2012 (5) TMI 393 - AT - Income Tax

Nature of income from share transactions - business income or capital gains - held that - the details of share transactions holding period wise have been given by the assessee which is placed in the paper book. It is clear from these transactions that the assessee was regularly purchasing and selling shares in more than 50 scrips. Most of the shares have been sold within three months and in many cases within a month and in some cases within few days. The assessee had also done repetitive transactions in the same scrips which clearly shows trading character. The transaction run into 10 pages and are substantial - The assessee had also speculated in stocks. Considering all the factors mentioned above, it can be reasonably be concluded that the assessee was trading in stocks and was not an investor. - Decided in favor of revenue.

Summary

Issues:
Nature of income from sale and purchase of shares.

Analysis:
The appeal by the revenue is against the order of CIT(A) for the assessment year 2006-07 concerning the nature of income from shares. The Assessing Officer (AO) noted short term capital gain from shares and speculated that the intention was profit-making, not dividend income. The AO concluded the actions were profit-driven, treating the profit as business income. The assessee contended before CIT(A) that shares were bought for investment, not trading. CIT(A) analyzed the situation and classified income from shares held for less than 30 days as business income and over 30 days as short term capital gain. The assessee, dissatisfied, appealed to the Tribunal.

The assessee argued before the Tribunal that shares were held for investment purposes, not trading. The assessee's history of declared capital gains was presented, emphasizing the investment nature of share purchases. The assessee referenced precedents where similar share transactions were treated as investments. The revenue, however, supported the AO's decision, highlighting the volume and frequency of share transactions as indicative of trading activities. The Tribunal carefully considered both arguments and the nature of share transactions.

The Tribunal deliberated on the contentious issue of whether the share transactions were for investment or trading purposes. It emphasized that each case's facts and circumstances are crucial in determining the true nature of transactions. Factors like frequency, volume, holding period, and intention of the assessee play a significant role. The Tribunal analyzed the details of the share transactions, noting the high volume, short holding periods, and use of borrowed funds, indicating a trading character. The Tribunal found the assessee's conduct aligned more with trading than investment, overturning CIT(A)'s decision and affirming the AO's treatment of income as business income.

The Tribunal dismissed the appeal, upholding the AO's classification of income from share transactions as business income based on the nature of the transactions and the assessee's conduct, concluding that the shares were traded, not held for investment purposes.