2015 (12) TMI 395 - AT - Income Tax

Profit earned on sale of shares - business income OR short term capital gains - Held that - CIT(A) while deciding the issue in favour of the Assessee has held the profit earned to be as capital gains and has noted that Assessee has history of being an investor and claiming short terms capital gains and the activity of transactions were related to 5 scrips and the transactions were delivery based. He has further given a finding that it is not a case where the Assessee has done the transactions of sale and purchase on every day basis. He has further noted that the shares were considered by the Assessee as investment in its books of accounts, had not borrowed any finance to acquire the shares and out of the total gains earned by the Assessee, around 2/3 of the profits were earned from shares which were held for over 60 days. He thereafter relying on the ratio of the decision rendered by the Hon ble Bombay High Court in the case of Gopal Purohit reported in 228 CTR 582 (Bom) held that only short term capital gains to the extent of ₹ 27,193/- earned on the transactions which were not transacted through Demat account is to be attributed to the business of share trading. Before us, Revenue has not placed any material on record to controvert the findings of ld. CIT(A). Further, it is also a fact that in the earlier assessment years, Assessee had offered the profits as short terms capital gains and the same was also accepted by the Revenue. No reason to interfere with the order of ld. CIT(A) - Decided against revenue

Summary

Issues:
- Whether the profit earned on the sale of shares should be treated as "capital gains" or "business income" for the assessment year 2006-07.

Analysis:
1. The appeal filed by the Revenue challenged the order of CIT(A) regarding the assessment for the assessment year 2006-07. The Revenue contended that the profit from share trading should be considered as "business income" rather than "short term capital gains" as claimed by the Assessee.

2. The Assessing Officer (A.O) observed that the Assessee had significant transactions in shares and questioned why the income from the sale of shares should not be treated as "business income." The A.O highlighted the high volume and value of transactions, short holding periods, and substantial gains from share trading compared to dividends earned. Consequently, the A.O treated the gains as "business income."

3. The CIT(A) considered various parameters, including the Assessee's history of claiming short term capital gains, turnover, delivery-based transactions, and the nature of shares as investments in the books. The CIT(A) emphasized that the Assessee was primarily an investor, not a regular trader, and had not engaged in daily trading activities. The CIT(A) referred to a Bombay High Court judgment to attribute only a small portion of the gains to the business of share trading.

4. The Appellate Tribunal upheld the CIT(A)'s decision, noting the lack of new evidence presented by the Revenue and the Assessee's consistent treatment of profits in previous years. The Tribunal emphasized the Assessee's investor profile, delivery-based transactions, and the substantial portion of gains from shares held for over 60 days, supporting the classification of the income as "capital gains."

5. The Tribunal also highlighted the principle of consistency in tax matters and the absence of grounds to overturn the CIT(A)'s ruling. Given the Assessee's historical treatment of profits, lack of daily trading activities, and the nature of share transactions, the Tribunal dismissed the Revenue's appeal, affirming the treatment of the income as "capital gains."

6. The Tribunal's decision was based on a holistic assessment of the Assessee's activities, historical treatment of profits, and the nature of share transactions, emphasizing the investor profile and lack of grounds to reclassify the income as "business income."

7. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to treat the profit earned on the sale of shares as "capital gains" for the assessment year 2006-07.