2013 (7) TMI 474 - AT - Income Tax

Sale of shares - short term capital gain v/s income from business - Held that - There are 86 transactions of sale carried by the assessee during the year. The holding period of the transactions varies from one day to 244 days. Out of 86 transactions, the holding period in respect of 42 transactions is upto 7 days. Thus, it is clear that about 50% of the total transactions of sale of share during the year, the holding period is only upto 7 days. The repetitive transactions in the same scrip shows the assessee s intention of purchase of the shares for resale purposes and book profits at the earliest occasion. The holding period is upto one week as far as 42 transactions out of 86 transactions clearly show that the assessee is earning profit by taking advantage of the volatile market condition and thus it cannot be said that the transactions carried on 42 occasion were with the intention to hold these shares for enjoying of the ownership and yielding of dividend income. Further, the assessee is also engaged in the speculative transactions as business income on account of speculative transactions out of the total business income offered by the assessee at ₹ 9,52,507/-. Therefore, the observations of the CIT(A) is that the assessee is not in the business of trading of shares is contradictory to the facts. Further, the CIT(A) has also observed that the assessee has not employed any person for the purchase of sale of the shares which is also apparently not correct because before the AO one Shri Jayesh Sangoi, Accountant of the assessee company appeared from time to time and participated in the assessment proceedings. Following the decision of New Jehangir Vakil Mills Co. Ltd. v. CIT (1963 (4) TMI 60 - SUPREME COURT) the acceptance of the claim for the earlier year would not operate resjudicata or estoppel on the Assessing Officer for deciding the issue for the year under consideration when the facts are not strictly identical. Accordingly set aside the impugned order of the CIT(A) and restore the order of the AO wherein the income arising from sale of shares has been rightly assessed as business income. Claim of LTCG and STCG - Held that - There is no such category of 30 days provided in the provisions of Income Tax Act. Even otherwise, when the assessee has not bifurcated its portfolios on the basis of holding period, then 30 days holding period cannot be taken as fixed criteria for determining the nature of transaction when the question of nature of transaction can be determined after taking into consideration various factors and criterias and the holding period is one of the several criterias. Therefore no approval to the action of the authorities below in bifurcating the transactions on the basis of 30 days holding period; however, since the claim of the assessee in respect of STCG has been accepted by the Assessing Officer, which has been confirmed by the CIT(A) remains undisturbed, despite the nature of transaction as trading and not as investment. Against assessee.

Summary

Issues Involved:
1. Classification of income from share transactions as either Short Term Capital Gain (STCG) or business income.
2. Applicability of the rule of res judicata in tax assessments.
3. Bifurcation of STCG based on the holding period of shares.

Issue-Wise Detailed Analysis:

1. Classification of Income from Share Transactions:
The primary issue is whether the income from share transactions should be classified as Short Term Capital Gain (STCG) or business income. The revenue contended that the income should be treated as business income due to the high frequency and short holding period of the transactions, indicating an intention to trade rather than invest. The Assessing Officer (AO) noted that the assessee engaged in frequent and repetitive transactions, often holding shares for less than a week. This pattern suggested that the shares were purchased with the intent to resell for profit rather than to hold as investments. The Commissioner of Income Tax (Appeals) [CIT(A)] initially ruled in favor of the assessee, treating the income as STCG. However, the Tribunal found that nearly 50% of the transactions had a holding period of only up to 7 days, and the repetitive nature of transactions in the same scrips indicated trading activity. The Tribunal concluded that the income should be classified as business income, overturning the CIT(A)'s decision.

2. Applicability of the Rule of Res Judicata:
The assessee argued that since the AO had accepted the classification of income as STCG in previous assessment years (2005-06 and 2006-07), the same treatment should apply for the current year. The CIT(A) supported this view, citing the principle of consistency as upheld in the case of Gopal Purohit. However, the Tribunal emphasized that the rule of res judicata does not apply in tax matters, as each assessment year is a separate unit. The Tribunal referenced the Supreme Court's decision in New Jehangir Vakil Mills Co. Ltd., which stated that tax authorities are not bound by previous assessments if new facts come to light. The Tribunal noted that the facts and circumstances of the current year were not identical to the previous years, particularly due to the short holding period and repetitive transactions. Therefore, the AO was justified in reclassifying the income as business income for the current year.

3. Bifurcation of STCG Based on Holding Period:
For the assessment year 2008-09, the AO bifurcated the STCG into two categories: transactions with a holding period of less than 30 days, treated as business income, and those with a holding period of more than 30 days, treated as STCG. The CIT(A) upheld this bifurcation. The Tribunal, however, found no statutory basis for the 30-day criterion, as the Income Tax Act defines short-term capital assets as those held for not more than 12 months. The Tribunal did not approve the bifurcation based on a 30-day holding period, stating that the nature of transactions should be determined by considering various factors, not just the holding period. Despite this, the Tribunal noted that the AO had accepted the assessee's claim of STCG for transactions held for more than 30 days, which remained undisturbed. Consequently, the Tribunal dismissed the assessee's appeal for the assessment year 2008-09, maintaining the classification of income for transactions held less than 30 days as business income.

Conclusion:
The Tribunal allowed the revenue's appeal for the assessment year 2007-08, reclassifying the income from share transactions as business income. It dismissed the assessee's appeal for the assessment year 2008-09, upholding the AO's bifurcation of income based on the holding period, albeit with reservations about the 30-day criterion. The Tribunal emphasized that tax assessments must consider the specific facts and circumstances of each year, and the principle of res judicata does not apply in tax matters.