2015 (10) TMI 2746 - AT - Income Tax

Transactions of sale and purchase of shares - capital gain or busniss income - intention of the assessee was to earn profits - Held that - We are unable to find ourselves in agreement with the findings of the AO as well as that of the CIT(A) that the intention of the assessee was to earn profits from the transactions of sale and purchase of shares. Apart from the above facts, it is also seen that the AO has observed in his order that the assessee has used borrowed funds for the purpose of making these investments. As during the course of hearing, as shown to us for the assessee with the help of the balance sheet of the assessee filed in the Paper Book, the assessee has utilized her owned funds to make investment in shares. This fact also supports the contention of the assessee that these transactions relating to purchase and sale of shares are for the purpose of investment and not for the purpose of business. We hold that the intention of the assessee in the present case in engaging herself in the transactions of sale and purchase of shares was to earn dividend income and not to earn business income. - Decided in favour of assessee.

Summary

Issues:
Assessment of income from sale and purchase of shares as business income rather than capital gain.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2006-07. The Assessing Officer considered the sale and purchase of shares by the assessee as a regular business activity, not capital gain. The assessee claimed the transactions were investments, not trading. The Assessing Officer based the decision on the frequency of transactions, lack of dividend income, and short holding periods. The Commissioner upheld this decision, noting the substantial amounts involved and the lack of evidence supporting the assessee's claim.

The assessee argued that the transactions were investments, supported by a detailed breakdown of transactions and holding periods. The assessee maintained separate books for different activities, treating shares differently from other trades. The assessee's dividend income was cited as evidence of investment intent. The assessee's use of owned funds, not borrowed, for investments further supported the claim. The Tribunal analyzed the facts and found the intention behind the transactions was to earn dividend income, not business income.

The Tribunal disagreed with the Assessing Officer and Commissioner, concluding the transactions were for investment purposes. The Tribunal emphasized the importance of assessing the assessee's intention in each case. The Tribunal's decision was based on the assessee's business structure, transaction details, and source of funds. The Tribunal found the assessee's actions aligned with investment activities, not regular business trading. Consequently, the appeal was allowed, and the income from sale and purchase of shares was treated as capital gain, not business income.