2024 (5) TMI 949 - AT - Income Tax

Correct head of income - re-characterization of income - income from share trading - short term capital gain to be taxed u/s 111A @ 15% or business income - Frequency of transaction - as per DR there were many transactions of intra-day sale and purchase which constituted business income and whopping number of 320 transactions itself indicates that the assessee s case is like business activity and not investment activity - CIT(A) accepting the income as short-term capital gain - HELD THAT - We find weightage in CIT(A) s order because the AO has, despite specific details of intra-day transactions brought on record by assessee, made a vague statement that there are many transactions of intra-day nature. Therefore, the basis adopted by AO for treating entire income as business income is meritless. So far as the contention of Ld. DR for revenue that the assessee undertook as many as 320 transactions and this whopping number itself indicates that the assessee s activity is like business activity, we are not very convinced. We find merit in the pleading made by Ld. AR for assessee that with the technological developments and volatility in markets, people have started taking decisions of purchase and sale every now and then. Therefore, the figure of 320 transactions spanned over a period of one year, should not be viewed otherwise. The assessee has also filed a statement showing holding period of delivery-tranactions which demonstrates holding period as low as 2 days but as high as 41, 44, 47 days also. As further established by AR, from the ITRs of earlier years, that the assessee had been doing delivery transactions in past also and showing income therefrom as short-term capital gain and such approach of assessee had been accepted by department, although in the assessments made u/s 143(1). Therefore, in such a situation, the CIT(A) has rightly applied the decision in CIT Vs. Merlin Holding Pvt. Ltd 2015 (5) TMI 794 - CALCUTTA HIGH COURT frequency alone cannot show that the intention was not to make an investment. The legislature has not made any distinction on the basis of frequency of transaction. The benefit of short-term capital gain can be availed for any period of retention upto 12 months. Although a ceiling has been provided but there is no indication as regards the floor, which can be as little as one day. When that is the position in law and the investor has adduced proof to show that some transactions were intended to be business transaction, some transactions were intended to be by way of investment and some transactions were by way of speculation and the revenue has not been able to find fault from the evidence adduced then the mere fact that there were 1000 transactions in a year or the mere fact that the majority of the income was from the share dealing or that the Managing Director of the assessee is also a Managing Director of a firm of share brokers cannot have any decisive value. The question essentially is a question of fact. - Decided against revenue. Gain on sale of land - long-term capital gain or Income from Other Sources - sale of land on the basis of unregistered agreement - HELD THAT - Assessee has voluntarily declared long-term capital gain on sale of a land which was duly assessed by AO in original scrutiny assessment u/s 143(3). The facts also make it clear that the land sold by assessee was long-term in terms of provisions of section 2(29A)/2(29B)/2(42A)/2(42B) of the act and no doubt is being expressed by revenue qua the long-term nature of transaction. It is true that the sale of land on the basis of unregistered agreement is not recognized in the eyes of law as per decision of Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT therefore the transaction does not give any rise to taxable income if strictly construed. But the facts of present case are peculiar. The assessee has himself declared the income and the department has also assessed the same in original assessment made u/s 143(3) as well as in re-opened assessment u/s 147. Therefore, both sides are ad idem to pay/charge tax on transaction. When it is so, we are only concerned to look at the nature of income. Since the assessee has earned impugned income from sale of plot held as long-term, the nature of income would be long-term capital gain only and it cannot be an Income from Other Sources. Decided in favour of assessee.

Summary

Issues involved:
1. Classification of income from share trading as short-term capital gain u/s 111A or as business income.
2. Classification of income from the sale of land as long-term capital gain or as income from other sources.

Summary:

Issue 1: Classification of Income from Share Trading

Ground No. 1: The revenue contested the CIT(A)'s decision to classify Rs. 49,76,484/- as short-term capital gain u/s 111A instead of business income. The AO initially assessed Rs. 57,28,867/- from share transactions as business income, but CIT(A) upheld only Rs. 7,52,383/- as business income, accepting the rest as short-term capital gain. The AO argued that frequent intra-day transactions indicated business activity. However, the CIT(A) noted that only Rs. 7,52,383/- was from intra-day transactions, thus constituting business income, while the remaining transactions were short-term capital gains. The ITAT upheld CIT(A)'s decision, emphasizing that the number of transactions alone does not determine the nature of income and supported the CIT(A)'s reliance on CIT Vs. Merlin Holding Pvt. Ltd. and CIT Vs. Gopal Purohit.

Issue 2: Classification of Income from Sale of Land

Ground No. 2: The revenue challenged the CIT(A)'s treatment of Rs. 86,88,690/- as long-term capital gain instead of income from other sources. The AO re-characterized the income due to the absence of a registered sale deed, relying on a power of attorney and a written agreement. CIT(A) observed that the transaction, supported by banking channels and proper documentation, constituted a transfer u/s 2(47) of the Act, resulting in long-term capital gain. The ITAT upheld CIT(A)'s decision, noting that the income from the sale of the land, held as long-term, should be treated as long-term capital gain and not as income from other sources, aligning with the peculiar facts of the case and the voluntary declaration by the assessee.

Conclusion:

The ITAT dismissed the revenue's appeal, upholding CIT(A)'s decisions on both grounds, thereby classifying the income from share trading as short-term capital gain u/s 111A and the income from the sale of land as long-term capital gain.

Order pronounced in the open court on 02/01/2024.