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2014 (3) TMI 330 - AT - Income TaxShare trading transaction - Nature of income - Income from Business & Profession OR Capital gain Held that - CIT(A) set aside the order of the AO on the issue and held that the income from sale of shares held as investment gives rise to long term capital gains/short term capital gains and the same should not be treated as income from business - Revenue submitted that the assessee was engaged in trading activity but no material was placed to controvert the findings of the CIT(A) - Repetitive nature of transactions, i.e. sale of shares and again repurchase on the next day, was not proved - the assessee dealt with limited number of stocks and most of the transactions have taken place in April, May and June, 2005 - It is also not in dispute that the assessee held shares of Crance Soft, Vlmta Lab and Yuken India for more than two years and they were shown in the books as investments thus, the gross receipts should not be taken as the sole criterion to come to the conclusion that the assessee carried on trading activity - Since the revenue was not able to controvert the findings of the CIT(A) there is no reason to interfere in the order of the CIT(A) Decided against Revenue.
Issues:
1. Whether the income earned from the sale of shares should be treated as 'Income from Business & Profession' or 'Capital Gain' for assessment. Analysis: The appeal before the Appellate Tribunal ITAT Mumbai involved the issue of the nature of income earned from the sale of shares by the assessee company for the assessment year 2006-07. The Revenue contended that the income should be assessed as business income, while the assessee claimed it should be treated as capital gains. The Assessing Officer (AO) considered the income from share trading as business income based on the company's Memorandum and Articles of Association mentioning dealing in shares. The AO observed that the assessee did not follow a logical criteria for classifying shares as investment or trading, leading to the conclusion that the shares were traded for profit. The AO assessed long term and short term capital gains along with income from share trading. The assessee argued that the shares were held as investments, supported by audited accounts and balance sheets, with low transaction volume and turnover. The assessee maintained that the income should be categorized as capital gains, not business income. The CIT(A) ruled in favor of the assessee, holding that income from shares held as investments should be treated as capital gains, not business income. The Revenue appealed the CIT(A)'s decision before the Appellate Tribunal. The Departmental Representative contended that the assessee was engaged in trading activities, but failed to provide evidence to challenge the CIT(A)'s findings. The Tribunal noted that the Revenue did not demonstrate that the purchases were recorded as stock-in-trade or that borrowed funds were used for share purchases. The Tribunal also observed that the repetitive nature of transactions and limited number of stocks traded did not indicate a trading activity. The Tribunal found that shares held for more than two years were classified as investments in the books. As the Revenue could not refute the CIT(A)'s findings, the Tribunal upheld the decision that the income from share sales should be treated as capital gains, dismissing the Revenue's appeal. In conclusion, the Appellate Tribunal upheld the CIT(A)'s decision that income from the sale of shares held as investments should be categorized as capital gains, not business income, for the assessment year 2006-07. The Tribunal emphasized the lack of evidence supporting the Revenue's claim of trading activity and the consistent classification of shares as investments by the assessee. The appeal filed by the Revenue was dismissed, affirming the treatment of income from share sales as capital gains.
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