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2016 (4) TMI 813 - AT - Income TaxSale of shares - short term capital gain/long term capital gain or business income - Held that - The assessee has not used borrowed funds. It has not claimed administrative expenditure. The only circumstances, which is against the assessee is number of transactions. But that is only one circumstance amongst others required to be appreciated by the adjudicating authority to collect the intention of the assessee while making investment. In our opinion, the ld.Revenue authorities have not appreciated the transactions in right perspective. We have also been appraised that even in subsequent years, the transactions of investment by the assessee have not been disturbed. In view of the above discussion, we allow the appeal of the assessee and direct the AO to treat the assessee as investor and the gain arisen to the assessee on transfer of shares is to be treated under the head capital gain - Decided in favour of assessee
Issues Involved:
1. Classification of gains from the sale of shares as business income or capital gains. 2. Levy of interest under section 234C of the Income Tax Act, 1961. Detailed Analysis: 1. Classification of Gains from Sale of Shares: The primary issue in this case revolves around whether the gains from the sale of shares should be treated as business income or capital gains. The assessee, a company, filed its return of income declaring total income, including long-term and short-term capital gains from the sale of shares. The Assessing Officer (AO) scrutinized the accounts and observed that the assessee engaged in a high volume of transactions, leading to the conclusion that the assessee was a trader in shares rather than an investor. The AO highlighted several points: - The assessee purchased and sold nearly two lakh shares during the year. - The transactions involved 48 different types of shares in short-term capital gains (STCG) and 18 types in long-term capital gains (LTCG). - The number of transactions was 425 in STCG and 133 in LTCG. - The frequency of purchase and sale days was high, indicating regular trading activity. The AO relied on the decision of the Hon’ble Madras High Court in CIT Vs. Amalgamations P. Ltd., CBDT Circular No. 4/2007, and other relevant decisions, concluding that the assessee's activities were in the nature of business rather than investment. On appeal, the CIT(A) also rejected the assessee's contentions, noting that: - The assessee was incorporated to carry on the business of investment and held shares as investments in its books. - The investment portfolio was the only portfolio maintained for share transactions. - The assessee engaged in trading in the Futures & Options (F&O) segment. - The volume and systematic nature of transactions indicated a business activity. The Tribunal referred to principles from ITAT Lucknow Bench in the case of Sarnath Infrastructure Pvt. Ltd., which included factors such as the intention at the time of purchase, frequency of transactions, and treatment in books of accounts. The Tribunal also considered the Hon’ble Gujarat High Court's tests in Commissioner of Income Tax vs. Riva Sharkar A Kothari, which included the initial intention, treatment of transactions, and volume and frequency of transactions. The Tribunal found that: - The assessee had consistently treated shares as investments since 1986. - The assessee paid security transaction tax, indicating investment activity. - There was no use of borrowed funds for purchasing shares. - The only adverse factor was the high number of transactions. The Tribunal concluded that the Revenue authorities failed to appreciate the transactions in the right perspective and directed the AO to treat the gains as capital gains, recognizing the assessee as an investor. 2. Levy of Interest under Section 234C: The second issue involved the levy of interest under section 234C, which was consequential to the primary issue. Since the Tribunal decided in favor of the assessee on the primary issue, the levy of interest under section 234C was also addressed accordingly. Conclusion: The appeal of the assessee was partly allowed. The Tribunal directed the AO to treat the gains from the sale of shares as capital gains, recognizing the assessee as an investor. The issue of interest under section 234C was consequential and dependent on the primary issue's outcome. The judgment was pronounced on 18th April 2016 at Ahmedabad.
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