2016 (9) TMI 3 - AT - Income Tax

Gains arising on sale of shares - assessable as Short term capital gains OR business income - CIT(A) held that the assessee is an investor and not a trader during the year under consideration - Held that - we are of the view that there is no reason to interfere with the order passed by Ld CIT(A) on this issue. We have earlier noticed that the Ld CIT(A) has analysed the facts prevailing in the instant year and has shown that the observations made by the AO on various criteria were not correct. Further the assessee s income in the earlier years has been accepted by the AO in the scrutiny proceedings including the loss declared by the assessee. Accordingly the Ld CIT(A) has held that the principle of consistency should be applied in the present year also, since the assessing officer has not made out a case of change in facts. - Decided against revenue

Summary

Issues:
Nature of gains arising on sale of shares and mutual fund units.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the characterization of gains from the sale of shares as either short-term capital gains or business income for the assessment year 2010-11. The Revenue challenged the decision of the Ld CIT(A) classifying the gains as short-term capital gains. The primary contention revolved around whether the assessee's activities in purchasing and selling shares and mutual fund units should be considered investment activity or trading activity. The Tribunal highlighted the importance of ascertaining the assessee's intention at the time of purchase to determine the nature of gains. Various criteria were considered, including the volume and frequency of transactions, funding position, repetitive nature of transactions, and the quantum of dividend receipts. The intention of the assessee, as evidenced by their activities, was crucial in deciding whether the gains should be treated as capital gains or business income.

The Tribunal observed that the assessee predominantly earned gains from mutual fund units, indicating significant investments in various schemes with occasional repetition. While the holding period was short, the correlation between mutual fund unit prices and share market indices suggested a strategic approach to selling for gains. In contrast, the assessee's share transactions involved dealing with numerous shares, often in installments. The Tribunal considered the Ld CIT(A)'s analysis, which emphasized several factors, including the assessee's other business activities, the objective of maximizing gains, the use of borrowings for advances, personal capital utilization for investments, consistent treatment of gains in previous years, and the principle of consistency in tax assessments.

After hearing arguments from both parties, the Tribunal upheld the Ld CIT(A)'s decision, emphasizing the proper analysis of facts and the absence of any significant changes warranting a departure from past assessments. The Tribunal noted the acceptance of the assessee's income, including losses, in previous years by the assessing officer. Consequently, the principle of consistency was deemed applicable, leading to the dismissal of the Revenue's appeal. The Tribunal's decision reaffirmed the importance of assessing the assessee's intention and activities to determine the tax treatment of gains from share transactions, ultimately supporting the assessee's classification of gains as short-term capital gains.