2016 (11) TMI 1156 - AT - Income Tax

Income from share transactions - business income or capital gain - Held that - We find, the assessee continuously engaged in the buying and selling of shares and reflected the same as investment activity and not as stock-in-trade. The claim of the assessee was accepted by the Revenue Authorities in the AYs 2006-07 and 2007-08. AO disturbed the claim of the assessee in the year under consideration and treated the same as a business activity and taxed the gains under the head income from profit and gains of business and profession‟. We have perused the orders of the Revenue Authorities cited before us with reference to the Circular No.6/2016 of the Board. Irrespective of the holding period, if the assessee treated the shares as stock-in-trade, the income arising on such shares would be treated as business income. In reverse, if the assessee treated the shares as an investment, the same should not be brought under the head income from the business - Decided in favour of assessee.

Summary

Issues:

1. Whether the Short Term Capital Gain earned by the assessee on transfer of listed shares should be treated as income from business.
2. Whether the appellant is entitled to a deduction under section 88E equal to securities transaction tax paid.

Issue 1: Short Term Capital Gain Treatment

The appeal was against the CIT (A)'s order confirming the AO's decision to treat the Short Term Capital Gain of ?38,48,344 earned by the assessee on transfer of listed shares as income from business. The assessee argued that the activity should be considered investment, not stock-in-trade, based on past practices and CBDT Circular No.6 of 2016. The Tribunal noted that the assessee consistently treated gains as investment in previous years, which was accepted by Revenue Authorities. The Tribunal examined the CBDT Circular and the case law of M/s. R.R. Hosiery and Smt. Urmila S. Mehta, emphasizing the importance of consistency in treatment. It concluded that the department cannot dictate the treatment of shares as trading activity in one year while accepting them as investment in other years. The Tribunal reversed the CIT (A)'s decision and directed the AO to treat the income from sale and purchase of shares as short term and long term capital gains.

Issue 2: Deduction under Section 88E

The appellant sought a deduction under section 88E equal to securities transaction tax paid. However, the judgment did not provide specific details or analysis regarding this issue.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the AO to treat the income from the sale and purchase of shares as short term and long term capital gains, based on the principle of consistency and the CBDT Circular. The judgment emphasized the importance of factual consistency in treating shares as investment or stock-in-trade to avoid uncertainty and reduce litigation in such matters.