2015 (7) TMI 249 - AT - Income Tax

Profits arising from purchase and sale of shares - Capital gain or business income - assessee is showing these shares in its investment portfolio in the books of accounts - Held that - These shares have been valued at cost. At page 130 of the paper book, copy of Form No. 3CD-tax audit report is contained in which at Serial N. 8a in regard to nature of business or profession, it is stated that, assessee is in the business of share trading investments, financing and power generation and in Column No. 8b,it is stated that there is no change in the assessee s business from earlier year. The assessee has given details of long term capital gain (STT) exempt u/ 10(38) (own) to demonstrate that the period of holding of the shares was more than one. The details of short term capital gains are given at pages 168 to 178 of paper book. From the above details it is evident that there is no change in the facts obtaining in the current year as compared to earlier years and, therefore, the decision of Tribunal in earlier years applies mutatis mutandis to the facts in the present assessment year, particularly because assessee has primarily sold the shares which have been treated as investments in earlier year. It is pertinent to observe that Assessing Officer has also followed the reasoning for A.Ys 2006 & 2007-08 in arriving at his conclusion that the shares were held as business asset and not as investment which has not been accepted by Tribunal as noted earlier. However, one aspect which needs clarification is in regard to Ld. CIT(A) s finding in earlier years that gain arising out of sale of shares within 30 days is to be treated as business income which finding has been confirmed by Tribunal in earlier years. However, in the current year there is no such finding by Ld. CIT(A). Therefore, sale from all shares held as investment is to be assessed as short term or long term capital gain - Decided against revenue. Whether assessee case is squarely falls under speculative transactions as defined in sub section (5) of Section 73? - Held that - It is evident from the balance sheet that loans and advances granted by assessee aggregated to ₹ 292,189,865/-on which assessee earned interest amounting to ₹ 40,56,653/- which is the main source of Assessee s income. Thus, the principal business of the assessee was granting of loans and advances. Further, we find from the computation contained at pages 126 that the gross total income consists mainly of income which is chargeable under the head capital gains and income from other sources. Therefore, respectfully following the decision of Tribunal for earlier years, we uphold the order of Ld. CIT(A) in holding that the assessee s income was not assessable as speculation profit either. - Decided against revenue.

Summary

Issues Involved:

1. Classification of income from share transactions.
2. Applicability of speculative transaction provisions under Section 43(5) of the Income Tax Act.
3. Consistency in the treatment of income in successive assessment years.

Issue-wise Detailed Analysis:

1. Classification of Income from Share Transactions:

The primary issue was whether the profits arising from the purchase and sale of shares should be treated as business income or capital gains. The Assessing Officer (AO) argued that the transactions were part of regular business activities, citing the high volume of transactions and the absence of a stock register. The AO referenced previous assessment years (2006-07 and 2007-08) to support this view. Conversely, the CIT(A) and the Tribunal held that the shares were held as investments, not stock-in-trade. The Tribunal emphasized that the shares were reflected as investments in the books and were held for more than a year in many cases, indicating an intention to invest rather than trade. The Tribunal relied on the principles laid down by the Hon'ble Delhi High Court in CIT vs. Rohit Anand, which highlighted factors like volume of transactions, mode of delivery, frequency of transactions, and the source of payment to determine the nature of the income.

2. Applicability of Speculative Transaction Provisions under Section 43(5):

The AO contended that the transactions were speculative as per Section 43(5) of the Income Tax Act, based on broker notes suggesting that the transactions were settled without actual delivery. The CIT(A) and the Tribunal disagreed, noting that the assessee's principal business was granting loans and advances, and its gross total income consisted mainly of capital gains and income from other sources. Therefore, the exceptions provided in Explanation to Section 73 applied, and the income could not be treated as speculative.

3. Consistency in the Treatment of Income in Successive Assessment Years:

The Tribunal stressed the importance of consistency in tax treatment across different assessment years. It observed that the assessee had consistently shown shares as investments in its books, and this treatment had been accepted by the revenue in previous years. The Tribunal cited the principle that if there is no change in the facts, the tax authorities should maintain consistency in their approach. The Tribunal also referred to CBDT Circular No. 4/2007, which allows taxpayers to have two portfolios: one for investment and one for trading. The Tribunal concluded that the assessee's treatment of shares as investments was justified and should be upheld.

Conclusion:

The Tribunal upheld the CIT(A)'s decision that the income from the sale of shares should be treated as capital gains rather than business income. It also affirmed that the transactions were not speculative under Section 43(5) of the Income Tax Act. The Tribunal emphasized the need for consistency in tax treatment across different assessment years and relied on established judicial principles and CBDT guidelines to arrive at its decision. The revenue's appeal was dismissed, and the assessee's treatment of income was accepted.