2016 (4) TMI 115 - AT - Income Tax

Gains on sale of shares/securities - business income instead OR capital gains - Held that - The taxpayer cannot be allowed to take advantage of holding two portfolio, primarily with a motive to avoid tax liability or to reduce tax incidence. In the instant case, eventhough the assessee is maintaining two distinct portfolios, but facts speak otherwise. The volume of transaction is greater in investment portfolio. The law does not permit a taxpayer that under the garb investment transaction he can treat his regular share trading as investment. However, in the case in hand, the lower authorities ought to have given specific finding qua the transactions, that has been shifted from business portfolio and frequency thereof. Therefore, we hereby set aside the impugned order and restore the issue to the file of AO for de novo assessment. The assessee would place all relevant material before the AO in support of its claim. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Treatment of gains on sale of shares/securities as business income instead of capital gains.
2. Initiating penalty proceedings under sections 271(1)(c) and 271-B of the Income Tax Act.

Issue 1: Treatment of gains on sale of shares/securities as business income instead of capital gains:

The appellant contested the Commissioner of Income Tax (Appeals)'s decision to treat the gain on sale of shares as business income instead of capital gains. The appellant maintained two portfolios - one for proprietary concern and the other for individual account. The appellant argued that the authorities did not consider the submissions correctly. The Senior DR opposed the appellant's contentions, highlighting the absence of significant investments in the balance sheet and the high volume of share transactions. The appellant cited relevant case laws, while the Senior DR relied on judgments from different courts.

The Tribunal analyzed the facts and legal principles related to determining whether gains from share sales should be classified as business income or capital gains. It emphasized that each case's facts are crucial in making this determination, with no fixed formula available. The appellant showed income from various sources, including short-term capital gains, dividends, interest, salary, and business profit. The Assessing Officer treated the share sale surplus as business income, a decision upheld by the CIT(A). The Tribunal noted the distinction between maintaining separate portfolios and the actual nature of transactions. It concluded that the lower authorities should have provided specific findings on the transactions shifted between portfolios. Therefore, the Tribunal set aside the order and remanded the issue to the Assessing Officer for a fresh assessment, directing the appellant to provide all relevant material.

Issue 2: Initiating penalty proceedings under sections 271(1)(c) and 271-B of the Income Tax Act:

The Tribunal deemed Ground No.2 premature and dismissed it accordingly. Ground No.3 was considered general and required no separate adjudication. Consequently, the appellant's appeal was partly allowed for statistical purposes. The order was pronounced in court on February 16, 2016, at Ahmedabad.

The judgment addressed the appellant's challenge against the treatment of gains on the sale of shares as business income, emphasizing the importance of factual analysis and legal principles in such determinations. It also clarified the premature nature of one ground and the general nature of another, leading to a partial allowance of the appeal for statistical purposes.