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2015 (4) TMI 151 - AT - Income TaxShare transactions - Capital gains v/s business income - CIT(A) allowed assessee s claim of long term capital gains and partly allowed the claim of assessee regarding short term capital gains and confirmed the balance of short term capital gains as business income - Held that - In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. If the conclusion drawn in the impugned order, observations made from the assessment order, assertions made by respective counsel and the material available on record are kept in juxtaposition and analyzed, we find that the assessee had been consistently investing in shares and income arising from delivery based transaction of sale and purchase of shares was correctly shown as capital gains i.e. LTCG and STCG depending upon period of holding. In view of the above discussion, we do not find any merit for treating the capital gains offered by the assessee as business income. - Decided in favour of assessee.
Issues Involved:
- Taxation of capital gains as business income. Issue-wise Detailed Analysis: 1. Taxation of Capital Gains as Business Income: The primary issue in this case pertains to whether the income from the sale of shares should be taxed as capital gains or business income. The assessee declared income from share dealings as short-term and long-term capital gains based on the holding period. The Assessing Officer (AO) contended that the assessee's principal income source was from share trading, thus treating the gains as business income. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the long-term capital gains claim and partially allowed the short-term capital gains, treating the rest as business income. Both the assessee and the Revenue appealed this decision. 2. Consistency in Treatment of Shares: The Tribunal noted that the assessee had consistently treated shares as investments in previous years. The AO's treatment of short-term capital gains as business income in the assessment year 2004-05 was overturned by the CIT(A), and in subsequent years, the AO accepted the capital gains as declared by the assessee. The CIT(A) acknowledged the assessee as an investor but treated some short-term capital gains as business income based on the volume of transactions. 3. Judicial Precedents and Legal Principles: The Tribunal referenced the Supreme Court's decision in CIT vs. Associated Industrial Development Co. (P.) Ltd., which emphasized the importance of the assessee's intention and the treatment of shares in their books. It was noted that if shares are bought for investment and treated as such in the books, the gains should be capital gains. Conversely, if treated as stock-in-trade, the gains should be business income. 4. Volume and Frequency of Transactions: The Tribunal considered the volume and frequency of transactions as a factor in determining the nature of income. The assessee's holding period averaged 2.84 months, with the main script held for almost 12 months. The assessee did not engage in speculative transactions or borrow funds, indicating an investment motive. 5. Government's Intention and Tax Provisions: The Tribunal discussed the intention behind the introduction of the Securities Transaction Tax (STT) and the related tax provisions. The amendments aimed to simplify the tax regime on securities transactions, distinguishing between capital gains and business income based on the nature of transactions and holding periods. 6. Principle of Consistency: The Tribunal emphasized the principle of consistency in judicial decisions, noting that the AO cannot change the treatment of shares without substantial evidence. The Tribunal cited several cases supporting the consistent treatment of similar transactions as capital gains. 7. Analysis of Assessee's Transactions: The Tribunal analyzed the assessee's transactions, noting that the shares were held as investments and not as stock-in-trade. The assessee's balance sheet reflected the holding of shares as investments, further supporting the capital gains treatment. Conclusion: The Tribunal concluded that the capital gains declared by the assessee should not be treated as business income. The appeal by the assessee was allowed, and the appeal by the Revenue was dismissed. The Tribunal's decision was based on the consistent treatment of shares as investments, the intention behind the transactions, and the relevant judicial precedents. Order: The Tribunal pronounced the order in the open court on 18th February 2015, allowing the assessee's appeal and dismissing the Revenue's appeal.
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