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2015 (2) TMI 370 - HC - Income TaxCapital gain v/s business income - share transaction - CIT(Appeals) held that the sum of ₹ 1,97,17,460/-, reported during assessment year 2007-08, constituted capital gains - ITAT remitted the case for reconsideration by AO on the assumption that additional evidence had been filed - Held that - The record itself would show that the CIT(Appeals) painstakingly looked into the nature of transactions and apparently analysed each one of them to conclude that the income derived from sale of shares was not business income but capital gains. In arriving at this decision, the CIT(Appeals) was guided by several binding decisions, such as CIT V. Associated Industrial Development Company (P) Ltd. (1971 (9) TMI 3 - SUPREME Court), Raja Bahadur Kamakhya Narayan Singh V. CIT (1969 (9) TMI 2 - SUPREME Court) and CIT V. Holck Larsen (1986 (5) TMI 30 - SUPREME Court). In fact the order of the CIT (Appeals) with respect to analysis of the facts covers a considerable part of the order. The ITAT apparently was mistaken in its assumption that some additional evidence was led before the CIT (Appeals). In fact, the order of the CIT (Appeals), in para 2.10 clearly records that the appellant had clarified that no additional evidence was filed during the appellate proceedings. Furthermore, a comparison of the details of the share transactions in question from the AO s order and the CIT (Appeals) order would show that there is complete identity as to the details of the transactions i.e. the name of the companies, the duration of holding, date of purchase, date of sale etc. In fact, CIT (Appeals) s order is a more elaborate analysis of some basic material. Furthermore, it was not pointed out during the course of the hearing as to what was the additional material or evidence reiterated before the CIT (Appeals) by the assessee, which necessitated the remand. we notice that the CIT (Appeals) had recorded that 29% of the transactions reported by the assessee could be treated as short term capital gain. In these circumstances, the remand directed by the ITAT is limited to enquiry on this aspect. - Decided in favour of assessee
Issues Involved:
1. Whether the income from share transactions should be treated as capital gains or business income. 2. Whether the remand by the ITAT was justified on the assumption that additional evidence had been filed during the appellate proceedings. Detailed Analysis: 1. Treatment of Income from Share Transactions: The primary issue was whether the income of Rs. 1,97,17,460/- from share transactions should be classified as capital gains or business income. The assessee, a medical practitioner, contended that the income constituted capital gains, as the transactions involved shares held for periods ranging from 366 to over 1150 days. The Assessing Officer (AO) disagreed, treating the income as business income due to the volume and frequency of transactions, thereby applying a higher tax rate. The CIT(Appeals) supported the assessee's contention, highlighting that: - The investments in shares were held for significant periods, with 74% of shares held for more than 18 months and 11% for more than 36 months. - 69% of the long-term capital gains (LTCG) were from bonus and split shares. - The assessee consistently declared income under LTCG/STCG in past and future years and valued the investments at cost price, unlike a trader. - Loans availed by the assessee had no direct link to the acquisition of shares, and the interest paid on these loans was not claimed as an expense against LTCG/STCG or professional income. - The CIT(Appeals) applied the principle that the intention of the assessee, expenditure, length of holding, volume, and frequency of transactions, and whether shares were acquired through borrowed funds or personal funds, should determine the nature of income. Based on these factors, the CIT(Appeals) concluded that the income should be treated as capital gains. 2. Justification of Remand by ITAT: The ITAT remanded the case for reconsideration by the AO, assuming that additional evidence had been filed during the appellate proceedings. The ITAT expressed doubts about whether the detailed submissions and charts presented to the CIT(Appeals) were also submitted before the AO. The ITAT believed that the AO should have been given an opportunity to review these submissions. However, the CIT(Appeals) had clearly recorded in para 2.10 that no additional evidence was filed during the appellate proceedings. The High Court noted that both the AO's and CIT(Appeals)'s orders contained identical details regarding the share transactions, indicating no new evidence was introduced. The CIT(Appeals)'s order included an extensive analysis of the transactions and applicable case law, supporting the conclusion that the income was capital gains. Conclusion: The High Court found that the ITAT's assumption of additional evidence was incorrect. The CIT(Appeals) had thoroughly analyzed the transactions and applied relevant legal principles to determine that the income should be treated as capital gains. The High Court limited the remand to the issue of short-term capital gains, directing the AO to determine which shares should be classified as short-term capital gains. The appeal was allowed with these specific directions.
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