2015 (7) TMI 286 - AT - Income Tax

Transactions of purchase and sales of shares - Treatment of short term capital gain or business income - Held that - It is clear that the overall holding period of the shares ranges from 4days to 4 months. The volume of purchase and sale is almost equal which shows that the intention of the assessee is not to retain the shares but disposed off at the earliest possible time. Further the assessee is having OD facility with ICICI Bank. The outstanding liability at the end of the year in the OD account is ₹ 2.59 crores. The own fund claimed by the assessee is nothing but deposit received from the tenant therefore it was not his own fund but was to be refunded to the tenant. One more important feature of the transactions is repetitive purchases and sale in the same script and also in some cases same day transactions of purchase and sales. From the details of purchase and sale shown in the investment portfolios we find that the assessee has carried out repetitive transactions of same share The Activity of repetitive purchase and sale of same script manifest the intention of the assessee to book the profit on every swing of the stock market and then again entered into the same script to re-book the profit on the next swing. Thus the assessee is running with the movement of the stock market. Therefore, the facts and circumstances of the case clearly show that assessee was doing the transactions of trading in shares. The assessee contended that the AO accepted the investment in the earlier, therefore, cannot take a different view for the year under consideration. It is pertinent to note that rule of consistency is applied only when the facts are identical and not distinguishable. In the year under consideration the assessee has carried out repetitive transactions in the same script as well as same day transactions of purchase and sale therefore, the earlier orders would not operate as res-judicata or applied as rule of consistency. Hence, we do not find any error or illegality in the impugned order of the CIT(A) confirming the income as business income - Decided against assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in confirming the treatment of short-term capital gain as business income.

Issue-wise Detailed Analysis:

1. Confirmation of Treatment of Short-Term Capital Gain as Business Income:

The primary issue in this appeal was whether the CIT(A) erred in confirming the treatment of short-term capital gain of Rs. 17,02,952/- offered by the assessee as business income. The assessee had shown income from various sources including house property, business, short-term capital gain, and other sources in the return for the assessment year 2006-07. During the assessment proceedings, the AO noted that most transactions had a holding period of less than one month, with the maximum being four months. The assessee also engaged in 1,409 transactions in derivative trade with a trade amount of Rs. 3,25,43,062/- and 74 transactions in the purchase and sale of shares, which gave rise to short-term capital gain. The AO concluded that the assessee's intention was to engage in the trade of shares, given the high volume and nature of transactions, and thus treated the income as business income.

The assessee argued that he maintained two separate portfolios: one for investment and another for trading activities, with separate accounts for each. The department had accepted the capital gain in earlier and subsequent years. The assessee contended that trading in shares and securities on a non-delivery basis was a business activity, whereas the purchase and sale of shares as an investor were under the investment portfolio. The assessee maintained that the delivery-based purchase and sale indicated investment intent and should be treated as capital gain. The assessee relied on the CBDT circular no. 4/2007 and the Tribunal's decision in Gopal Purohit v. Jt. CIT, which was upheld by the Jurisdictional High Court. The assessee also cited the judgment of the Hon'ble Supreme Court in Radhasomi Satsang v. CIT to support the rule of consistency.

The Ld. DR countered that the volume and frequency of transactions were very high, and the assessee used borrowed funds from ICICI Bank. The normal activities of the assessee involved large-scale trading in derivatives, and the purchase and sale of shares on a delivery basis were part of the same trade activity. The Ld. DR relied on the orders of the authorities below and the judgment of the Hon'ble Delhi High Court in CIT vs. M/s. D&M Components Ltd.

The Tribunal considered the rival submissions and relevant material on record. It noted that the question of whether transactions were investments or trading was factual and had to be decided based on the peculiar facts of each case. The principle of precedent was not strictly applicable to findings of fact. The Tribunal observed that the assessee carried out derivative transactions on a large scale and 74 transactions of purchase and sale of shares on a delivery basis. The assessee claimed the surplus from these transactions as short-term capital gain, arguing that he maintained two separate portfolios. However, maintaining separate portfolios did not automatically establish that the transactions in the investment portfolio were indeed investments.

The Tribunal found that more than 50% of the transactions had a holding period of less than 30 days, indicating that the assessee's intention was to sell the shares quickly for profit rather than retain them for value appreciation. The CIT(A) had concluded that the assessee was engaged in trading shares and derivatives with a clear motive of earning profit from market fluctuations. The Tribunal noted that the volume of purchase and sale was almost equal, and the assessee had an overdraft facility with ICICI Bank, indicating that the funds used were not his own but borrowed. The repetitive purchase and sale of the same script also indicated an intention to book profits on market swings.

The Tribunal concluded that the facts and circumstances showed that the assessee was engaged in trading shares. The rule of consistency did not apply as the facts for the year under consideration were distinguishable from earlier years. Hence, the Tribunal upheld the CIT(A)'s order and dismissed the appeal.

Conclusion:
The appeal of the assessee was dismissed, and the treatment of short-term capital gain as business income was upheld. The Tribunal found no error or illegality in the CIT(A)'s order.