2017 (3) TMI 887 - AT - Income Tax

Income from sale of shares - business income or capital gain - Held that - Assessee is consistently showing income from short term and long term capital gain in sales of shares and showing the investments at cost price in the balance sheet and not as a stock-in-trade. We further observe that assessee is mainly engaged in the business of diamond trading and apart from she is having income from short term and long term capital gains from sale of shares. Further for Asst. Year 2009-10 also profit from shares is shown as long term and short term capital gain. In view of these relevant facts and the consistent approach of assessee showing income from shares under the hear long term and short term capital gain and also showing of investments in shares and debentures under the head investment and not as a closing stock, we are of the firm view that ld. Commissioner of Income Tax(A) has rightly allowed the assessee s claim - Decided against revenue

Issues Involved:
1. Whether the gain from the sale of shares should be treated as capital gain or business income.
2. Whether the Commissioner of Income Tax (Appeals) erred in deleting the addition made by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Treatment of Gain from Sale of Shares:
The primary issue in this case was whether the gain of ?36,00,950/- from the sale of shares should be treated as capital gain or business income. The appellant was engaged in diamond trading and had shown the gain from the sale of shares as capital gain in their returns. However, the Assessing Officer (AO) treated these gains as business income considering the volume, frequency of transactions, and holding period of the shares.

The Tribunal observed that the Commissioner of Income Tax (Appeals) had discussed the facts in detail and relied on various judicial decisions to conclude that the gains should be treated as capital gains. The Commissioner noted that the appellant did not have any background in share trading, was not a broker, and had shown the shares as investments in the balance sheet. The investments were made from the appellant's own funds, and the shares were held for the purpose of earning dividends and capital appreciation.

The Commissioner further observed that the appellant had consistently shown the shares as investments in previous years, and the department had accepted this treatment. The shares were held in a DEMAT account, and the appellant had not engaged in intraday trading or futures and options. The Commissioner also noted that the appellant had earned significant dividend income, which supported the claim that the shares were held as investments.

2. Deletion of Addition by Commissioner of Income Tax (Appeals):
The second issue was whether the Commissioner of Income Tax (Appeals) erred in deleting the addition made by the AO. The Tribunal noted that the Commissioner had bifurcated the share transactions into two categories based on the holding period and had treated gains from shares held for more than 30 days as capital gains and those held for less than 30 days as business income.

The Tribunal referred to several judicial precedents, including decisions of the Hon'ble Gujarat High Court and the ITAT, which established that the intention of the assessee, the manner of recording transactions, and the treatment of shares in the balance sheet are crucial factors in determining the nature of income. The Tribunal observed that the Commissioner had correctly applied these principles and had provided a clear finding that the appellant was an investor and not a trader in shares.

The Tribunal also noted that the appellant had consistently shown the shares as investments and had not treated them as stock-in-trade. The appellant's intention to hold the shares as investments was evident from their conduct and the manner in which the transactions were recorded. The Tribunal further observed that the AO had not provided any new information or evidence to justify treating the gains as business income.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal filed by the Revenue. The Tribunal concluded that the gains from the sale of shares should be treated as capital gains and not as business income. The Tribunal found no reason to interfere with the Commissioner's order and affirmed that the appellant had correctly shown the gains as capital gains in their returns.

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