2015 (9) TMI 952 - AT - Income Tax

Purchase and sale of shares - Short term capital gain v/s business income - Held that - AO has accepted the capital gains from sale of shares held by the assessee for more than one year as long term capital gain which means that the AO has accepted that assessee is having some part of his portfolio as for investment and not for business which further gives support to the claim of assessee by showing income from share transactions in two heads i.e. capital gains and business income . The intention of the assessee at the time of purchase of shares was very clear and the shares held by the assessee at the close of the Financial Year were shown under the investment account in the balance sheet under the head shares in securities . The AO has already accepted the claim of assessee of long term capital gains on sale of shares. The investment in shares has been shown at the cost price which otherwise if held for business would have been shown as stock-intrade to be valued at cost or market price whichever is lower. From the perusal of the balance sheet of the assessee it is quite clear that no specific funds were borrowed for the purchase of shares and the main source of investment in shares and securities was from the capital account of the assessee. Assessee has also maintained separate profit and loss account for F 1, 05, 11, 605/-and thereafter during the Financial Year 2005-06 the shares purchased and sold under the investment account have been treated as short-term and long term capital gains. However looking to the transactions entered into by the assessee as shown under the head short term capital gains have been properly analyzed by the CIT(A) and therefore in view of above we do not find any error at the end of learned first appellate authority and therefore no interference is called for in the order of CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Classification of income from sale of shares as either short-term capital gains or business income.

Issue-wise Detailed Analysis:

1. Classification of income from sale of shares as either short-term capital gains or business income:

The Revenue's appeal contested the CIT(A)'s decision to treat the income of Rs. 23,69,436/- as short-term capital gains instead of business income. The assessment was initially framed by the Dy. CIT, Circle-7, Ahmedabad, under section 143(3) of the Income-tax Act, 1961, for the Assessment Year 2006-07. The AO had reclassified the short-term capital gains as business income based on the frequency and scale of share transactions conducted by the assessee, suggesting that these were not for investment purposes but for earning profits through trading.

The CIT(A) referred to CBDT Circular No.4/007 dated 15.6.2007 and various judicial precedents, including the Hon'ble Supreme Court's decision in CIT(Central), Calcutta vs. Associated Industrial Development Co. Pvt. Ltd. 82 ITR 586. The CIT(A) heavily relied on the decision of ITAT, Ahmedabad in the case of Shri Sugam Chand C. Shah vs. ACIT, Circle-3, Surat, which established that shares held for more than 30 days should be treated as investment, and those held for less than 30 days should be treated as business transactions.

The CIT(A) concluded that shares held for more than 30 days should be categorized as investments resulting in capital gains, whereas shares held for up to 30 days should be treated as business income. This decision was based on the principle that high-frequency transactions and low holding periods indicate trading, whereas low-frequency transactions and high holding periods indicate investment.

The Revenue appealed against this decision, arguing that the frequent and substantial nature of the transactions indicated a trading motive. The ld. AR for the assessee countered by emphasizing that the shares were disclosed as investments in the books of account, valued at cost, and that the assessee had earned substantial dividend income, supporting the claim of investment rather than trading.

The Tribunal considered the principles laid out in various judicial precedents and the CBDT Circular No.4 of 2007. It noted that the assessee had maintained separate accounts for trading and investment portfolios, and the AO had accepted the long-term capital gains on shares held for more than one year, indicating that part of the portfolio was indeed for investment.

The Tribunal found that the intention of the assessee at the time of purchase was clear, and the shares were shown as investments in the balance sheet. The investment was funded from the capital account, and no specific borrowings were made for purchasing shares. The Tribunal upheld the CIT(A)'s decision, concluding that there was no error in treating the income from shares held for more than 30 days as short-term capital gains and those held for less than 30 days as business income. The appeal of the Revenue was dismissed.

Conclusion:

The Tribunal upheld the CIT(A)'s order, affirming that the income from shares held for more than 30 days should be treated as short-term capital gains, while income from shares held for less than 30 days should be treated as business income. The appeal of the Revenue was dismissed.