2015 (6) TMI 520 - AT - Income Tax

Income from sale and purchase of shares - capital gains or business income - Held that - The assessee is to be treated as an investor for the year under consideration also. We hold accordingly. The AO, therefore, is directed to treat the income from sale and purchase of shares as short term capital gains and long term capital gains according to the period of holding as per the provisions of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the income earned by the assessee from sale and purchase of shares is to be assessed as capital gains or business income.
2. Levy of interest under section 234 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assessment of Income from Sale and Purchase of Shares:
The primary issue in this appeal was whether the income earned by the assessee from the sale and purchase of shares should be assessed as capital gains or business income. The assessee disclosed short-term capital gains and long-term capital gains in their returns. However, the Assessing Officer (AO) assessed these gains as business income, citing numerous transactions, the use of interest-bearing borrowed funds, and the short holding period of shares as reasons.

The assessee argued that they had consistently been treated as an investor in previous years and subsequent years, with the income from share transactions assessed as capital gains. The assessee maintained two portfolios: one for delivery-based transactions treated as investments and another for speculative transactions. The AO's change in stance was attributed to the amendment in the Finance Act, 2004, which introduced a concessional tax rate for short-term capital gains and exempted long-term capital gains from tax.

The Tribunal noted that the principle of consistency should be maintained unless there is a significant change in facts or legal position. The assessee's intention at the time of purchase, the treatment of investments in account books, and the consistent treatment by the department in other years supported the assessee's claim of being an investor. The Tribunal held that the AO could not change the treatment of income solely based on the amendment providing tax benefits. Therefore, the Tribunal directed the AO to treat the income from the sale and purchase of shares as short-term and long-term capital gains according to the period of holding as per the provisions of law.

2. Levy of Interest under Section 234:
Ground No. 5 related to the levy of interest under section 234 of the Income Tax Act. The Tribunal noted that this issue was consequential and did not require separate adjudication.

Conclusion:
The appeal of the assessee was allowed, and the AO was directed to assess the income from the sale and purchase of shares as capital gains. The issue of interest under section 234 was deemed consequential and did not require further adjudication. The principle of consistency was emphasized, and the Tribunal held that the assessee should be treated as an investor for the year under consideration.