2016 (3) TMI 247 - HC - Income Tax

Short term capital gain v/s business income - transaction of shares - Held that - All the authorities under the Act have on consideration of facts and in particular the statement of short term capital gain which was annexed to the return of income by the Appellant and also annexed as Exh.A-1 to the Appeal Memo rendered a finding of fact that the profit claimed to be on account of purchase and sale of investment in shares was in fact on account of trading in shares. This conclusion was recorded after taking into account all factors laid down in the Circular No.4 of 2007 issued by the CBDT. We also find from the statement of short term capital gains annexed to the Memo of Appeal that in a large number of cases, the holding of shares is for a short period i.e. less than 30 days and in any event not more than 75 days in any case as noted in the CIT(A) in his order. No substantial question of law.

Summary

Issues:
1. Classification of short term capital gain as business income.

Analysis:
The appellant, engaged in trading of shares and providing equity share advice, declared a profit in trading of shares and short term capital gain during the assessment year 2008-09. The Assessing Officer categorized the short term capital gains as profit earned from the business trading activity, resulting in the amount being taxed as income from business or profession. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing the need to consider various factors like entry in books of account, frequency of transactions, holding period, volume of transactions, nature of funds used, and other activities of the assessee to determine whether the shares were held for investment or trading purposes. The Commissioner found that most shares were held for less than 30 days, indicating a trading activity rather than investment. The Tribunal, considering the Circular No.4 of 2007, concluded that the shares were traded for profit, not held for investment, and upheld the lower authorities' decision.

The appellant argued that they had offered the profit from trading activities separately and claimed the short term capital gains as gains from shares held for investment. However, the courts found that the shares were predominantly held for short periods, not exceeding 75 days, indicating a trading activity. The courts relied on the statement of short term capital gains and the Circular No.4 of 2007 to determine the nature of the transactions. Despite the appellant's contention, the courts upheld the findings of the lower authorities, stating that the facts did not warrant interference as they were not arbitrary or perverse. Consequently, the appeal was dismissed as it did not raise any substantial question of law, and no costs were awarded.