2014 (7) TMI 381 - AT - Income Tax

Treatment of profit on sale of shares Capital gain or business income Held that - Long term capital gain arose only from sale of two shares which were purchased during the FY 2004- 05 - the allegation of the AO that the assessee was frequently dealing in shares is factually incorrect there was long term capital loss as well as short term capital loss and, in the order passed under Section 143(3) - Revenue cannot be permitted to accept the loss from sale of shares as short term/long term capital gain but, in the year in which there was an income, treat the same as business income - In AY 2006-07, there was a short term capital gain which was claimed to be set off by the assessee against the brought forward short term capital loss and remaining short term capital gain was offered to tax - The same was accepted in the order passed under Section 143(3) - Revenue has not been able to show how the facts of the year under consideration are different than the preceding two years so as to justify the different view taken in this year - on the ground of consistency itself, the Revenue s appeal is liable to be dismissed apart from the facts of the case as discussed by the CIT(A), which clearly show that the assessee was investor in shares and not trader thus, there was no justification to interfere with the order of learned CIT(A) Decided against Revenue.

Summary

Issues:
- Determination of profit on sale of shares as capital gains or business income.

Analysis:
The appeal concerned the classification of profit on the sale of shares as either capital gains or business income for the assessment year 2007-08. The Revenue contended that the profit should be treated as business income, contrary to the direction of the Assessing Officer who classified it as long-term capital gain. The Revenue argued that the shares were frequently bought and sold on the same day or within a few days, indicating a business activity. However, the assessee, primarily engaged in the restaurant business, maintained that the shares were investments and not stock in trade. The average holding period of shares was about 325 days, with only two shares sold after being held for more than two years.

The CIT(A) accepted the assessee's argument, emphasizing that the sale and purchase of shares constituted a small portion of the overall business turnover, and the shares were classified as investments in the balance sheet of preceding years. The CIT(A) referenced judicial pronouncements supporting the treatment of profits from shares held as investments as capital gains. The CIT(A) noted that in previous assessment years, the Revenue had accepted the treatment of profits on shares as capital gains without issue.

Upon review, the Tribunal found no fault in the CIT(A)'s findings. It highlighted that the long-term capital gain in question arose from the sale of only two shares held for over two years, indicating an investment activity rather than frequent trading. The Tribunal emphasized the consistency in treatment of profits on shares in preceding years and rejected the Revenue's attempt to reclassify the income as business income in the current year without valid justification. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal based on the facts and the principle of consistency.

In conclusion, the Tribunal sustained the CIT(A)'s decision, confirming the treatment of profit on the sale of shares as capital gains rather than business income for the assessment year 2007-08.