2016 (9) TMI 151 - AT - Income Tax

Sale and purchase of shares - short term capital gain or Business Income - Held that - Mere volume or magnitude does not alter the nature of transaction, which are consistently assessed as income from capital gains from past years and even in future years by revenue. Where the assessee was holding large magnitude of shares as investment from year to year and transaction of shares in preceding years as well for the future years had been held as income from capital gains both on long term and short term basis, there was no basis for holding assessee as trader in shares for the year under consideration when his intention is clear that he want to hold the shares as investment ans not stock in trade. Accordingly, we are of the view that the Revenue has wrongly treated the transaction of sale and purchase of shares of Munjal Auto as business income, whereas actually it is an investment and income arising out of the same is capital gains. We direct the Assessing Officer to assess the same as short term capital gain. - Decided in favour of assessee

Summary

Issues Involved:
1. Treatment of Short Term Capital Gains (STCG) arising from sale and purchase of shares as business income.

Detailed Analysis:

Issue 1: Treatment of Short Term Capital Gains as Business Income
The appeal pertains to the order of CIT(A) confirming the AO's decision to treat STCG from shares as business income. The AO observed that the assessee bifurcated STCG and used borrowed funds for share transactions, involving risk and organized activity. The AO considered professional help and payment for share transactions as indicative of a business. The CIT(A) upheld this view, emphasizing the borrowed funds' use for share dealings as a business activity. The assessee contended that the borrowed funds were not used for share purchases, presenting ledger accounts to refute the authorities' claims. The assessee highlighted that shares were held for months, not churned, and treated as investments. The Tribunal noted the ledger account, loan repayment before share purchase, and holding period, concluding that the revenue wrongly categorized share transactions as business income. Referring to a similar precedent, the Tribunal directed the AO to assess the STCG as short-term capital gains, considering the consistent treatment of shares as investments over the years.

This judgment delves into the crucial issue of categorizing STCG from share transactions as business income or capital gains, emphasizing factors like fund usage, holding period, and past treatment by revenue authorities. The Tribunal's analysis focused on the factual matrix, ledger accounts, and legal precedents to determine the nature of the transactions. The decision underscores the importance of consistent treatment and the assessee's intention in holding shares as investments, ultimately directing the AO to assess the STCG as capital gains.