2022 (12) TMI 113 - AT - Income Tax

Correct head of income - gain on sale of shares - short term capital gain or business income of the assessee - frequency of transactions and the period of holding - HELD THAT - The only basis on which the ld. CIT(A) has confirmed the action of the Assessing Officer in treating the STCG as business income is the frequency of transactions and the period of holding which in our opinion is not the determinating factor to decide such issue. We have also examined the balance sheet filed by the assessee for the year and observe that the two portfolios maintained by the assessee were clearly mentioned separately one under the head stock-in-trade and the other under the head current investments . As examined the details of the shares held by the assessee as investment and stock-in-trade. During the year we do not find any change of facts and circumstances over the preceding or succeeding financial years and therefore in our considered opinion/view the revenue cannot be allowed to disturb the position which has been accepted by the revenue in the case of the assessee in the earlier and subsequent years. Thus respectfully following the decision of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT we set aside the order of the ld. CIT(A) and direct the Assessing Officer to treat the sum as Short Term Capital Gain - Appeal of the assessee is allowed.

Summary

Issues:
Assessee appealing against treating short term capital gain as business income.

Analysis:
The appeal was against the order of the Learned Commissioner of Income Tax (Appeals) confirming the Assessing Officer's decision to treat short term capital gain on sale of shares as business income. The assessee maintained two portfolios - trading and investment, reflected separately in the balance sheet. The Assessing Officer raised concerns due to the short holding period and high frequency of transactions. The assessee argued for separate treatment based on CBDT Circular No. 4/2007 and legal precedents. The Assessing Officer rejected the contentions and reclassified the gain as business income.

The Commissioner upheld the Assessing Officer's decision, citing lack of clarity on the assessee's intentions during transactions. The Appellate Tribunal reviewed the case and found consistency in the treatment of shares over previous years. They noted the separate maintenance of portfolios and rejected the significance of transaction frequency and holding period as determinants. Referring to Radhasoami Satsang case, the Tribunal emphasized on maintaining consistency unless there is a material change justifying a different view. Consequently, they directed the Assessing Officer to treat the gain as Short Term Capital Gain.

The Tribunal's decision was based on the principle of consistency and lack of material change warranting a different treatment. By setting aside the Commissioner's order, they ensured the assessee's gain was correctly classified as Short Term Capital Gain. The detailed analysis considered the legal arguments, precedents, and the assessee's consistent approach in maintaining separate portfolios, leading to the allowance of the appeal.