2016 (3) TMI 728 - AT - Income Tax

Short term capital gain V/S business income - criteria for judging the transaction as capital asset or trading asset - Held that - The conduct of the assessee is clear from the details of shares held by the assessee as on 31.03.2008 that the assessee had held the investments in shares for fairly long period of time ranging from 17 days to 2971 days which is placed at pg. no. 5&6 of the paper book. Similarly the period of holding in the case of long term capital gain from the shares ranged between 740-239 days. We are in agreement with the plea of the ld. AO that during the year there was heavy activity by way of sale and purchase of shares in which the period of holding ranged between 1-356 days but that in itself is not enough to treat the income from sale of shares as income from the business contrary to what had been shown by the assessee. Decide the issue in favour of the assessee and direct the AO to treat the income from sale of shares as short term capital gain and not as business income - Decided against revenue

Summary

Issues:
1. Whether short term capital gain should be treated as business income or capital gain.

Analysis:
1. The appellant contested the decision of the Commissioner of Income Tax (Appeals) confirming the short term capital gain of Rs. 7,79,403 as business income instead of capital gain. The appellant argued that the gain should be treated as short term capital gain and not business income.

2. The Assessing Officer (AO) raised concerns during assessment about the nature of the appellant's share transactions, questioning if they should be considered business activity instead of investment. The AO treated the short term capital gain and long term capital gain from share sales as business income, leading to the disputed amount.

3. The Commissioner of Income Tax (Appeals) upheld the treatment of short term capital gain as business income, noting that most shares were held for less than 30 days, indicating a trading pattern rather than investment. The appellant's intention to hold shares for appreciation or dividend income was questioned, leading to the decision to treat the gain as business income.

4. The appellant argued that similar short term capital gains were consistently treated as such in previous and subsequent years, emphasizing that the investments were made from owned funds without borrowing. The appellant's counsel highlighted the historical treatment of such gains and presented supporting evidence from past assessment orders.

5. The Tribunal reviewed the appellant's conduct, investment patterns, and previous treatment of similar gains by tax authorities. Citing relevant case law, the Tribunal emphasized that no single factor determines the nature of share transactions as trading or investment. Considering the facts and principles laid down by higher courts, the Tribunal ruled in favor of the appellant, directing the AO to treat the income from share sales as short term capital gain and not business income.

6. The Tribunal's decision was based on the appellant's conduct, investment history, and adherence to legal principles governing the classification of share transactions. By aligning with previous judicial interpretations and considering the specific circumstances of the case, the Tribunal concluded in favor of the appellant, allowing the appeal and overturning the treatment of short term capital gain as business income.