2016 (7) TMI 816 - AT - Income Tax

Nature of income on sale and purchase of shares - Short term capital gains OR business income - Held that - A perusal of the profit and loss account of the assessee shows that the assessee has separately shown Derivative profit long term capital gains/short term capital gains on shares. In the balance sheet the assessee has shown shares under the head investment . These investment shares have been valued at cost. The intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment we do not find any reason to disturb the intention of the assessee. A perusal of the aforementioned history of assessments of the assessee shows that only during the impugned assessment year the A.O. has taken a stand that that the assessee is trading in shares. The Hon ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME Court has expounded the rule of consistency observing that if the facts are identical and the law has not changed then the view taken in the earlier years should be followed. CIT(A) did not erred in law and on facts in directing not to treat the short term capital gains earned by the assessee as business income. - Decided against revenue

Summary

Issues:
1. Correctness of the order of the Ld. CIT(A)-XXI, Ahmedabad regarding short term capital gains treatment as business income for A.Y. 2006-07.

Analysis:
1. The Revenue challenged the order of the Ld. CIT(A) regarding the treatment of short term capital gains as business income for the assessment year 2006-07.
2. The Revenue contended that the assessee, a salaried employee, frequently traded in shares, and the gains should be taxed as business income.
3. The A.O. believed the assessee was trading in shares based on ownership period, transaction frequency, and use of borrowed funds, taxing the gains as business income.
4. The assessee claimed the gains should be taxed under short term capital gains, presenting detailed justifications.
5. The First Appellate Authority, after reviewing facts, submissions, and judicial decisions, concluded the gains should be taxed under short term capital gains as the assessee was an investor.
6. The Revenue appealed, arguing the assessee was trading in shares due to the use of borrowed funds.
7. The Tribunal carefully considered the submissions and lower authorities' orders.
8. The dispute centered on whether the gains from share transactions should be treated as capital gains or business income, with conflicting Tribunal decisions on the issue.
9. The Tribunal highlighted the importance of the assessee's intention at the time of share purchase in determining the nature of income.
10. Referring to CBDT Circulars, the Tribunal emphasized the need to reduce litigation and maintain consistency in the treatment of income from share transactions.
11. Reviewing the assessee's past assessments, the Tribunal noted the consistent treatment of gains as capital gains until the impugned assessment year.
12. Citing the rule of consistency, the Tribunal upheld the First Appellate Authority's decision to tax the gains as short term capital gains.
13. The Tribunal dismissed the Revenue's appeal, affirming the First Appellate Authority's findings.
14. The order was pronounced on 07-07-2016.