2014 (9) TMI 393 - HC - Income Tax

Trading in shares Business profit or LTCG / STCG - Held that - The CIT(A) as well as Tribunal rightly was of the view that the assessee was not engaged in the business of purchase and sale of shares - merely because in certain instances the shares were sold before the completion of a year was no reason to treat the income as arising from them as a business transaction when the assessee had duly shown it as short term capital gains - the intention of the assessee was to make an investment and not to carry on any trade or business in shares or securities as such no substantial question of law arises for consideration Decided against revenue.

Issues:
1. Interpretation of circular no. 4 of 2007 regarding shares held as stock-in-trade vs. investment.
2. Determination of whether frequent share trading constitutes business income.
3. Assessment of whether the dealing in shares was an adventure in the nature of trade.

Analysis:
1. The case involved a dispute over the classification of shares held by the assessee as either stock-in-trade or investment. The Assessing Officer treated a portion of the assessee's income as business income based on the intention to earn profits. However, the CIT(A) and the Tribunal disagreed, emphasizing that the assessee consistently treated the shares as investments, not for trading purposes. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's actions aligned with an investment strategy rather than a business motive. The circular no. 4 of 2007 was referenced to distinguish between shares held as capital assets and those held as trading assets, supporting the assessee's position.

2. The issue of whether the frequent share trading conducted by the assessee constituted business income was also addressed. The Assessing Officer argued that the high valuation share trading indicated a profit motive, classifying it as business income. However, the CIT(A) and the Tribunal examined the circumstances comprehensively. They observed that the assessee's actions, such as utilizing funds received as a gift for investments and holding shares for extended periods, aligned with an investment strategy rather than a trading venture. The Tribunal affirmed that the short-term capital gains should not be taxed as business income, as the assessee consistently treated them as capital gains in previous assessments.

3. Lastly, the Tribunal considered whether the assessee's dealing in shares constituted an adventure in the nature of trade. The CIT(A) analyzed various factors, including the absence of borrowed funds, the pattern of share holding, and the assessee's consistent treatment of shares as investments. These factors led to the conclusion that the intention behind the share dealings was investment-oriented rather than for trade or business purposes. The Tribunal concurred with the CIT(A)'s findings, emphasizing that the income from share transactions should be treated as capital gains, not business income. The judgments of the Supreme Court were cited to support the distinction between shares held for investment and those held as stock-in-trade.

In conclusion, the High Court dismissed the appeal by the revenue, affirming the decisions of the CIT(A) and the Tribunal. The judgment highlighted that the assessee's actions and intentions, as evidenced by the facts and circumstances, supported the classification of the share transactions as investments, not business activities. The reliance on the circular and legal precedents reinforced the position that the income derived from share dealings should be treated as capital gains, not business income.

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