2017 (2) TMI 1101 - AT - Income Tax

Income arising on sale purchase of shares - income from business OR Capital gain - Held that - Assessee has always disclosed the amount of shares as part of investments and the resultant gain on sale of shares was assessed as income from capital gains . The claim of assessee has always been accepted as such except in this year. Further, Ld. CIT(A) has held that the holding period of the shares even in those cases where short term capital gain has been earned was like 117 days, 300 days, 344 days and 144 days etc. AO has discussed in the Assessment order at page 12 about only part of the transactions wherein shares were held for only few days. It was shown that the gains/loss incurred on such shares constituted for not more than one-third of the total amount of short term capital gain disclosed by the assessee in its return of income. Thus the gain earned by the assessee has rightly been shown as income from capital gains . The findings recorded by Ld. CIT(A) are well reasoned and correct in view of the facts of this case as well as under the law. - Decided against revenue

Summary

Issues:
1. Whether the gain earned by the assessee from the sale of shares should be assessable under the head 'income from capital gains' or 'income from business.'

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax (CIT) directing the Assessing Officer (AO) to accept the claim of the assessee's Short Term Capital Gain and Long Term Capital Gain from shares as opposed to treating it as 'income from business'. The Revenue argued that the assessee's regular share transactions indicated a profit-making intention, justifying the treatment as 'income from business'.

2. The Assessee's Counsel contended that the assessee had historically treated gains from shares as 'income from capital gains' and not as 'income from business'. The assessee had consistently shown shares as part of investments in the Balance Sheet, and gains were disclosed as capital gains in previous years. The Counsel supported the CIT's order, emphasizing the investor approach of the assessee.

3. The Tribunal examined whether the gain from share transactions should be classified as 'income from capital gains' or 'income from business'. The assessee primarily derived income from house property, capital gains on shares, and other sources, not engaged in any other business. The CIT(A) found that the assessee acted as an investor, not a trader, based on the limited duration and volume of share transactions, consistency in valuation, and holding period of shares.

4. The CIT(A) detailed the assessee's share transactions, highlighting the limited activity in a specific period, the use of own funds for investments, and the consistent treatment of gains as capital gains in previous years. The CIT(A) referenced legal precedents emphasizing the principle of consistency in treating shares as investments rather than stock-in-trade based on the holding period and nature of transactions.

5. The Tribunal upheld the CIT(A)'s findings, noting the historical treatment of gains as capital gains, the holding periods of shares, and the proportion of short-term gains relative to total gains. The decision favored treating the gain as 'income from capital gains' based on the facts and circumstances of the case, concluding that the CIT(A)'s order was well-reasoned and correct. The appeal by the Revenue was dismissed.