2014 (5) TMI 323 - HC - Income Tax

Treatment of STCG Business income or not Sale of shares - Held that - The assessee was not carrying on business but was a HUF comprised of various members - It made investment in 12 companies and indulged in actual sale and purchase transactions for 45 days out of 250 trading sessions - The karta of the HUF was also a full time employee - director of various companies - the average holding period was more than 50 days in respect of each scrip that was transacted in sale and purchase Relying upon Commissioner of Income Tax v. Sutlej Cotton Mills Supply Agency Ltd. 1975 (7) TMI 2 - SUPREME Court - emphasis on no single test can be determinative or conclusive of the matter - the overall tests noticed and applied by the Tribunal cannot be faulted Decided against Revenue.

Summary

Issues:
1. Characterization of income as short term capital gain or business income.
2. Treatment of expenses and maintaining books of accounts for penalty imposition.

Issue 1: Characterization of income as short term capital gain or business income:
The Revenue appealed against the ITAT's decision treating Rs.4,89,64,389 as short term capital gain instead of business income. The assessee, a HUF, declared a total income of Rs.4,91,39,431 for AY 2008-09, claiming the receipts on sale of shares as short term capital gain. The CIT (A) accepted the assessee's contention, noting that the HUF did not incur expenses for business activities, transacted in shares of 12 companies, and had a turnover of Rs. 2,86,05,589. The ITAT upheld this decision, considering various factors such as the holding period, number of companies transacted with, and the nature of transactions. The Revenue argued that the income was insignificant other than the reported short term capital gain, and the activity resembled trading rather than investment.

Issue 2: Treatment of expenses and maintaining books of accounts for penalty imposition:
The Revenue contended that the CIT (A) erred in dropping proceedings under sections 271A and 271B of the Act. The CIT (A) held that since the assessee was an investor, not required to maintain books of accounts, penalties were not applicable. The ITAT affirmed this decision, stating that penalties were not imposable on the assessee as it was not trading in shares. The Court, after considering the submissions, noted that the assessee, being a HUF, made investments in 12 companies and engaged in sale and purchase transactions for a limited number of days. The Court referred to the decision in Commissioner of Income Tax v. Sutlej Cotton Mills Supply Agency Ltd., emphasizing that no single test can be conclusive in such matters. Consequently, the Court upheld the ITAT's decision in favor of the assessee, dismissing the appeal.

In conclusion, the High Court upheld the ITAT's decision, characterizing the income as short term capital gain and not business income, and ruled in favor of the assessee regarding the treatment of expenses and penalty imposition. The judgment highlighted various factors such as holding period, number of transactions, and nature of activities to determine the nature of income, emphasizing the totality of circumstances in such cases.