2016 (7) TMI 191 - HC - Income Tax

Transaction of shares - business income or capital gain - whether the Income-tax Appellate Tribunal was right in holding that the appellant s intention was to trade in shares and not to hold the same as investment portfolio? - Held that - The impugned order of the Tribunal has elaborately dealt with the contention of the appellant that as for the earlier and subsequent assessment years profits arising on account of purchase and sale of shares has been classified as short term capital gains, the same should be done in the subject Assessment years. The Tribunal on analysis of the facts noticed that the facts in the subject assessment year are different from the facts in the earlier and subsequent assessment years. Particularly the number of transactions in shares were in single or double digits in the years sought to be compared while transactions of purchase and sale of shares is of the magnitude of 346 transactions in the subject assessment year. Further differences in facts was also brought out in a chart in the impugned order on 13 parameters between the subject assessment year and the earlier and subsequent assessment years. In these circumstances the impugned order very correctly holds that the rule of consistency would not apply in the present case as there is a change in facts existing in the subject assessment year. There is no merit in the submission that reliance on the inadequate mention in the Balance Sheet is immaterial since the appellant an individual for the reason that she was carrying a business in Futures and Options. Thus the obligation on the part of the assessee to file its Balance Sheet and disclose its investments. The last submission that appeals raising an identical question i.e. classification of Income as short term capital gains or business Income have been admitted for our consideration would requires admission of this appeal is not acceptable. This for the reason that appeals are admitted keeping in context the facts which give rise to the questions which were posed for our consideration. The order passed at the stage of admission of a tax appeal, cannot be treated as precedent. Thus the view taken by the Tribunal on the facts as existing in the present case is a possible view. Appeal dismissed.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding classification of income from trading in shares as business income or short term capital gains.

Detailed Analysis:
1. Issue of Classification of Income:
The appeal challenges the Income Tax Appellate Tribunal's order classifying the appellant's income from trading in shares as business income instead of short term capital gains for the Assessment Year 2008-09. The Tribunal concluded that the appellant's intention was to make quick profits by trading in shares and not to hold them as part of an investment portfolio. The appellant argued for consistency in treatment based on previous years, but the Tribunal found significant differences in the number and magnitude of transactions in the subject assessment year compared to earlier and subsequent years. The Tribunal held that the rule of consistency does not apply when there is a change in facts. The appellant also raised the issue of not maintaining a balance sheet as an individual, but the Tribunal emphasized the obligation to disclose investments, especially when engaged in business activities. The Tribunal rejected the argument that similar appeals were admitted, emphasizing that each case is decided based on its unique facts and circumstances.

2. Legal Principles Applied:
The Tribunal's decision was based on established legal principles, including the rule of consistency, which does not apply when there is a change in facts. The judgment cited the case of Gopal Purohit to highlight the importance of factual differences in determining the classification of income. Additionally, the judgment clarified that the doctrine of precedence, not res judicata, guides decisions in tax matters to ensure uniformity in treatment. The obligation to disclose investments, even as an individual, was emphasized to maintain transparency in business dealings. The judgment also highlighted that admission of appeals does not set a precedent, as each case is decided on its merits.

3. Judicial Review and Dismissal of Appeal:
Upon review, the High Court found that the Tribunal's decision was a possible view based on the facts presented. The Court did not identify any perversity in the Tribunal's findings, leading to the dismissal of the appeal. The Court concluded that the question raised did not give rise to any substantial question of law, thereby upholding the Tribunal's classification of the appellant's income as business income for the Assessment Year 2008-09.

In conclusion, the High Court upheld the Tribunal's decision to classify the appellant's income from trading in shares as business income for the Assessment Year 2008-09, emphasizing the importance of factual differences, transparency in financial disclosures, and the unique nature of each tax matter in determining the appropriate classification of income.