2018 (4) TMI 1425 - AT - Income Tax

Nature of income - income from share transactions - capital gain or Business income - Held that - Assessee cannot be perceived as a trader in shares per se, ostensibly when the Long Term Capital Gains declared by the assessee on purchase and sale of shares has been accepted as such. The assessee is not carrying out any other business activity so as to construe any business motive in carrying out the transactions of purchase and sale of shares. As before the Assessing Officer, assessee had filed written submissions, which have been reproduced in para 3 of the assessment order. In terms of submissions, assessee pointed out that she was a regular investor in shares and securities, and such investments were made out of her own funds with the intention of not only earning dividend, but also seeking capital appreciation in the long run. So far as the Short Term Capital Gains was concerned, assessee specifically pointed out that such transactions were undertaken keeping in view the market volatility and the specific situation of investee-companies, but otherwise the intention has been to make long term investments in shares and securities. All these aspects have been merely brushed aside by the Assessing Officer, an action which, in our view, has been rightly negated by the CIT(A). - Decided against revenue

Summary

Issues:
1. Assessment Year 2006-07: Whether Short Term Capital Gains should be treated as 'Business Income' or 'Capital Gains'?
2. Assessment Year 2008-09: Whether Short Term Capital Gains on purchase and sale of shares should be treated as 'Business Income' or 'Capital Gains' based on the holding period?

Assessment Year 2006-07:
The Revenue appealed against the CIT(A)'s order directing the Assessing Officer to treat the income of ?61,00,839/- from Capital Gains instead of business income. The Assessing Officer had treated the Short Term Capital Gains as 'Business Income' due to multiple share transactions with a holding period of less than a year. The CIT(A) analyzed the case, considering the number of scrips, turnover, holding period, source of funds, and past assessments. The CIT(A) concluded that the assessee was an investor, not a trader, and upheld the treatment of income as Capital Gains. The Revenue's appeal was dismissed as the CIT(A) adequately addressed the Assessing Officer's reasons.

Assessment Year 2008-09:
The primary issue was the treatment of Short Term Capital Gains on share transactions as 'Business Income' or 'Capital Gains' based on the holding period. The CIT(A) differentiated between gains from shares held for less than 90 days (Business Income) and those held between 90 days and one year (Short Term Capital Gains). The parties agreed that the facts were similar to the previous year. The decision from the earlier year was applied, resulting in the dismissal of Revenue's appeal and allowance of the assessee's appeal for Assessment Year 2008-09.

In conclusion, the Appellate Tribunal ITAT Mumbai decided in favor of the assessee for both Assessment Years 2006-07 and 2008-09, holding that the Short Term Capital Gains should be treated as 'Capital Gains' and not 'Business Income' based on the investor profile and holding period of shares.