2015 (5) TMI 755 - AT - Income Tax

Transaction through PMS and market broker - capital gain v/s business income - CIT(A) directed the Assessing Officer to treat the appellant as an investor and treat the profit on sale of shares as capital gains - Held that - As decided in assessee's own case for the Assessment Years 2004-05 and 2005-06 when totality of all the above facts are considered, the inference drawn by the CIT (A) that the assessee is an investor in shares, appears to be correct. Apart from the above, on the principle of consistency also order of the CIT (A) on this point deserves to be upheld because in the original returns income from sale of shares was disclosed under the head capital gain and the same was accepted by the Revenue. Income tax proceedings the rule of res judicata does not apply but there should be uniformity in treatment and consistency under the same facts and circumstances. See CIT vs. Gopal Purohit, 2010 (1) TMI 7 - BOMBAY HIGH COURT - Decided against revenue.

Summary

Issues Involved:
1. Classification of income from share transactions as capital gains or business income.
2. Treatment of income from Portfolio Management Scheme (PMS) transactions.
3. Consistency in tax treatment based on past assessments and judicial precedents.

Issue-wise Detailed Analysis:

1. Classification of Income from Share Transactions:
The primary issue in both assessment years (2007-08 and 2008-09) was whether the income from share transactions should be classified as "capital gains" or "business income." The Assessing Officer (AO) treated the income from share transactions, including those conducted through PMS, as business income. This decision was based on the observation that the assessee was involved in frequent buying and selling of shares, indicating a trading activity rather than an investment.

2. Treatment of Income from PMS Transactions:
The AO observed that the assessee had shown income from share transactions through normal trades and PMS. For the assessment year 2007-08, the income from PMS transactions was Rs. 52,30,240/- out of a total of Rs. 59,97,410/-. Similarly, for the assessment year 2008-09, the income from PMS transactions was Rs. 67,08,965/-. The AO treated these transactions as business income, rejecting the assessee's claim of them being capital gains.

3. Consistency in Tax Treatment:
The Commissioner of Income-Tax (Appeals) [CIT(A)] accepted the assessee's appeal, directing the AO to treat the income from these transactions as capital gains. The CIT(A) based this decision on the precedent set in the assessee's own case in earlier years, where similar transactions were treated as investments resulting in capital gains. The CIT(A) referenced the jurisdictional ITAT's order, which had previously held that the assessee's transactions were in the nature of investments and not business activities.

Detailed Analysis:

Assessment Year 2007-08:
The AO observed that the assessee had shown income from share transactions through normal trades and PMS. The AO treated these transactions as business income. On appeal, the CIT(A) directed the AO to treat these transactions as capital gains. The CIT(A) noted that the issue had been decided in favor of the assessee in earlier years and by the jurisdictional ITAT, which had held that the transactions were investments and not business activities. The CIT(A) allowed the appeal, directing the AO to treat the transactions as capital gains.

Assessment Year 2008-09:
Similarly, for the assessment year 2008-09, the AO treated the income from share transactions, including those through PMS, as business income. The CIT(A) again directed the AO to treat these transactions as capital gains, following the same reasoning as for the assessment year 2007-08. The CIT(A) referenced the ITAT Ahmedabad's decision in the case of Shri Sugam Chand C Shah, which provided criteria for categorizing transactions as investments or business activities based on the holding period of shares.

ITAT's Decision:
The ITAT upheld the CIT(A)'s decision for both assessment years. The ITAT noted that the issue was covered in favor of the assessee by its own order for the assessment year 2006-07, where it had held that the assessee's transactions were investments resulting in capital gains. The ITAT emphasized the principle of consistency, stating that there was no change in the facts from earlier years, and the Revenue had accepted the treatment of similar transactions as capital gains in the past. The ITAT dismissed the Revenue's appeals, confirming that the income from share transactions should be treated as capital gains.

Conclusion:
The ITAT dismissed the Revenue's appeals for both assessment years, upholding the CIT(A)'s decision to treat the income from share transactions, including those through PMS, as capital gains. The ITAT emphasized the principle of consistency and relied on judicial precedents, including its own decision in the assessee's case for earlier years. The appeals of the Revenue were dismissed, and the order pronounced on 2.2.2015 confirmed the treatment of the assessee's income from share transactions as capital gains.