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2016 (7) TMI 251 - AT - Income TaxTransfer of shares - CIT(A) directed AO to treat the gain on transfer of shares which was held by the assessee for less than 1 month as business income - business income v/s capital gain - Held that - In view of the consistent stand of the Tribunal in the Asstt.Years 2005- 06 and 2006-07 and 2008-09, we are of the view that the assessee has to be treated as an investor. The ld.CIT(A) has considered the circumstances in an elaborate manner in order to bring the point at home that the assessee was an investor. The ld.DR has pointed out that the assessee has taken loan of ₹ 84.50 lakhs which might have been used for the purpose of investment in shares. He read over statement of facts filed along with appeal. We find that the ld.CIT(A) has considered this aspect in the finding extracted (supra). According to the finding of the ld.CIT(A), the loan taken by the assessee was not specifically used for the purpose of making investment. The loan was taken in the month of March, 2007 by way of overdraft against FDRs. It was for a very short period of time. Hence, this circumstance cannot be used against the assessee to record a finding that the assessee was a trader. Neither in the Act nor in the Income Tax Rules any classification has been called for that if shares are held less than 30 days, then, the profit on sale of such shares would be treated as business income. On the strength of the circumstantial evidences, a composite opinion has to be formed by the adjudicator exhibiting the fact whether the assessee is an investor or trader. Therefore, there cannot be any further classification. The ld.CIT(A) has erred in carving out an artificial classification on the basis of holding period of certain shares. In the result, we allow the CO filed by the assessee and direct the AO to treat profit on sale of shares as long term capital gain or short term capital gain in accordance with the holding period of the shares - Decided against revenue In view of
Issues Involved:
1. Whether the gain arising from the sale of shares should be assessed as long-term capital gain or business income. 2. Whether the gain on shares held for less than one month should be treated as business income. Issue-Wise Detailed Analysis: 1. Long-Term Capital Gain vs. Business Income: The primary issue in the appeal revolves around whether the gain arising from the sale of shares should be assessed as long-term capital gain or as business income. The Revenue contended that the gain should be treated as business income, while the assessee argued that it should be assessed as long-term capital gain. The Assessing Officer (AO) initially treated the income from the sale of shares as business income after scrutinizing the accounts, where the assessee had shown short-term capital gain of ?36,89,026 and long-term capital gain of ?29,39,046. The AO's decision was based on the frequency and nature of transactions, which suggested trading activity. However, upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was an investor and directed the AO to treat the gain on shares held for more than one month as long-term capital gain. The CIT(A) relied on the order from the previous assessment year (2006-07), which established that shares held for a longer duration indicated an investment motive rather than trading. 2. Treatment of Shares Held for Less Than One Month: The second issue pertains to the treatment of gains on shares held for less than one month. The CIT(A) directed the AO to treat the gain on such shares as business income. This decision was influenced by the ITAT Ahmedabad's ruling in the case of Sugamchand C Shah, which established criteria for determining when gains should be taxed as business income or short-term capital gain based on the holding period of shares. The CIT(A) observed that shares held for less than a month indicated an intention to trade rather than invest, and therefore, the gains from such shares should be treated as business income. This decision was based on the principle that frequent transactions and short holding periods are indicative of trading activity. Tribunal's Consistent Stand: The Tribunal noted that in previous assessment years (2005-06, 2006-07, and 2008-09), the AO had treated the assessee as a trader, but this conclusion was consistently overturned by higher appellate authorities, including the ITAT. The Tribunal's decisions in these years established that the assessee was an investor, not a trader, and gains from the sale of shares should be treated as capital gains. Final Decision: The Tribunal upheld the CIT(A)'s decision to treat the assessee as an investor, thereby confirming that gains from shares held for more than one month should be assessed as long-term capital gain. However, the Tribunal disagreed with the CIT(A)'s classification of gains from shares held for less than one month as business income, noting that neither the Act nor the Income Tax Rules mandate such a classification based on holding period alone. The Tribunal concluded that a composite opinion should be formed based on circumstantial evidence to determine whether the assessee is an investor or trader. Consequently, the Tribunal allowed the assessee's cross-objection (CO) and directed the AO to treat the profit on the sale of shares according to the holding period, without creating an artificial classification. Conclusion: The appeal of the Revenue was dismissed, and the CO of the assessee was allowed. The Tribunal directed the AO to treat the gains from the sale of shares as long-term capital gain or short-term capital gain based on the holding period, thereby rejecting the notion of treating gains from shares held for less than one month as business income. Order Pronounced: The order was pronounced in the Court on 1st June 2016 at Ahmedabad.
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