2016 (6) TMI 598 - HC - Income Tax

Transaction in shares - Short Term Capital Gains OR Business Income - Held that - Referring to guidelines for ascertaining whether in case of certain assessee buying or selling of shares is done by way of investment. These tests have to be applied cumulatively. The Tribunal noted that the assessee had a history of being investor. The activity of transactions relied only to five strips. All transactions were delivery base. The assessee had not termed the activity of sale and purchase on daily basis. The assessee had showed the shares by way of investments in the books of accounts, had not borrowed any finance acquired such shares. Majority of the capital gain relied to shares held for more than 60 days. Appellate Tribunal was justified in holding that transaction in shares made within a short period was Short Term Capital Gains and not Business Income as treated by the Assessing Officer - Decided against revenue

Summary

Issues:
- Determination of whether transaction in shares constituted Short Term Capital Gains or Business Income for assessment year 2006-07.

Analysis:
1. The Revenue appealed against the judgment of the Income Tax Appellate Tribunal regarding the nature of income declared by the assessee through the sale of shares for the assessment year 2006-07. The main question raised was whether the transaction in shares made within a short period should be considered Short Term Capital Gains or Business Income.

2. The Assessing Officer initially treated the sum of ?1.81 Crores as the assessee's business income instead of capital gain. This decision was based on various judicial pronouncements, including the tests of acquisition for investment, sale of shares for a good price, treating shares as investments in books, and the volume of shares transacted. The Assessing Officer rejected the claim of short term gain due to discrepancies in the details provided by the assessee and the period of holding certain shares.

3. The assessee appealed to the Commissioner, who relied on previous assessment proceedings and ruled in favor of the assessee. The Revenue further appealed to the Tribunal, which upheld the decision in favor of the assessee. The Tribunal noted that the assessee had a history of being an investor, the transactions were related to five scrips, were delivery-based, not done on a daily basis, and the majority of profits were from shares held for over 60 days. The Tribunal cited a Bombay High Court decision and dismissed the Revenue's appeal.

4. The High Court agreed with the Tribunal's decision, stating that the principles laid down by previous judgments were correctly applied. The Court emphasized that the tests for determining whether shares were bought or sold as investments had to be applied cumulatively. The Court found no error in the Tribunal's order, as the assessee's behavior aligned with the criteria established by previous legal precedents.

5. Consequently, the High Court dismissed the Tax Appeal, concluding that no question of law arose from the case, and affirmed the Tribunal's decision regarding the treatment of the income from the sale of shares as Short Term Capital Gains rather than Business Income for the assessment year 2006-07.