2013 (12) TMI 470 - AT - Income Tax

Whether the income arrived on sale of shares is business income of the assessee The frequency and regularity of buying and selling of shares, by the assessee is very high. The period of holding of shares is also very less - The assessee has held 1,16,139 shares for a period of one day to fifteen days only - Held that - The mode of buying and holding of shares reveals that the intention of the assessee is not to hold on these shares for a longer period for earning dividend, but to use the shares for trading purposes only - The assessee has acquired scrips of as many as 90 companies during the year and purchases of which were also not made at once but on multiple occasions and in different quantities - Following ACIT V/s. Shri Anil Kumar Jain and another - The assessees have made several transactions of purchase of shares during the relevant year under consideration, and if there high volume, frequency and regularity of the activity carried on by the assessee in a systematic manner, it would partake the character of business activities carried on by the assessee in shares, and it cannot be said that the assessees have merely made investments in shares - The assessee has carried on the activity in a systematic and organized manner with an intention to earn profit - In subsequent assessment years i.e. in 2009-10 and 2010-11 also the assessee has treated the transaction in shares as business. In fact for the assessment year 2010-11 the assessee has disclosed a profit of Rs.2,14,80,187/-as profit from sale of shares and has paid tax of Rs.66.40 lakhs - Decided against Revenue.

Summary

Issues:
1. Characterization of income derived from the sale of shares as business income or capital gains.

Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad involved the department's challenge against the CIT (A)'s order regarding the characterization of income derived from the sale of shares for the assessment year 2008-09. The department contended that the income should be treated as capital gains, while the CIT (A) considered it as business income of the assessee. The primary issue revolved around whether the assessee's transactions in shares constituted a trading activity or were merely investments.

During the assessment proceedings, the Assessing Officer raised concerns regarding the nature of the share transactions, highlighting that the assessee used own funds from capital gains for investments, did not utilize borrowed money, and the claimed business loss was due to revaluation of shares. The Assessing Officer treated the transactions as investment activity, disallowed the claimed loss, and computed short capital gains. Subsequently, the CIT (A) reviewed the submissions and materials, concluding that the share transactions were indeed a trading activity and should be assessed under the head "business."

In the appellate proceedings, the departmental representative argued that the assessee's share transactions indicated investment rather than trading activity, emphasizing the absence of borrowings for investments and the alleged tax liability reduction motive. Conversely, the assessee's representative highlighted the substantial scale of share transactions, the treatment of shares as stock in trade in the books of accounts, and referenced relevant legal precedents and CBDT circulars to support the trading activity classification.

The Tribunal analyzed the facts, submissions, and legal principles, emphasizing that the characterization of a transaction as business or investment depends on all relevant facts and circumstances. Referring to the parameters laid down by the jurisdictional High Court in a specific case, the Tribunal assessed the frequency of transactions, holding periods, turnover, profit motive, and other factors to determine the nature of the share transactions. The Tribunal noted the high frequency, short holding periods, systematic trading patterns, and profit-oriented approach of the assessee, aligning with the parameters indicating a trading activity.

Based on the comprehensive analysis of the facts, legal principles, and precedents, the Tribunal upheld the CIT (A)'s decision to treat the share transactions as a trading activity falling under the head "business income." Citing previous judgments and considering the totality of circumstances, the Tribunal dismissed the department's appeal, affirming the characterization of income derived from the sale of shares as business income.

In conclusion, the Tribunal's detailed analysis and application of legal principles underscored the importance of assessing all relevant factors to determine the nature of income derived from share transactions, ultimately upholding the CIT (A)'s decision in favor of treating the transactions as business income.