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2014 (8) TMI 112 - AT - Income TaxIncome treated as STCG and LTCG instead of business income Sale of shares - Held that - The assessee has entered into 85 transactions which means roughly 1.16 transactions in every 5 days or 6.98 transactions per month - this cannot be considered to be that the assessee was engaged in high frequency transactions relying upon CIT v/s Madan Gopal Radhey Lal, 1968 (9) TMI 14 - SUPREME Court - there is no reference to the utilization of borrowed capital for the purchase of shares - The claim of the Revenue that the holding period is less than a month does not hold any water because the legislature itself has made distinction between the STCG and LTCG holding - If the shares are held for less than 12 months, the gains will be treated as STCG - Except in one scrip, which is Master Trust , there is no evidence on record to show that the assessee has been churning same shares the order of the CIT(A) is upheld Decided against Revenue.
Issues:
1. Classification of income from sale of shares as short term capital gain and long term capital gain instead of business income. Analysis: The appeal before the Appellate Tribunal ITAT Mumbai concerned the classification of income from the sale of shares for Assessment Year 2008-09. The Revenue contested the order of the Ld. CIT(A)-34, Mumbai, which had classified the income as short term capital gain (STCG) and long term capital gain (LTCG) instead of business income. The Revenue argued that the income should be treated as business income based on certain precedents. The Assessing Officer (AO) observed that the assessee had transacted in shares during the year, with a motive to earn a profit, leading to the treatment of STCG and LTCG as business income. However, the assessee contended that the shares were held as investments, not for trading purposes. The Ld. CIT(A) agreed with the assessee, noting that there was no evidence of the shares being transferred to the business stock and no intention to engage in share trading. The Revenue, dissatisfied with the decision, argued that the assessee repeatedly purchased and sold the same shares, had unsecured loans indicating share purchases from borrowed capital, and earned minimal dividend income. The Revenue maintained that the AO correctly treated the capital gains as business income. The Tribunal analyzed the frequency of transactions, citing legal precedents to emphasize that the intention behind the share acquisitions should determine their classification. It was noted that the shares were held for investment purposes, not as stock-in-trade for business. The Tribunal found no evidence of utilizing borrowed capital for share purchases and dismissed the argument that the holding period was too short. Only one scrip showed frequent trading, while the rest were held for investment purposes. In conclusion, the Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal and affirming the classification of income from the sale of shares as STCG and LTCG, not business income. This detailed analysis of the judgment highlights the key arguments, findings, and legal principles considered by the Tribunal in determining the classification of income from the sale of shares.
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