2015 (8) TMI 882 - AT - Income Tax

Income from sale & purchase of shares - Long Term Capital Gain OR business income - AO finalized the assessment observing that entire sale/ purchase of shares deserved to be treated as business income rejecting the special tax treatment as per section 111(A), denying exemption u/s 10(38) - CIT(A) granted relief to the assessee - Held that - AO has not demolished the fact that the assessee utilized its own funds for the purpose of acquiring quoted shares, which were also shown as investment in the balance-sheet. The assessee also earned dividend income therefrom and the shares have been held under investment portfolio, which were valued at the end of the year in the audited balance-sheet at the cost of acquisition and the same were not held as stock-in-trade. The AO has also not controverted the fact that there were no multiple transactions of sale/ purchase of shares and the frequency and magnitude was also very low. The observations of the AO in this regard are baseless, which were rightly demolished by the CIT(A). The view taken by the CIT(A), treating the impugned income as long term capital gain, is sustainable in accordance with law and provisions of the Act and, thus, we uphold the same. - Decided against revenue.

Summary

Issues Involved:
1. Whether income from sale and purchase of shares should be treated as "Long Term Capital Gain" or "business income."

Analysis:
- The appeal was filed by the department against the order of the CIT(A) for the assessment year 2008-09.
- The case was selected for scrutiny under CASS, and the AO treated the alleged long term capital gain on shares as 'business income.'
- The CIT(A) granted relief to the assessee by directing the AO to treat the income as 'long term capital gain.'
- The main argument by the department was that the income from shares should be treated as business income as the Portfolio Manager acts as an agent of the investor.
- The assessee argued that the shares were held under the investment portfolio, not as stock-in-trade, and the income should be treated as long term capital gain.
- The CIT(A) observed that the appellant utilized its own funds for share acquisition, earned dividend income, and had no multiple transactions of sale/purchase, supporting the treatment as long term capital gain.
- The CIT(A) cited judicial precedents and upheld the treatment of income as long term capital gain.
- The ITAT upheld the CIT(A) decision, stating that the view taken was sustainable under the law and provisions of the Act, dismissing the revenue's appeal.

This comprehensive analysis highlights the key arguments, observations, and decisions made in the legal judgment regarding the treatment of income from the sale and purchase of shares.