2013 (5) TMI 391 - AT - Income Tax

Taxability of Income Whether LTCG or STCG? - Whether the amount of Rs. 17,04,884/- representing the profit on sale of share is taxable under the head LTCG and is consequently exempt u/s 10(38) of the I.T? - Held that - Assessee had shown STCG at Rs. 1,24,38,554/- on sale of shares of twelve scripts even though number of transactions undertaken were huge and in case of LTCG shown at Rs. 17,04,884/- was on account of sale of shares of four scripts. The learned CIT(A) has treated the income from the sale of shares which were held for less than a month to be a business income and other shares, which were held for more than 30 days as income from capital gains. From the records it is noticed that so far as shares shown in LTCG are concerned, the average period of holding is around 549 days and number of transactions are also less, therefore, income from sale of such shares has rightly been held to be taxable as LTCG. Whether the amount of Rs. 1,24,38,554/- representing profit on sale of shares transactions is taxable STCG, within the meaning of Section 2(13) of the I.T. Act, 1961? Held that - it is seen that purchase of shares has been shown as investment in the books of account and the same has been accepted such in the past. All the transactions are delivery based transactions and the assessee has not undertaken any derivative or speculative transactions. If the period of holding of shares under the head of STCG held for less than 30 days is removed, then the average period of holding in most of the shares are more than 180 days. The other important aspect is that in the earlier assessment year i.e. A.Y. 2006-07 similar nature of transactions has been held to be income from STCG and LTCG by the department under scrutiny proceedings. There is no change in facts and circumstances of the case in this year. In view of these facts, the decisions of Hon ble Bombay High Court in the case of CIT vs Gopal Purohit 2010 (1) TMI 7 - BOMBAY HIGH COURT gets squarely attracted. Thus, no reason to deviate from the conclusions drawn by the CIT(A) and accordingly, grounds raised by the department, are dismissed.

Summary

Issues:
1. Classification of income from sale of shares as business income or capital gains under the Income Tax Act, 1961.
2. Determination of holding period and nature of transactions for tax treatment of short term capital gains (STCG) and long term capital gains (LTCG).
3. Application of precedent judgments and consistency in assessing similar transactions over different assessment years.

Issue 1: Classification of Income from Sale of Shares

The appeal pertains to the classification of income from the sale of shares as business income or capital gains under the Income Tax Act, 1961. The Assessing Officer treated the entire short term capital gain (STCG) and long term capital gain (LTCG) as business income due to the nature of transactions and frequency of trades. The appellant, an investment company, argued that the income should be treated as capital gains, presenting various justifications such as average holding period, dividend income, and accounting treatments. The CIT(A) sided with the appellant, holding that the income should be taxed under the head of STCG and LTCG, not as business income.

Issue 2: Determination of Holding Period and Nature of Transactions

The Assessing Officer based the classification on factors like the organization of portfolios, frequency of transactions, and the motive of the appellant. The appellant countered by providing details of the holding period for STCG and LTCG, emphasizing that all transactions were delivery-based without speculation. The CIT(A) analyzed the holding periods and transaction details, concluding that shares held for less than a month should be treated as business income, while others should be taxed as capital gains. The Tribunal upheld the CIT(A)'s decision, considering the average holding period and absence of borrowed funds for investments.

Issue 3: Application of Precedent Judgments and Consistency

The appellant highlighted the consistency in treatment of similar transactions in the preceding assessment year, where the department accepted the income under scrutiny proceedings. Referring to the decision in CIT vs Gopal Purohit, the appellant argued that the shares were correctly categorized as investments in previous years. The Tribunal agreed with the appellant, noting the lack of change in facts and circumstances from the previous assessment year and dismissing the department's grounds for appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal of the department and affirming the tax treatment of income from the sale of shares as capital gains based on the holding period, nature of transactions, and consistency with past assessments.