2016 (3) TMI 865 - AT - Income Tax

Profit on sale of shares - chargeable to tax under the head capital gains or profits and gains from the business or profession - Held that - A perusal of the relevant balance-sheet of the assessee also shows that the investment in shares was made by the assessee out of her own funds and the only source of income of the assessee for the year under consideration was interest from small savings as well as loan given to one Company. There is nothing in the relevant financial statements filed by the assessee for the year under consideration to indicate that any expenditure necessary to carry on any business activity was incurred by the assessee. Having regard to all these facts of the case, I am of the view that the relevant shares were purchased by the assessee as investor and the profit arising from sale thereof was chargeable to tax in her hands as short-term capital gains and not business income. In that view of the matter, set aside the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to bring to tax the profit of the assessee from sale of shares in her hands as short term capital gain. - Decided in favour of assessee

Summary

Issues involved:
Determination of whether profit from the sale of shares is chargeable to tax under "capital gains" or "profits and gains from the business or profession."

Analysis:
1. Assessment by Assessing Officer:
The Assessing Officer examined the transactions related to the profit from the sale of shares by the assessee and concluded that the transactions were accommodation entries converting unaccounted money into accounted money. The Assessing Officer held that the profit from the sale of shares should be taxed under "income from other sources" or as business income instead of capital gains.

2. Appeal before CIT(Appeals):
The assessee appealed the Assessing Officer's decision before the CIT(Appeals), who focused on whether the income from share transactions should be treated as business income or short-term capital gains. The CIT(Appeals) disregarded the Assessing Officer's findings on accommodation entries and emphasized the intention behind the share transactions.

3. Tribunal's Decision:
The Tribunal considered the intention of the assessee behind purchasing the shares to determine the taxability of the profit. It noted that the frequency of share transactions was low, the shares were held for a short period, and the transactions were made through registered brokers on the Stock Exchange. The Tribunal found that the shares were purchased as investments and the profit should be taxed as short-term capital gains, not as business income.

4. Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the CIT(Appeals) order. It directed the Assessing Officer to tax the profit from the sale of shares as short-term capital gains in the hands of the assessee. The decision was based on the assessee's conduct, the limited nature of share transactions, and the source of income from interest and loans, indicating an investment motive rather than a business activity.

In summary, the Tribunal's decision focused on the intention behind the share transactions to determine the tax treatment of the profit, emphasizing the investment nature of the transactions and setting aside the earlier assessments to tax the profit as short-term capital gains.