2015 (6) TMI 416 - AT - Income Tax

Transaction of shares - business income OR capital gain - Held that - From the break up of summary of capital gain, it is seen that the assessee s investment in debt mutual funds is around 73% and also there is investment in venture funds. The investment in equity shares is approximately 27%. From this, it can be very well inferred that the assessee is mostly into long term investment activity. This is also coupled with other factors like, assessee has made investment solely from his own funds and not from any borrowed funds; he has managed his entire investment activity, through Fund managers / PMS. All these factors goes to show the intention of the assessee, which was to buy the shares for investment purpose and to sell the same to maximize the gain from such investments. Besides this, another very vital factor relevant in the assessee s case is that, on similar nature of transactions, which fact has been noted by the AO in the assessment order itself that in the earlier years the department has accepted the gain from sale of shares to be assessed under the head capital gains and such a view has been accepted under scrutiny proceedings passed u/s 143(3). Thus, on the facts and circumstances of the assessee s case, we hold that the gain from transaction of shares by the assessee is to be assessed under the head capital gains and not as business income . - Decided in favour of assessee.

Summary

Issues:
1. Assessment of income from shares as business income instead of capital gain for assessment years 2005-2006 and 2007-2008.

Detailed Analysis:

Assessment Year 2005-2006:
The assessee challenged the taxing of income from shares as 'business income' instead of 'capital gain.' The Assessing Officer (AO) noted the shares purchased and sold by the assessee through portfolio management services. The AO considered the transaction as a systematic business of shares. The assessee contended that the shares were acquired for investment purposes and not for trading. The Commissioner of Income-tax (Appeals) upheld the AO's decision, stating that the assessee's income from share sales exceeded other income and the volume and frequency of transactions indicated trading. The ITAT analyzed the transaction details, noting the long-term investments in blue-chip companies and debt funds. The ITAT found the intention was investment, not trading, considering factors like source of funds, management through fund managers, and past acceptance of gains as capital gains. The ITAT held the gain from shares as 'capital gains,' setting aside the CIT(A)'s decision.

Assessment Year 2007-2008:
The issues and findings were identical to the assessment year 2005-2006. The ITAT applied the same conclusion, treating the gain from shares as 'capital gains.' The assessee raised a legal issue of non-service of notice within the time limit under section 143(2) for this year. As no arguments were presented, the issue was dismissed. The appeal for this year was partly allowed.

In conclusion, the ITAT allowed the appeal for the assessment year 2005-2006 and partly allowed the appeal for the assessment year 2007-2008, holding that the gain from shares should be assessed as 'capital gains' and not as 'business income.' The legal issue of non-service of notice for the 2007-2008 assessment was dismissed.