2016 (2) TMI 371 - AT - Income Tax

Transaction of purchase and sale of shares - Short Term Capital Gain and Long Term Capital Gain OR Business Income - Held that - The portfolio held by the appellant when considered in the light of number of scrips held/purchased/sold and corresponding number of transactions, number of days transacted in market, lack of frequency of transactions, consistent valuation of shares at cost value, separation of speculation/F&O business from investment activity, investment being made from own funds shows that assessee is engaged as investor in shares and not as trader. In view of this CIT(A) appeal was justified in observing that income return by assessee short term and long term capital gains has to be assessed under the respective heads as claimed by assessee and not business income. Further, the assessee has consistently shown short term capital gain/short term capital loss as well as long term capital gain/long term capital loss in all these years. In fact, the gross long term capital gain earned by assessee is over ₹ 16.72 lakh which indicates that assessee has been a long term investor in shares. In view of above CIT(A) was justified in directing to assessee long term capital gain under respective heads. This reasoned factual finding of CIT(A) need not interference from our side. We uphold the same. - Decided against revenue

Summary

Issues:
1. Classification of income from purchase and sale of shares as Short Term Capital Gain, Long Term Capital Gain, or Business Income.

Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income-Tax (Appeals) regarding the classification of income from shares for the assessment year 2010-11.

2. The Assessing Officer treated the short term and long term capital gains from shares as business income, adding them to the total income of the assessee, who is an individual.

3. The first appellate authority considered various contentions raised by the assessee and granted relief by treating the income as short term and long term capital gains. The Revenue opposed this, citing a landmark judgment of the ITAT in a similar case.

4. The ITAT found that the assessee, an HUF engaged in property development, was not a share broker or dealer. The majority of share transactions had holding periods exceeding one month, indicating investment intent. The ITAT noted that the assessee absorbed losses and held the portfolio as an investment, not for quick profits.

5. The ITAT observed that the assessee used own funds, maintained proper records, and separated speculation from investment activities. The consistent method of showing investments in the balance sheet and the absence of borrowing for investments supported the investor status.

6. Considering the number of transactions, holding periods, lack of frequency, and segregation of investment activities, the ITAT upheld the CIT(A)'s decision to classify the income as short term and long term capital gains, not business income.

7. The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s reasoned factual findings and the assessee's status as an investor in shares. The judgment was pronounced on November 13, 2015.