2016 (9) TMI 245 - AT - Income Tax

Transaction of shares - business income or capital gain - Held that - No doubt, as per CBDT circular No.4/2007, the assessee is permitted to maintain two portfolios i.e. trading as well as investment portfolio but the assessee is duty bound to produce evidence that certain transactions were intended to be by way of investment and some are by way of business transactions. As the issue has to be decided based on the facts of the case, in the absence of any evidence on record that the assessee intended to hold certain shares as investments and the fact that in earlier years this was shown as a trading portfolio goes to prove that the claim from the assessee is merely bald. There was no evidence adduced by the assessee to show that some of the transactions were held as investment or to establish intention at the time of purchasing shares that the transactions were undertaken with a motive of investment. Therefore, in the circumstances, the CIT(A) is not justified to come to conclusion that the assessee is an investor without referring to any material or evidence. Therefore, we hold that the respondent-assessee is merely a trader in shares and profit arising on sale of such transaction should be assessed as business income. - Decided in favour of revenue

Summary

Issues:
- Nature of income from share transactions - whether trading activity or investment activity.

Analysis:
1. Facts of the Case:
- The respondent-assessee, an individual engaged in share transactions, maintained both trading and investment portfolios.
- The Assessing Officer (AO) considered the short-term capital gains as business income due to the high volume and frequency of transactions.

2. Appeal to CIT(A):
- The CIT(A) held that frequency and volume alone cannot determine the assessee's status as a trader, accepting the assessee's claim of being an investor.

3. Grounds of Appeal by Revenue:
- The revenue appealed against the CIT(A)'s decision for both assessment years, arguing that the profits from securities transactions should be treated as business income.
- The revenue emphasized the regular purchase and sale of shares by the assessee, indicating a trading business.

4. Arguments and Considerations:
- The Departmental Representative contended that the CIT(A) overlooked crucial facts in determining the assessee's status as an investor.
- The assessee's representative cited circular No.4/2007, allowing maintenance of trading and investment portfolios.

5. Judgment and Reasoning:
- The Tribunal deliberated on the nature of share transactions, emphasizing the importance of the assessee's intention at the time of purchase.
- Referring to G.Venkata Swami Naidu & Co. vs. CIT, the Tribunal considered factors like the nature of commodities, repetition of transactions, and intention at the time of purchase.
- The Tribunal found that the assessee failed to provide evidence supporting the switch from trading to investment portfolio.
- Despite the circular permitting dual portfolios, the lack of evidence regarding the intention behind specific transactions led the Tribunal to conclude that the assessee was a trader, not an investor.
- Consequently, the Tribunal allowed the revenue's appeals, assessing the profits from share transactions as business income.

6. Conclusion:
- The Tribunal's decision highlighted the significance of factual evidence in determining the nature of income from share transactions, ultimately ruling in favor of assessing the profits as business income.