2015 (6) TMI 198 - AT - Income Tax

Transaction of shares - Short Term Capital Gains and Long Term Capital Gain or business income - Held that - Activities of the assessee clearly prove that the assessee wanted to maximise the profit and not interested in appreciation of value of the scripts.In our opinion, entries in the books of accounts is one of the deciding factors,but not the conclusive factor to decide as to whether the assessee was a trader or investor of shares covered under the head STCG In the present case,we do not find that the assessee was in investor for the shares which were taxed under the head STCG.As far as the shares of Zicom Elec.are concerned,we are of the opinion that same had been rightly taxed under the head LTCG by the FAA. In our opinion,to that extent,the order of the FAA has to be endorsed. But,we are reversing his order for the shares that were taxed under the head STCG by the AO.In short,considering the peculiar facts and circumstances of the case we are of the opinion that assessee was not an investor, but was a trader.Thus,partly confirming the order of the FAA,we are are deciding the effective ground of appeal in favour of the AO,in part. - Decided in favour of assessee in part.

Summary

Issues:
1. Determination of income as Short Term Capital Gains and Long Term Capital Gain on profit from purchase and sale of shares versus business income.
2. Whether the profits from the sale of shares should be assessed under the head Income from Business or Capital Gains.

Analysis:
1. The Assessing Officer (AO) initially treated the income from shares as business income due to the large volume of shares traded and the regularity of transactions. The AO analyzed the share transactions, volume turnover, and holding period to determine the nature of income. The AO concluded that the motive of the assessee was to book profits through share trading, classifying the income under the head "Income from Business."

2. The First Appellate Authority (FAA) considered the assessee's arguments, emphasizing that the intention at the time of share purchase was for investment purposes. The FAA differentiated between delivery-based and non-delivery-based transactions, noting that the shares were held for more than three months on average. Referring to relevant cases, the FAA directed the AO to accept the Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) as declared by the assessee.

3. The Appellate Tribunal analyzed the surrounding circumstances and the nature of share transactions to determine whether the profits should be assessed as business income or capital gains. The Tribunal highlighted the absence of a clear-cut criterion and emphasized that the intention of the assessee must be considered. After reviewing the activities and financial details of the assessee, the Tribunal concluded that the assessee was engaged in the business of shares trading, aiming to maximize profits rather than long-term investment. The Tribunal partially confirmed the FAA's decision, endorsing the treatment of LTCG for specific shares but reversing the treatment of STCG, ultimately deciding in favor of the AO.

In conclusion, the Tribunal upheld the classification of profits from certain shares as Long Term Capital Gains while categorizing the remaining profits as business income. The decision was based on a comprehensive analysis of the assessee's activities, intentions, and the nature of share transactions, emphasizing the importance of surrounding circumstances in determining the appropriate tax treatment.