2016 (8) TMI 765 - HC - Income Tax

Sale of shares - business income or investment income - Held that - The transactions taken place in the year under consideration show that the assessee is indulged in purchasing and selling of shares within a short time i.e. within a period of twelve months. The assessee did not wait even for twelve months to dispose of the shares. Thus the assessee has carried on business in shares. Therefore, the intention of the assessee was not of an investment. In that view of the matter, the Tribunal has rightly held the assessee as a dealer in shares for the year under consideration. Both the appeals, therefore, fail and are dismissed. The question referred to us is answered in favour of the revenue and against the assessee.

Summary

Issues involved:
1. Challenge to the order of the Income-tax Appellate Tribunal under section 260A of the Income-tax Act, 1961.
2. Determination of whether shares sold by the assessee were held on a business account or an investment account.

Analysis:
1. The assessee challenged the Tribunal's order, which reversed the Commissioner (Appeals) order and confirmed the Assessing Officer's decision regarding the nature of the shares sold. The substantial question of law framed was whether the shares were held on a business account or an investment account.

2. The Assessing Officer treated the assessee's share transactions as trading transactions, denying deductions under section 48(2) of the Act. The Commissioner (Appeals) allowed the appeal, directing the income to be treated as capital gain/loss. The Tribunal reversed this decision, leading to the present appeal.

3. The appellant contended that the Tribunal erred in not recognizing the investment nature of the shares, citing past assessments and wealth tax treatment. Reference was made to a Supreme Court decision emphasizing consistency in tax matters for the revenue.

4. The revenue argued that the assessee engaged in share badla transactions, using borrowed funds, with significant holdings and high trading frequency. The Tribunal observed that the nature of shares does not decisively determine investment intent, analyzing the short-term holding patterns and sale proceeds.

5. The Tribunal detailed the transactions, noting high turnover, short holding periods, and quick sales. It concluded that the assessee operated a share trading business based on transaction nature and intent, dismissing arguments on investment intentions and dividend income relevance.

6. The revenue's counsel supported the Tribunal's decision, asserting the assessee's share dealings constituted a business, justifying the treatment of capital gains as business profits. The Tribunal's findings aligned with the Assessing Officer's view, upholding the assessee as a share dealer.

7. The High Court upheld the Tribunal's decision, emphasizing the short holding periods and high trading frequency, indicating a business rather than investment intent. Consequently, the appeals were dismissed, ruling in favor of the revenue and against the assessee.