2017 (1) TMI 1206 - AT - Income Tax

Income from share transactions - capital gains or business income - period of holding - Held that - It is evident that the assessee has carried out 31 transactions in 20 scrips out of which eighteen transactions involve holding period of more than a month further inclusive of eleven instances wherein the said holding period is more than 100 days. He has further not claimed any interest expenditure deduction qua the above stated borrowings. Ld. Departmental Representative fails to rebut this factual position. We thus find no reason to interfere in the CIT(A) s conclusion hereinabove so far as he has treated the assessee to be an investor in case of share transactions involving holding period of more than a month. - Decided against revenue Treating profits from share transactions even having nil holding period as short term capital gains - Held that - Learned counsel fails to prove that the same are in any case delivery based transaction having purchase and sale instances on the same day. We thus do not deem it appropriate to adopt judicial consistency in the impugned assessment year in view of these peculiar facts. We however find force in assessee s submissions challenging the CIT(A) s directions to the Assessing Officer for treating his share profits having holding period upto 30 days as business income in absence of any such statutory provision contained in the Act. We accordingly reverse the CIT(A) s blanket directions to the Assessing Officer. The Assessing Officer shall now treat assessee s profits derived from twelve transactions having nil holding period or a day s holding period only as business income. The assessee s cross objection is partly accepted.

Summary

Issues:
1. Treatment of profits from share transactions as capital gains or business income for assessment year 2008-09.

Analysis:
1. The main issue in this case was whether the profits derived from share transactions by the assessee should be treated as capital gains or business income. The Revenue contended that the profits should be considered as business income, while the assessee argued that they should be treated as capital gains. The Assessing Officer initially treated the profits as business income based on various factors such as intention at the time of acquisition, volume and frequency of transactions, and borrowed funds used. The CIT(A) partially reversed this decision and directed the Assessing Officer to treat the profits from share transactions involving a holding period of more than a month as capital gains. The ITAT Ahmedabad, in a similar case, had held that shares held for more than 30 days should be categorized as investment transactions, and those held for up to 30 days should be considered as business transactions.

2. The CIT(A) considered the totality of facts in the case and concluded that the assessee was neither fully acting as a trader nor as a complete investor, leading to a hazy demarcation. The decision provided a criterion for determining when gains should be taxed as business income or short-term capital gains. It was held that shares held for more than a month should be treated as investments, resulting in capital gains, while shares held for less than a month should be considered as business income. The CIT(A) directed the Assessing Officer to recalculate the income from business and capital gains based on this criterion.

3. The ITAT, after hearing both sides and examining the case file, upheld the CIT(A)'s decision regarding the treatment of profits from share transactions involving a holding period of more than a month as capital gains. The Revenue's appeal was dismissed, and the ITAT rejected the Revenue's argument to treat all profits from share transactions, including those with nil holding period, as short-term capital gains. The ITAT partially allowed the assessee's cross objection, directing the Assessing Officer to consider profits from transactions with nil or a day's holding period as business income. The ITAT also noted the lack of statutory provision in the Act for treating such profits as business income, reversing the blanket directions given by the CIT(A) in this regard.

4. In conclusion, the Revenue's appeal was dismissed, and the assessee's cross objection was partly allowed, emphasizing the importance of the holding period in determining the nature of profits from share transactions as either capital gains or business income. The judgment provided clarity on the criteria to be used for such classification, ensuring consistency and adherence to legal provisions in assessing tax liabilities related to share transactions.