2012 (7) TMI 65 - AT - Income Tax

Whether the income earned by the assessee on profit arriving on purchase and sale of shares is capital gain or business income investment in shares was shown under the head investment - claim of the assessee that only a faction of total investment was made in shares - as against the total long term capital gain of Rs. 25,08,196/- major portion i.e. Rs. 19,22,696/- is out of sales of units in mutal fund and sale of TCS shares which were allotted to the assessee under ESOP - Held that - Long term capital gain admitted has to be accepted especially when the AO had accepted such long term capital gain in AY 2004-05 - profit on sale of shares held for more than 12 months is assessable under the head long term capital gain - appeal of the revenue is dismissed.

Summary

Issues:
1. Determination of income from profit on purchase and sale of shares as capital gain or business income.

Analysis:
The appeal filed by the Revenue challenged the order of CIT(A) directing the Assessing Officer (AO) to accept the claim of long term capital gain on profit arising from the purchase and sale of shares. The AO had assessed the long term capital gain admitted by the assessee under the head 'business', contending that the mere entries in the books of account showing shares as 'investment' were not determinative. The AO relied on various judgments and circulars to treat the profit on sale of shares as business income. The CIT(A), after considering the submissions of the assessee, directed the AO to accept the claim that profit on sale of shares held for more than 12 months should be assessable under the head 'long term capital gain'. The CIT(A) highlighted the principle of consistency and factual findings supporting the treatment of such income as capital gain.

The Revenue contended that each assessment year is separate, and the assessee's dealing in a large number of shares indicated a business activity rather than investment. However, the Tribunal upheld the CIT(A)'s order, emphasizing the facts that supported treating the income as long term capital gain. The Tribunal noted the AO's acceptance of similar claims in the past and the proportion of total investment made in shares. The Tribunal concluded that there was no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to treat the profit on sale of shares held for more than 12 months as long term capital gain, rejecting the Revenue's appeal. The judgment emphasized the principle of consistency and the factual circumstances supporting the classification of income in this case.