authorities and judgments referred to, the Tribunal held that to determine the nature of investment in shares, the intention of the assessee in purchasing the shares must be considered. If the object is to earn income by way of dividend, the investment can be considered as capital. If the intention is to earn quick profits by transacting into shares without holding them for a long period, it results in business income. The Tribunal noted that the assessee had been closely monitoring the price of shares and had no intention to keep the shares to earn dividend or capital appreciation, indicating the intention to earn quick profits. The Tribunal referred to various judgments, including those of the Hon'ble Supreme Court of India and the Hyderabad Bench of the Tribunal, which laid down principles to determine whether the profit from the sale of shares is to be considered as business income or capital gain. The Tribunal concluded that the criteria of 30 days for determining business income or capital gain is neither recognized nor acceptable under the provisions of the Income Tax Act. The intention of the assessee in purchasing the shares was clearly to earn profits from sale and not to earn dividend or investment. The Tribunal dismissed the cross objections of the assessee and partly allowed the appeals of the Revenue, holding that the shares held by the assessee for a longer period may be treated as investment and the profit arising therefrom be treated as long term capital gain. However, the magnitude, frequency, and volume of transactions indicated business income. Order pronounced in the open court on Monday, the 21st day of January, 2013 at Chennai.
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