2017 (6) TMI 75 - AT - Income Tax

Revision u/s 263 - Profit on sale of shares - business income OR short term capital gain - Held that - Whether or not a person carried on business in a particular commodity must depend upon volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive. Such motive must pervade the whole series of transactions effected by the person in the course of his activity. To infer from a course of transactions that is intended thereby to carry on business ordinarily the characteristics of volume, frequency and regularity indicating an intention to continue the activity of carrying on the transaction must exist. Looking into the volume, frequency, continuity and regularity of transactions of purchase and sale in shares by the assessee, it cannot be said that the assessee entered into this activity not with a profit motive. Therefore, only inference which can be drawn is that the income earned by the assessee out of sale and purchase of these shares was an income under the head Profits and gains of business or profession . No justification in lengthy argument of the assessee s counsel that the profit arising to assessee on sale of shares acquired by it was assessable as income from capital gain . CIT(A) is justified in treating the profit arising out of sale of shares acquired by the assessee as income from business. Further, the AO passed order in consequent of order of CIT u/s.263 of the Act. The assessee has not preferred any appeal against the order of CIT u/s.263 of the Act. As such, that Revision order has reached finality. Hence, now the assessee cannot challenge the assessment order giving effect to order passed u/s.263 of the Act. - Decided against assessee.

Summary

Issues:
- Determination of profit on sale of shares as business income instead of short term capital gain.

Analysis:
1. Background: The appellant, an individual engaged in consultancy services, filed a return of income for the assessment year 2009-10, disclosing a total income. The assessment was completed accepting the return, but proceedings under section 263 were initiated by the CIT-X, Chennai, leading to a direction for treating the profit on share transactions as business income.

2. CIT(Appeals) Decision: The CIT(Appeals) referred to CBDT Circular No.4 of 2007 to distinguish between shares held as stock-in-trade and investment. The key criterion was the intention of the assessee, with factors like volume of transactions, holding period, and treatment in books of account considered. The CIT(Appeals) noted the high frequency of transactions, short holding period, and systematic nature of activities, concluding that the shares were stock-in-trade, justifying the AO's treatment of profits as business income.

3. Appellant's Arguments: The appellant, a Chartered Accountant, emphasized the limited number of transactions compared to the overall market activity. They argued against the volume of transactions being the sole determinant and highlighted the treatment of shares in their balance sheet and Form 3CD as investments, not stock-in-trade.

4. Judicial Analysis: The Tribunal analyzed the ledger account, noting the substantial value and frequency of share transactions compared to consultancy income. Emphasizing the profit motive, volume, frequency, and regularity of transactions, the Tribunal concluded that the activities indicated a business motive. Referring to established principles, the Tribunal upheld the CIT(A)'s decision to treat the profits as business income, dismissing the appellant's argument for capital gains treatment.

5. Conclusion: The Tribunal dismissed the appeal, affirming the CIT(A)'s decision and highlighting the finality of the order under section 263. The judgment emphasized the profit motive and business-like nature of the share transactions, leading to the classification of income as 'Profits and gains of business or profession.'

In summary, the judgment focused on the intention, volume, and systematic nature of share transactions to determine the income's classification, ultimately upholding the treatment of profits as business income rather than short term capital gains.