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2015 (12) TMI 509 - AT - Income TaxTreatment given to the profits earned on sale of shares - whether it is to be considered as business income or capital gains - Held that - CIT(A) has noted that the shares were acquired by the Assessee in IPO, ILFS Ltd. and J M Financial Services Pvt. Ltd. had partly financed the acquisition of those shares, the entities who had financed had charged fees and the shares were sold shortly after their acquisition. The activity of Assessee was held by the ld. CIT(A) to be in an organized and systematic activity with an intention to earn profits and the activity to be in the nature of trade and therefore it was considered to be a business activity. Before us, no material has been placed on record by the Assessee to controvert the findings of ld. CIT(A). In view of the aforesaid facts and the reasoning given by ld. CIT(A), we do not find any reason to interfere in his order. As far as the treatment of the surplus of ₹ 1,29,68,597/- which is held to be STCG is concerned, we find that ld. CIT(A) has given a finding of fact that the underlying shares have been acquired by Assessee s own funds and no borrowed funds have been used, the Assessee had treated the shares as Investments and not as stock in trade and the motive of trading in those shares have not been established by the A.O and merely by referring to the volume and number of transactions does not establish the motive of Assessee to be a trader of shares. These finding of fact of ld. CIT(A) has not been controverted by Revenue. In the present case, we find that ld. CIT(A) has given a clearly finding about the acquisition of shares in IPOs were with the help of part finance taken from ILFS & J.M. Financial Services and the activity of Assessee was systematic activity so as to treat it in the nature of business
Issues Involved:
1. Classification of income from the sale of shares as "business income" or "short term capital gains" (STCG). 2. Determination of whether the profits from certain shares acquired through IPOs should be treated as business income or capital gains. 3. Consistency in the treatment of shares as "investment" versus "stock in trade." 4. Use of borrowed funds for share transactions and its impact on income classification. 5. Applicability of prior case law and tribunal decisions to the present case. Detailed Analysis: Classification of Income from Sale of Shares: The primary issue revolves around whether the income from the sale of shares should be treated as "business income" or "short term capital gains" (STCG). The Assessee reported the income as STCG, while the Assessing Officer (AO) reclassified it as business income due to the nature of transactions. The CIT(A) partially upheld the AO's decision, treating a portion of the income as business income and the rest as STCG. Profits from Shares Acquired Through IPOs: The Assessee earned a surplus of Rs. 28,52,583/- from the sale of shares of IDFC Ltd. and Yes Bank Ltd., acquired through IPOs with partial financing from IL&FS and J.M. Financial Services Pvt. Ltd. The CIT(A) concluded that this activity was organized and systematic, aimed at earning profits, and thus should be treated as business income. The tribunal upheld this view, noting that the Assessee's actions constituted an adventure in the nature of trade. Consistency in Treatment of Shares: The Assessee argued that shares had been treated as "investment" in the balance sheet for the past 15 years, and this treatment had been accepted by the Revenue in previous years. The tribunal acknowledged this but differentiated the current year's transactions due to the systematic and organized nature of acquiring shares through IPOs. Use of Borrowed Funds: The AO noted that the Assessee used borrowed funds for purchasing shares and had incurred interest costs. The CIT(A) and the tribunal found that for the surplus of Rs. 1,29,68,597/-, the Assessee had used its own funds, not borrowed funds, and treated the shares as investments. Therefore, this portion of the income was rightly classified as STCG. Applicability of Prior Case Law: The Assessee cited several cases, including Sunil Kumar Ganeriwal Vs DCIT and CIT vs Rohit Anand, to support the classification of income as STCG. However, the tribunal distinguished these cases based on factual differences, particularly noting the organized and systematic nature of the Assessee's activities in the present case. Conclusion: The tribunal upheld the CIT(A)'s decision to classify Rs. 28,52,583/- as business income due to the systematic and organized nature of acquiring shares through IPOs. The remaining surplus of Rs. 1,29,68,597/- was correctly treated as STCG, as it involved the Assessee's own funds and was shown as investments. The appeals by both the Assessee and the Revenue for both assessment years were dismissed, maintaining the CIT(A)'s order.
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