2014 (7) TMI 414 - AT - Income Tax

Treatment of STCG on income from business Sale of shares - Held that - Revenue has accepted that the assessee is an investor in shares for the last 10 years and from the AY 2001-02 to 2012-13, except during the year under consideration, the short term capital gain offered by the assessee has not been disturbed by the Revenue - out of 49 scrips there are only 17 scrips which the assessee had purchased prior to 1st April, 2007 i.e. in the previous year relevant to the AY 2007-08, and shown the investment in shares as investment which has been valued at cost - It is the profit arising from sale of such scrips cannot be treated as business income as the AO has accepted those scrips as investment of the assessee - the assessee has been employed and therefore the assessee has earned salary income - The sources of income are invested by the assessee regularly and every year in equity shares of various companies which is apparent from the investment in shares shown by the assessee every year - authorities are not justified in treating the receipt as business income - the AO is directed to treat the income as the STCG Decided in favour of Assessee.

Summary

Issues:
1. Treatment of short term capital gain as income from business.

Analysis:
In this case, the Assessee appealed against the order of the Ld.CIT(A) confirming the treatment of short term capital gain as income from business by the Assessing Officer (AO). The Assessee had declared a total income for the Assessment Year 2008-09, including long term capital gain claimed as exempt and short term capital gain. The AO treated the short term capital gain as income from share trading instead of capital gain. The Ld.CIT(A) upheld this decision. The Assessee contended that the short term capital gain should be treated as capital gain, not business income.

Upon review of the facts, it was noted that the Assessee had been an investor in shares for 10 years, and the Revenue had not disturbed the short term capital gain in previous years. The Assessee had consistently shown investment in shares as capital investment, not trading. The Assessee had not borrowed funds for investments and had engaged in delivery-based transactions without intra-day trading. Most shares were held for over a month, indicating investment for capital appreciation. The Assessee had not re-entered the same scrip after selling, demonstrating investment behavior. Additionally, the Assessee had other income sources like partnership profit and salary, which were regularly invested in shares. Considering these factors, the Tribunal concluded that the short term capital gain should be treated as claimed by the Assessee and not as business income.

Therefore, the Tribunal allowed the Assessee's appeal, directing the AO to treat the short term capital gain as claimed by the Assessee. The decision highlighted the importance of assessing the nature of transactions, investment behavior, and consistency in treatment of gains to determine the appropriate tax treatment of capital gains versus business income.

This judgment provides clarity on distinguishing between capital gains and business income in share transactions based on the nature of investments, holding periods, trading patterns, and overall investment behavior, emphasizing the need for a holistic assessment of the taxpayer's activities and intentions in the stock market to determine the correct tax treatment.