2014 (5) TMI 921 - AT - Income Tax

Treatment of income STCG or Business income Trading in shares and securities - Held that - The facts are self-speaking , and leave no manner of any doubt of the assessee being engaged in trade in shares and securities - in all its various aspects, even as for tax purpose a different treatment is to be accorded thereto, viz. speculative or non-speculative - It is this that prevailed with both the authorities below, to in fact no rebuttal by the assessee, with the primary facts being not in doubt or dispute - the treatment accorded in books, which was found to be not in agreement with the activity in-as-much as the assessee has clubbed its entire shareholding under one head, is not conclusive of the matter. The Revenue has rightly considered the income declared by the assessee as STCG as business income - its quantum would require to be reworked - The assessee has claimed interest expenditure at Rs.20.50 lacs it would require being apportioned against different businesses, as well as, where so, investment activity - The AO has considered the entire interest against interest income falling under the head income from other sources , which is inconsistent with his own finding of the business being financed, if only partly, by borrowed capital - It is only the net income so arrived at that would stand to be assessed as business income Decided partly in favour of Assessee.

Summary

Issues:
1. Treatment of income as short term capital gain (STCG) or business income.

Detailed Analysis:
The judgment is an Appeal by the Assessee against the Order by the Commissioner of Income Tax (Appeals) regarding the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2006-07. The main issue in the appeal is the treatment of income amounting to Rs.15,74,397 for taxability under the Act, whether as STCG as returned by the assessee or as business income as considered by the Revenue.

The arguments presented by the Assessee's counsel highlighted that the assessee maintained separate portfolios for investment and trading activities. The counsel argued that the Assessing Officer (A.O.) categorized the income as business income without proper justification, despite the assessee consistently treating delivery-based transactions as capital gains. On the other hand, the Departmental Representative contended that past decisions do not bind the A.O. for subsequent years, emphasizing the A.O.'s application of clear law in the matter.

The Tribunal analyzed the facts and circumstances of the case and emphasized the wide import of the term 'business,' including activities pursued for economic gain. Referring to various apex court decisions, the Tribunal concluded that the assessee's transactions in shares and securities, including delivery and non-delivery based, indicated a systematic business activity. The Tribunal noted the regularity, frequency, and volume of transactions, along with financial risk-taking, as indicative of a profit-motivated business engagement.

The Tribunal found that the Revenue rightly considered the income declared by the assessee as 'business income' instead of STCG. However, the Tribunal directed a reworking of the quantum of income, particularly addressing the apportionment of interest expenditure against different business activities. The Tribunal highlighted inconsistencies in the A.O.'s treatment of interest expenditure, directing a reassessment to determine the net income to be assessed as 'business income,' providing partial relief to the assessee.

In conclusion, the Tribunal partly allowed the assessee's appeal, emphasizing the need for a revised assessment of income considering the nature of business activities and financial allocations.