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2017 (2) TMI 494 - HC - Income TaxIncome from shares transaction - capital gain or business income - frequency of transaction - Held that - CIT(A) has considered in detail the duration of the transactions, holding period etc. and has specifically held that the transactions cannot be said to be frequent transactions of purchase and sale with a view to earn quick profit. The learned CIT(A) as well as the learned tribunal has taken note of the fact that the profit was earned by the assessee only in one scrip. The learned CIT(A) and the learned tribunal have also taken note of the Clauses in the partnership agreement /deed by which the partners /partnership firm were debarred from doing trading activities in the shares /mutual funds. The learned CIT(A) as well as the learned tribunal have also taken note that wherever the assessee has earned /incurred losses the assessee has never claimed it as business losses. Considering the aforesaid facts and circumstances of the case, it cannot be said that both the learned CIT(A) as well as the learned tribunal have committed any error in directing the Assessing Officer to treat amount for the Assessment Year 2008-09 as short term capital gain and consequently to levy the tax under Section 111A of the Act.
Issues Involved:
1. Classification of income from share transactions as short-term capital gain or business income. 2. Consideration of the frequency and nature of transactions. 3. Relevance of previous assessments and the partnership deed. 4. Application of CBDT instructions and circulars. Detailed Analysis: 1. Classification of Income from Share Transactions: The core issue was whether the income of ?2,59,43,473/- from share transactions should be treated as short-term capital gain or business income. The Assessing Officer classified it as business income due to frequent transactions and short holding periods. However, the CIT(A) and ITAT both concluded that the income should be treated as short-term capital gain. The CIT(A) emphasized the intention of the assessee at the time of purchase, the partnership deed prohibiting trading in shares, and the consistent treatment of shares as investments in the books of account. 2. Frequency and Nature of Transactions: The revenue argued that the frequency and volume of transactions indicated trading activity. The CIT(A) countered this by highlighting that the transactions were not frequent and were held for varying periods, with some shares held for up to 334 days. The ITAT supported this view, noting that the assessee had not engaged in intra-day transactions and had maintained separate accounts for business and investment activities. 3. Previous Assessments and Partnership Deed: The CIT(A) and ITAT both noted that in previous assessment years, the assessee's share transactions were consistently treated as investments and not trading. The partnership deed explicitly prohibited trading in shares, which was a significant factor in their decision. The CIT(A) observed that the partnership deed is a legal document binding on all partners, and the firm had adhered to its terms by treating shares as investments. 4. Application of CBDT Instructions and Circulars: The revenue cited CBDT instructions and circulars to argue that the transactions should be treated as business income. The CIT(A) and ITAT considered these guidelines but concluded that the specific facts of the case, such as the intention behind the transactions, the holding period, and the consistent treatment of shares as investments, supported the classification as short-term capital gain. Conclusion: The High Court upheld the decisions of the CIT(A) and ITAT, agreeing that the income from share transactions should be classified as short-term capital gain. The court noted that the findings were based on a thorough consideration of the facts and circumstances, including the partnership deed, the treatment of shares in the accounts, and the nature of the transactions. The court found no substantial question of law to warrant interference with the lower authorities' decisions and dismissed the appeals.
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