2015 (4) TMI 149 - AT - Income Tax

Share transaction - Short Term Capital Gain v/s Income from Business - whether period of holding of shares is the basic yardstick for determination of either investment or dealing in shares? - Held that - As held by the Hon ble Apex Court in the case of Associated Industrial Development Co.Ltd. (1971 (9) TMI 3 - SUPREME Court), whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those hold as stock in trade. In this case the assessee has not produced any such evidence. The fact remains that the assesee has purchased and sold these shares within a period of one week s time and gained ₹ 66,20,920/-. Though purchased in previous year they were not accounted for or classified as investment. This coupled with the fact that the entire purchase has been sold shows that the assessee has never intended to keep these shares as investment. Commissioner of Income- Tax (Appeals) was justified in confirming that assessment of Short Term Capital Gain as Income from Business. - Decided against assessee.

Summary

Issues:
1. Classification of Short Term Capital Gain as Income from Business
2. Determination of holding period for shares as a yardstick
3. Applicability of investment vs. trading transactions in share dealings

Analysis:

Issue 1: Classification of Short Term Capital Gain as Income from Business
The case involved an assessee, a Non Banking Financial Company engaged in share trading and investments, who claimed Short Term Capital Gain. The Assessing Officer (AO) observed discrepancies in the transactions, particularly regarding the shares of M/s.Gujarat NRE Coke Ltd. and M/s.Arvind Chemicals Ltd. The AO concluded that the income from the sale of shares of M/s.Gujarat NRE Coke Ltd. should be considered as business income due to the high profit margin. The ld. CIT(A) upheld this decision after analyzing the transactions and considering various factors.

Issue 2: Determination of holding period for shares as a yardstick
The ld. CIT(A) noted the frequency of buying and selling shares, the short holding period, and the high turnover, indicating trading activities. The assessee's intention to make quick profits, lack of long-term capital gains, and repetitive transactions further supported the conclusion that the shares were not held as investments. Citing relevant case laws, the ld. CIT(A) dismissed the appeal, holding the capital gains as business income.

Issue 3: Applicability of investment vs. trading transactions in share dealings
During the appeal, the assessee argued against the inference that short holding periods implied trading transactions, emphasizing the absence of specific provisions mandating minimum holding periods for share investments. The Tribunal referred to relevant case laws emphasizing the distinction between investments and stock in trade. The Tribunal found that the assessee failed to provide evidence distinguishing shares held for investment purposes from those held for trading. The absence of proper classification and quick turnover of shares led to the affirmation of the income classification as business income.

In conclusion, the Tribunal upheld the decision of the ld. CIT(A) and dismissed the appeal, emphasizing the importance of maintaining clear distinctions between share investments and trading activities based on the facts and circumstances of each case.