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2014 (2) TMI 889 - AT - Income TaxNature of Transaction Investment OR Trading - The CIT(A) has rightly held that the assessee has treated the shares as investment and not Stock in Trade - the volume of transactions, frequency of transaction and period of holding etc., would not alter the nature of transaction from investment to trading - The assessee cannot be held an investor for the shares sold during the year under consideration, as the activities carried out him for the year clearly indicate that he wanted to maximise the profit and not to make long term investments - assessee was carrying out business of shares in a systematic and organised manner - Short holding period, volume of the scrips and frequency of the transactions are measure factors to decide the issue as whether an assessee is an investor or doing a business of shares and securities thus, the order of the FAA does not suffer from any infirmity Decided against Assessee. Long Term Capital Gain Held that - Neither the AO nor the FAA had analysed the pattern of holding period of shares that were held for more than one year - Assessee had a specific claim that some of the shares were held since FY. 2002-03 - FAA has completely ignored the submissions made by the assessee in this regard - Without assigning any reasons for treating the income of LTCG as business income, he has confirmed the order of the AO the matter needs further verification thus, the matter remitted back to the FAA for adjudication Decided partly in favour of Assessee.
Issues Involved:
1. Classification of income from share transactions as business income or capital gains. 2. Analysis of the holding period and frequency of share transactions. 3. Treatment of long-term capital gains (LTCG) and short-term capital gains (STCG). Detailed Analysis: 1. Classification of Income from Share Transactions: The primary issue in both assessment years (AY 2006-07 and AY 2007-08) was whether the income from share trading should be classified as business income or capital gains. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the income from share transactions should be treated as business income due to the systematic and regular nature of the transactions, the short holding period of shares, and the profit motive. The assessee argued that the shares were held as investments, not stock-in-trade, and should be treated as capital gains. 2. Analysis of Holding Period and Frequency of Transactions: For AY 2006-07, the AO noted that the assessee had engaged in frequent share transactions, with many shares held for less than 30 days. The CIT(A) supported this view, citing that the transactions were substantial and indicative of trading activity. The assessee contended that the shares were held for investment purposes, with an average holding period of six months for STCG and over a year for LTCG. However, the Tribunal found that the short holding period and frequent transactions indicated a trading activity rather than investment. 3. Treatment of Long-Term and Short-Term Capital Gains: For AY 2007-08, the AO and CIT(A) again classified the income from share transactions as business income. The assessee argued that the shares held for more than 365 days should be treated as LTCG. The Tribunal agreed that the profit from shares held for less than 30 days should be classified as business income. However, it found that the CIT(A) had not adequately analyzed the holding period for shares claimed as LTCG. The Tribunal remanded the issue back to the CIT(A) for further verification, noting that the assessee claimed some shares were held since FY 2002-03. Conclusion: For AY 2006-07, the Tribunal upheld the CIT(A)'s decision to classify the income from share transactions as business income, dismissing the assessee's appeal. For AY 2007-08, the Tribunal partly allowed the appeal, agreeing with the classification of STCG as business income but remanding the issue of LTCG back to the CIT(A) for further analysis. The Tribunal emphasized the need to consider the intention behind the transactions, the holding period, and the treatment of shares in the assessee's books of accounts. Order Pronouncement: The appeal for AY 2006-07 was dismissed, and the appeal for AY 2007-08 was partly allowed, with the order pronounced in the open court on 8th January 2014.
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