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2014 (8) TMI 273 - AT - Income TaxIncome from sale of shares Income treated as business income OR STCG Held that - CIT(A) has given a categorical finding that the activities carried on by the assessee in respect of share transactions are akin to the business activities - The Statement of Profit/loss arising on sale of shares also shows that the assessee was indulging in short term trading activities during the year - shares allotted under primary issue were also sold within short period from the date of allotment - These kinds of transactions add strength to the view taken by the tax authorities - CIT(A) has pointed out the assessee has earned long term capital gains in 11 transactions and has earned short term capital gain in 255 transactions, which proves the case of the AO that the assessee has been indulging in short term trading activities with the aim of maximising the profit. The fact that the assessee has been indulging in speculative activities also, also support the case of the AO - the speculative transactions have been admitted as business transactions - Another important aspect that was brought out by the tax authorities is about the conduct of the assessee, viz., the assessee decides to take delivery of shares purchased by her only at the end of the day depending upon the price movement of those shares, which means that the decision to hold it as investment is not taken at the time of purchase, which is the crucial factor to determining about the nature of transactions - If the intention had been to hold it as investment, usually, an investor is least bothered about the short term price movements - The conduct of the assessee was brought out by the assessee, strongly militates against the stand taken by the assessee - CIT(A) has also pointed out that the assessee has rotated the funds several time, which is akin to the business activity - CIT(A) was justified in upholding the order of the AO in assessing the gain arising on sale of shares as the business income of the assessee order of the CIT(A) is upheld Decided against Assessee.
Issues Involved:
1. Classification of income from the sale of shares: Whether it should be assessed as "business income" or "Short Term Capital Gain" (STCG). Issue-Wise Detailed Analysis: 1. Classification of Income from the Sale of Shares: The primary issue in this case was whether the income of Rs. 12.11 lakhs arising from the sale of shares should be classified as "business income" or "Short Term Capital Gain" (STCG). Facts and Arguments: - The Assessee, an individual engaged in multiple business activities, declared income under various heads including salary, business, capital gains, and other sources. She reported a speculation loss in Futures and Options amounting to Rs. 14.95 lakhs and STCG on share transactions amounting to Rs. 12.11 lakhs. - The Assessing Officer (AO) examined the volume and frequency of transactions, period of holding, and the conduct of the Assessee. The AO concluded that the Assessee was engaged in share trading operations as a sustained business activity, supported by various case laws. Consequently, the AO assessed the gains from share transactions as "business income". - The Assessee contended that share trading was not her main activity and that the transactions were investments, not business operations. She argued that the tax authorities had previously assessed similar income as STCG in past and subsequent years, albeit under section 143(1). Findings: - The AO's assessment was based on several observations: the Assessee's transactions were frequent and repetitive, shares were often sold within short periods, and the Assessee's conduct indicated a profit motive typical of business ventures. - The AO noted that the Assessee did not distinguish between speculative and delivery-based transactions at the time of purchase, and decisions to take delivery or square off were guided by market prices. The transactions were routed through the same broker without separate books for speculative and delivery-based transactions. - The AO also highlighted that the Assessee's activities showed a systematic course of action with regular maintenance of books of accounts, billing systems, and transaction details. The Assessee's high frequency of transactions, lack of intention to enjoy dividends or bonuses, and the rotation of funds were indicative of business activities. - The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the Assessee's substantial turnover, frequent transactions, and the use of unsecured loans for share purchases. The CIT(A) noted that the Assessee's conduct and fund utilization did not align with investment activities but rather with trading activities aimed at profit maximization. Conclusion: - Both the AO and CIT(A) concluded that the Assessee's share transactions were akin to business activities. The Assessee's short-term trading activities, speculative transactions, and the manner of fund utilization supported this view. - The Tribunal agreed with the findings of the AO and CIT(A), noting that the Assessee's conduct, frequency of transactions, and profit motive were consistent with business activities. The Tribunal upheld the order of the CIT(A) in assessing the gains from the sale of shares as "business income". Final Judgment: - The appeal filed by the Assessee was dismissed, and the income from the sale of shares was classified as "business income". The above order was pronounced in the open court on 25th July, 2014.
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