2015 (8) TMI 233 - HC - Income Tax

Income arising on purchase and sale of shares - business income OR income from investments under the head capital gains - Held that - On examination of the manner in which the Appellant carried out its activity of purchase and sale of shares facts are indicia of the Appellant doing business in shares as a dealer thereof and not as an investor. Normally, no investor would deal with six different share brokers, or for that matter borrow funds for the purposes of investment in shares. Further, the tax audit report filed by the Appellant had classified the Appellant s transactions in shares as shares trading transactions. Moreover, the impugned order of the Tribunal also records that the number of transactions carried out by two Appellants were 100 and 120 shares respectively in a very short period. Further, the turnover in case of the father was ₹ 4.89 Crores and in case of son was ₹ 4.12 Crores. All these were indicative of there being a regular systematic activity which is the activity of business being pursued by the Appellant. We do not find any merit in the submission that the Tribunal in the impugned order while dealing with the issue of charging tax under the head business income or as capital gain was influenced by the fact that some transactions were found to be bogus. In fact, the impugned order after making the above observation with regard to the Appellant s conduct, observes that notwithstanding the same, the income on purchase and sale of shares is taxable as business income. Tribunal was correct in treating the income arising on purchase and sale of shares as business income and not as income from investments under the head capital gains as sought by the Appellants. - Decided against revenue.

Issues:
- Treatment of income from purchase and sale of shares as business income or capital gains.

Detailed Analysis:
1. Facts and Background: The case involves two appeals challenging a common order passed by the Income Tax Appellate Tribunal regarding the treatment of income arising from the purchase and sale of shares for the Assessment Year 2006-07. The primary issue is whether the income should be classified as business income or income from investments under the head of 'capital gains.'

2. Assessing Officer's Findings: The Assessing Officer found that a portion of the income declared by the appellant was not genuine and treated it as income from other sources. The remaining amount of short-term capital gains was considered taxable under the head of 'business income' due to factors such as volume, frequency of transactions, and the use of a loan to purchase shares.

3. Commissioner of Income Tax (CIT) Decision: The CIT(A) upheld the Assessing Officer's decision, concluding that the appellant was engaged in share trading activities and not mere investment, based on previous assessments and the nature of transactions.

4. Tribunal's Decision: The Tribunal, after considering the appellant's arguments and relevant case law, affirmed the classification of income as business income, rejecting the appellant's claim for capital gains treatment.

5. Appellant's Arguments: The appellant contended that the impugned order was influenced by irrelevant facts, and consistency in treatment should have been followed based on previous assessments. Reference was made to legal precedents and the nature of the transactions to support the claim for capital gains treatment.

6. Revenue's Response: The Revenue opposed the admission of the appeals, reiterating the findings of the lower authorities regarding the classification of income.

7. High Court's Analysis: The High Court examined the facts presented by the Assessing Officer, including the number of brokers used, the turnover, and the nature of transactions, to determine that the appellant was engaged in share trading as a dealer and not as an investor.

8. Legal Precedents and Principles: The Court distinguished the present case from previous judgments cited by the appellant, emphasizing the lack of evidence to support identical treatment of transactions across assessment years. The application of legal principles to determine the nature of transactions was also discussed, highlighting the importance of factual evidence in such determinations.

9. Affidavit Consideration: The Court noted the submission of an affidavit by the appellant but declined to consider it due to procedural reasons, as it was not available before the Tribunal and lacked necessary court approval.

10. Conclusion: The High Court found no substantial question of law warranting a different decision and dismissed both appeals, upholding the classification of income as business income. No costs were awarded in the judgment.

In summary, the High Court upheld the Tribunal's decision to treat the income from the purchase and sale of shares as business income based on the appellant's trading activities and the absence of sufficient evidence to support a different classification under capital gains. The judgment emphasized the importance of factual findings and legal principles in determining the nature of transactions for tax purposes.

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