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2013 (12) TMI 1267 - AT - Income TaxBusiness income vs Capital Gain - Income from sale of shares Held that - Following the principles laid down in Sugamchand C. Shah vs. ACIT 2010 (1) TMI 942 - ITAT Ahmedabad - if shares are not held even say for a month then the intention is clearly to reap profit by acting as a trader and he did not intend to hold them in investment portfolio - Where shares are held for more than a month they should be treated as investment and on their sale short term capital gain should be charged - When shares are held for less than a month gain on them should be treated as profit from business Following assessee s own case for A.Y. 2006-07 - basic data required to work out the frequency of transactions of holding period is not collected by the AO The issue was restored for fresh decision.
Issues involved:
Appeal against deletion of addition of Short Term Capital Gain treated as business income for A.Y. 2008-09 based on previous year's decision. Interpretation of intention behind share purchases, frequency of transactions, and holding period to determine business income or capital gains. Analysis: Issue 1: Deletion of addition of Short Term Capital Gain The appeal filed by the Revenue challenged the deletion of an addition of Rs.16,90,044 made on account of Short Term Capital Gain treated as business income for A.Y. 2008-09. The Revenue contended that the CIT(A) erred in deleting the addition based on the decision in favor of the assessee for A.Y. 2006-07, without considering the intention behind the share purchases and the holding period. The ITAT referred to a previous decision in the assessee's case for A.Y. 2006-07 where the Tribunal established principles to differentiate between trading and investment in shares based on factors such as intention at the time of purchase, frequency of transactions, and treatment in the books of account. Issue 2: Interpretation of Intention and Frequency of Transactions The Tribunal emphasized the importance of determining the intention of the assessee at the time of share purchase, whether for trading or investment purposes. Factors such as borrowing money for purchases, frequency of transactions, and the treatment of shares in the balance sheet were considered crucial in establishing the nature of the transactions. The Tribunal highlighted that a commercial motive is essential for trade and that evidence must be provided to differentiate between trading and investment holdings. Issue 3: Holding Period and Criteria for Taxation The Tribunal observed that the holding period of shares plays a significant role in determining whether the gains should be taxed as business income or short term capital gains. It was decided that if shares are held for less than a month, the intention is to reap profit as a trader, while holding shares for more than a month indicates investment. The Tribunal directed the AO to calculate business income and capital gains based on the holding period, following the criteria established in previous judgments. Conclusion: The ITAT allowed the Revenue's appeal for statistical purposes, directing the AO to reevaluate the tax treatment of the Short Term Capital Gain based on the holding period criteria. The decision highlighted the need to consider the intention behind transactions, frequency of trades, and holding period to differentiate between business income and capital gains in share transactions. The case underscores the importance of maintaining clear records and evidence to support the nature of share holdings for tax purposes.
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