2015 (8) TMI 1149 - AT - Income Tax

Income from purchase and sale of shares - Long Term Capital Gain as well as Short Term Capital Gains V/S business income - Held that - We uphold the finding of fact given by the first appellate authority, based on the period of holding, the income derived by the assessee by way of dividends, the fact that there are no borrowings for investment in shares, the volume of transactions which as per the learned CIT(Appeals) was not high and the fact that the assessee has diversified portfolio and has not indulged in repetitive purchase and sale of shares of the same company and the order u/s 143(3) of the AO in the assessee s own case for the earlier two assessment years, the fact that the assessee has invested substantial amounts in mutual funds etc., held that the assessee is an investor in shares and not a trader. Facts of the case of the appellant are better than issue decided in favour of the assessee by Hon. ITAT for YA 2006-07 2010 (10) TMI 1018 - ITAT MUMBAI . Therefore respectfully following the decision of coordinate bench in case of assessee herself for AY 2006-07 it is held that long term capital gain and short term capital gain is not the business income of the appellant but is chargeable to tax under the head capital gains . - Decided in favour of assessee.

Summary

Issues:
1. Determination of whether long term and short term capital gains should be treated as business income or not.

Analysis:
The appeal was filed by the Revenue against the order of CIT (A) regarding the treatment of long term and short term capital gains earned by the assessee. The Assessing Officer (AO) initially treated these gains as business income after analyzing various instructions and circulars. The AO applied ten tests to determine the nature of the income, including the usual trade or business of the assessee, motive test, holding period of securities, etc. The AO concluded that the income from the sale of shares should be assessed as business income.

In response, the assessee appealed before CIT (A), who considered the tests applied by the AO and concluded that the capital gains should be treated as such and not as business income. The Revenue challenged this decision on various grounds, including the magnitude of transactions, non-acceptance of a previous case, failure to appreciate CBDT guidelines, and lack of examination of past facts.

During the proceedings, the Revenue argued that the volume and frequency of transactions, short holding periods, and investments in multiple companies indicated that the income should be considered business income. They also highlighted nominal profits, characterisation in books, and reliance on a previous case to support their stance.

On the other hand, the assessee contended that the main source of income was from house property, not share trading. They presented detailed evidence, including a comparison with a previous year's case where the Tribunal ruled in their favor. The assessee emphasized factors such as dividend income, holding periods, absence of borrowings, diversified portfolio, and lack of infrastructure for trading.

The Tribunal examined the arguments, previous decisions, and factual evidence presented by both parties. Referring to a previous ruling in favor of the assessee for a different assessment year, the Tribunal found that the current case had stronger evidence supporting the treatment of capital gains as such and not as business income. The Tribunal considered parameters like scrips, dividend income, holding periods, absence of borrowings, and profit distribution to conclude that the gains were chargeable under the head of capital gains.

Based on the analysis and comparison with the previous case, the Tribunal upheld the decision that the long term and short term capital gains were not business income but should be taxed under the head of capital gains. The appeal of the Revenue was dismissed, and the order was pronounced in open court.