2016 (10) TMI 6 - AT - Income Tax

Sale of shares - business income or capital gain - Held that - Gain arising from the sale of shares held by the assessee for not more than twelve months shall be held to be short term capital gain chargeable to tax under the head Capital Gains and not as income from business chargeable to tax under the head Profits and gains of Business or Profession as was held by the AO.

Issues Involved:
1. Whether the short-term capital gains declared by the assessee should be treated as business income.
2. The applicability of the principle of consistency in tax treatment of similar transactions in previous years.
3. The relevance of CBDT Circular No. 4/2007 in determining the nature of income from share transactions.

Detailed Analysis:

1. Treatment of Short-Term Capital Gains as Business Income:
The primary issue was whether the short-term capital gains of ?44,97,330 declared by the assessee should be treated as business income. The Assessing Officer (AO) observed that the assessee engaged in substantial and frequent share transactions, indicating a business motive rather than an investment intent. The AO emphasized the high volume and regularity of transactions, short holding periods, and the organized manner of trading as evidence of business activity. The AO also noted that the dividend income was significantly lower than the short-term capital gains, further supporting the business motive. Consequently, the AO treated the short-term capital gains as business income.

2. Principle of Consistency:
The assessee argued that similar transactions in previous years were treated as capital gains, and the principle of consistency should apply. The CIT(A) upheld this argument, noting that in the assessment year 2006-07, the same issue was decided in favor of the assessee. The CIT(A) referenced the Hon'ble Bombay High Court's decision in CIT v. Darius Pandole, which emphasized maintaining consistency unless there were changes in facts or legal positions. The Tribunal also supported this view, citing the principle of consistency upheld in the assessee's own cases for the assessment years 2006-07 and 2007-08, where short-term capital gains were treated as such and not as business income.

3. Relevance of CBDT Circular No. 4/2007:
The AO and the CIT(A) both referenced CBDT Circular No. 4/2007, which provides guidelines for determining whether income from share transactions should be treated as capital gains or business income. The assessee contended that their case fell within the scope of this circular, which supports treating gains from investments as capital gains. The CIT(A) and the Tribunal agreed with the assessee, noting that the investments were made out of own funds without borrowings, shares were held as investments in the books, and the transactions were consistent with investment activities rather than business operations.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to treat the short-term capital gains as such and not as business income. The Tribunal emphasized the principle of consistency, noting that similar transactions in previous years were treated as capital gains. The Tribunal also referenced the CBDT Circular No. 4/2007, supporting the treatment of gains from investments as capital gains. The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was confirmed.

Order Pronouncement:
The appeal filed by the Revenue in ITA No. 2617/Mum/2012 for the assessment year 2008-09 was dismissed, and the order was pronounced in the open court on 17th August 2016.

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