2018 (10) TMI 607 - HC - Income Tax

Transaction in shares - Business income or capital gains - AO was of the opinion that the amount claimed as short-term capital gains really ought to be treated as business income - CIT(A) and ITAT confirmed the additions - Held that - AO was cognizant of the CBDT s circular which outlined no less than ten elements which the Revenue authorities are to consider in appreciating whether or not capital gains reported by the assessee are in fact so or do they really amount to a business income. Having regard to the concurrent findings rendered on proper application of the law and the relevant circulars the Court is of the opinion that no question of law arises. - Decided against the assessee.

Summary

Issues:
1. Classification of income as short-term capital gain or business income for Assessment Year 2006.

Analysis:
The High Court dealt with the issue of whether an amount of ?65,55,066 reported as short-term capital gain for Assessment Year 2006 should be classified as business income. The Assessing Officer (AO) determined that the nature of share transactions, including irregularities, purchases made out of borrowings, average holding period, and total volume of transactions, indicated that the amount should be treated as business income. Both the Commissioner of Income Tax (Appeals) [CIT(A)] and the AO referred to Central Board of Direct Taxes (CBDT) instructions and Circular No.4/2007 to analyze the classification. The Income Tax Appellate Tribunal (ITAT) also upheld this classification, leading to the appeal under Section 260A of the Income Tax Act, 1961.

The appellant argued that the assessee was not primarily engaged in share business but made strategic investments after researching five scrips. The appellant contended that the tests applied by Revenue authorities were incorrect and relied on a relevant case law. However, the AO highlighted that despite dealing with only five scrips, the assessee engaged in 331 transactions during the year, indicating a substantial scale of activity. The AO considered the CBDT circular's ten elements, such as intention of purchase, scale of activity, source of funds, holding period, and characterization of securities.

The Court noted that the AO properly applied the law and relevant circulars in assessing whether the reported capital gains were indeed business income. Considering the concurrent findings, the Court concluded that no question of law arose, leading to the dismissal of the appeal under Section 260A of the Income Tax Act, 1961. The judgment underscores the importance of analyzing various factors to determine the nature of income, especially in cases involving capital gains and business income classification.