2016 (9) TMI 1200 - AT - Income Tax

Purchase and sale of shares - business income or Capital gain computation - Held that - There were no borrowings by the assessee and no interest was paid. The number of transactions has also come down in the impugned assessment year as compared to the preceding assessment year. The average period of holding was 95 days and number of transactions were 70 while for assessment year 2005-06 it was 70 days and 119 transaction while for assessment year 2006-07 the average period of holding was 129 days and transactions were 107. In the preceding assessment year 2006-07 the learned CIT(A) has allowed the appeal of the assessee whereby the said gains were accepted as short term capital gains by the learned CIT(A) and the Revenue has accepted the orders of the learned CIT(A) as it was not brought to the notice of the Tribunal that Revenue has preferred further appeal with the Tribunal in this regard for assessment year 2006-07. The AO accepted the said gains as short term capital gains while framing assessment u/s 143(3) of the Act for the assessment year 2005-06. The factual matrix in the instant assessment year under appeal is similar to the preceding assessment years i.e. 2005-06 and 2006-07 and we do not find any reasons of deviating from the settled position in this year. Keeping in view of the above facts and circumstances of the case we are of the considered opinion that principle of consistency has to be maintained and followed in this year as facts are almost similar to that of preceding years and hence we direct that the income earned by the assessee from purchase and sale of shares with respect to shares held for not more than one year be held as short term capital gains chargeable to tax under the head Capital Gains and not as business income chargeable to tax under the head Profits and Gains from Business or Profession as held by the authorities below .

Summary

Issues:
1. Classification of income from shares as business income or short term capital gains.

Detailed Analysis:

Issue 1: Classification of income from shares
The appeal was filed by the assessee against the appellate order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2007-08. The primary contention was regarding the treatment of a sum as business income instead of short term capital gains. The Assessing Officer observed the volume, frequency, and regularity of share transactions and inferred a profit motive. The AO treated the gains from short term capital as income from the business. The assessee argued that in the previous years, similar transactions were treated as capital gains. The Commissioner upheld the AO's decision, stating that the assessee's activities indicated a profit motive, considering the volume and frequency of transactions. The Tribunal noted the assessee's partnership income, investments made from surplus funds, and lack of borrowings for investments. It was highlighted that the average holding period had decreased, but the factual matrix remained consistent with previous years. Relying on principles of consistency, the Tribunal directed the income from share transactions to be treated as short term capital gains, citing relevant case laws. The Tribunal allowed the appeal, concluding that the income should be taxed under the head 'Capital Gains' and not as business income.

This detailed analysis provides a comprehensive overview of the legal judgment, focusing on the classification of income from shares as either business income or short term capital gains. The analysis covers the arguments presented by the assessee, the decisions of the Assessing Officer and Commissioner, and the Tribunal's final ruling based on principles of consistency and relevant case laws.