2018 (4) TMI 83 - AT - Income Tax

Treating the income from sale of shares as Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) - nature of income - period of holding - nature of portfolio - Held that - It is not in dispute that the assessee during the year under appeal was having only investment portfolio in its balance sheet. The assessee has been consistently showing these shares and mutual funds under Investments in its balance sheet. We find that the issue under dispute is covered in favour of the assessee in Asst Year 2005-06 2015 (7) TMI 679 - ITAT KOLKATA as held he profit that has been attributable to this trading activity corresponding to conversion of stock-in-trade into investment is to be treated as business income and accordingly to be taxed. In view of the above findings of Ld. CIT(A) that the income from investment is to be taken as capital gains and conversion of stock-in-trade into investment is to be taken as trading income , which is based on facts of the case and need no disturbance - Decided against revenue

Summary

Issues:
Whether income from sale of shares should be treated as Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) or as business profits.

Analysis:
The appeal by the Revenue was against the order of the Learned Commissioner of Income Tax (Appeals) concerning the treatment of income from the sale of shares for the Assessment Year 2006-07. The primary issue was whether the income should be classified as LTCG and STCG or as business profits. The assessee, an investment company, had declared income from profit on the sale of investments as LTCG and STCG. The Assessing Officer (AO) contended that the numerous transactions indicated a business motive, as the holding period of shares was short, and the primary object of the company included buying and selling shares. The AO concluded that the profits should be treated as business income. However, the Commissioner of Income Tax (Appeals) (CITA) disagreed and classified the gains as LTCG and STCG based on the period of holding, citing a previous tribunal decision. The Revenue appealed, arguing that the transactions were systematic and organized, indicating a business motive. The Tribunal, following previous decisions, upheld the classification of profits as capital gains, dismissing the Revenue's grounds.

The Tribunal noted that the assessee maintained only an investment portfolio during the relevant year, consistently showing shares and mutual funds under Investments in its balance sheet. Referring to a previous decision, the Tribunal emphasized that conversion of stock-in-trade into investment did not alter the character of the transaction for tax purposes. The Tribunal held that the profits from the sale of shares and mutual funds should be assessed as capital gains (LTCG and STCG) based on the period of holding. Therefore, the Revenue's appeal was dismissed, affirming the treatment of income as capital gains.