2015 (10) TMI 2005 - AT - Income Tax

Gain or loss earned on sale and purchase of shares and securities - capital gain v/s busniss income - Held that - The Tribunal noted that so far as rule of consistency was concerned, even prior to assessment year 2004-05 assessee was showing the shares as investments and that the same should have been applied in assessment year 2004-05 also, where assessee had himself changed the method of accounting in comparison to earlier year as well as in the subsequent years. This observation of the Bench is sought to be emphasized by the Ld. Representative for the assessee before us to support his plea that the orders of the Tribunal for assessment years 2005-06 and 2006-07 in assessee s own case be disregarded and instead the position prior to assessment year 2004-05 be applied as per rule of consistency. In our considered opinion, the decision in the case of Shri Chhitubhai N Patel(2012 (12) TMI 780 - ITAT, MUMBAI) has been rendered in the background of its own facts and circumstances. In fact, the Tribunal subsequently noticed that since there are decisions on both sides on this point, therefore, each case has to be decided on its own facts The aforesaid observation of the Tribunal itself suggests that each case is to be decided having regard to the totality of its facts and circumstances. Therefore, in our view the decision in the case of Shri Chhitubhai N Patel(supra) relied upon does not help the assessee in the present case. We, therefore, hold that the gain/loss on purchase and sale of shares, may it be long term or short term, be assessed as business income and not as capital gain being canvassed by the assessee. - Decided against assessee.

Issues Involved:
1. Characterization of transactions of purchase and sale of shares/securities.
2. Assessment of resultant gain/loss as capital gains or business income.
3. Consistency in the treatment of income from sale of shares in previous assessment years.

Detailed Analysis:

1. Characterization of Transactions of Purchase and Sale of Shares/Securities:
The core issue in the appeals pertains to the characterization of transactions involving the purchase and sale of shares/securities by the assessee. The assessee reported gains or losses under the head 'capital gains,' treating the shares/securities as investments. In contrast, the Assessing Officer (AO) classified these transactions as trading activities, assessing the resultant gain/loss as business income. This dispute was consistent across assessment years 2007-08 and 2009-10.

2. Assessment of Resultant Gain/Loss as Capital Gains or Business Income:
For assessment year 2007-08, the CIT(A) differentiated between long-term and short-term capital gains, treating long-term gains as capital gains and short-term gains as business income. The Revenue appealed against the classification of long-term gains as capital gains, while the assessee contested the treatment of short-term gains as business income. For assessment year 2009-10, the AO treated all transactions (long-term and short-term) as business income, and the CIT(A) upheld this view. The assessee appealed against this decision.

The Tribunal previously addressed a similar issue for assessment years 2005-06 and 2006-07, concluding that profits or losses from the purchase and sale of shares should be assessed as business income. The CIT(A) followed this precedent for assessment year 2009-10, affirming the AO's action.

3. Consistency in the Treatment of Income from Sale of Shares in Previous Assessment Years:
The assessee argued that the fact pattern for the years under consideration differed from those in assessment years 2005-06 and 2006-07. They emphasized that prior to assessment year 2005-06, the Revenue had assessed income from the sale of shares as either capital gains or business income, based on the treatment in the balance sheet. The assessee presented evidence of consistent treatment in assessment years 1998-99, 1999-2000, and 2003-04, where income from the sale of shares was assessed as capital gains.

The Tribunal considered the principle of consistency but noted that each assessment year is an independent unit. The Tribunal found no compelling reason to depart from the decisions for assessment years 2005-06 and 2006-07, which had analyzed the entire factual matrix and concluded that the transactions were in the nature of trading activities.

Conclusion:
The Tribunal upheld the AO's and CIT(A)'s decisions, treating the gains/losses from the purchase and sale of shares as business income for both assessment years 2007-08 and 2009-10. The appeal of the Revenue for assessment year 2007-08 was allowed, and the Cross Objection and appeal of the assessee for assessment years 2007-08 and 2009-10 were dismissed. The Tribunal emphasized that the pattern of activities in the years under consideration was consistent with those in assessment years 2005-06 and 2006-07, justifying the treatment of income as business income.

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