2017 (3) TMI 1033 - AT - Income Tax

Income from share transaction - business income or capital income - Held that - As observed that the assessee has undertaken transactions in purchase and sale of shares. The assessee is consistently dealing in shares till assessment year 2001-02 as trader and joined employment with Indusind Bank on 30-05-2010. The assessee has declared itself as investor since 30-05-2010, which stand of the assessee being investor in shares was finally accepted by Revenue either by the AO or by learned CIT(A) while adjudicating first appeal for all these years , except for the impugned assessment year wherein AO and learned CIT(A) have held assessee to be a trader in shares and income was brought to tax as income from Profit and Gains of Business or Profession . The assessee has not borrowed any funds for making investments in shares which were invested out of own funds. The assessee has also reflected investment in shares as Stock in the Balance Sheet filed by the assessee with Revenue and the same is not reflected as opening or closing stock in Profit and loss account as the same was not routed through Profit and Loss Account. The assessee has valued investments in shares in Balance Sheet at Cost consistently. Assessee was finally treated as an investor since assessment year 2001-02 onwards ( for post 30-5-2010 transactions) except for impugned assessment year. Nothing contrary is brought on record by learned DR to disprove this contentions of the assessee. We have also carefully gone through number of transactions, volumes, frequency etc. of investment in shares. Also observed that assessee has contended that for the transactions squared within 30 days of acquisitions , the same be treated as business income and for transactions for sale of shares which were sold beyond 30 days of purchase of and not more than twelve months , the resultant gains from the sale of shares be classified and brought to tax under the head Income from Capital Gains for the shares dealt which are listed securities as per mandate of Section 2(42A) of 1961 Act. We do not find any merit in the contentions of the Revenue of treating assessee as a trader in shares for impugned assessment years. Principles of res-judicata no doubt are not applicable to the income-tax proceedings but principles of consistency are to be applied (Ref Radhasoami Satsang v. CIT (1991 (11) TMI 2 - SUPREME Court). Thus we hold that the assessee is an investor in shares and gains arising from sale of shares for the period of holding from 30 days to not more than twelve months be treated as short term capital gains in case of listed securities as are provided as per mandate of Section 2(42A) of 1961 Act, and where period of holding prior to sale of share is up-to 30 days, the same is to be treated as income from Profit and Gains of Business or Profession as it has an indica of trade and shall be brought to tax accordingly. We further hold that opening and closing stock of shares held as investments are to be valued at cost as is valued by the assessee and not at cost or market value whichever is lower as is directed by learned CIT(A), as the shares were held as investments and not as stock-in-trade. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Classification of the assessee as a trader or investor in shares.
2. Re-computation of the value of opening stock.

Issue-Wise Detailed Analysis:

1. Classification of the Assessee as a Trader or Investor in Shares:

The primary issue in this case was whether the assessee should be classified as a trader or an investor in shares. The assessee was consistently dealing in shares till the assessment year 2001-02 as a trader and joined employment with Indusind Bank on 30-05-2000. Post this period, the assessee declared himself as an investor in shares. The Revenue had accepted this classification in subsequent years, except for the assessment year 2004-05, where the AO and CIT(A) treated the assessee as a trader and taxed the income under 'Profit and Gains of Business or Profession.'

The assessee argued that no borrowed funds were used for purchasing shares, and the shares were classified as investments in the balance sheet. The assessee also contended that the principles of consistency should be applied, as the Revenue had accepted his status as an investor in other years. The Tribunal observed that the assessee had undertaken transactions in purchase and sale of shares and had declared himself as an investor since joining Indusind Bank. The Tribunal found merit in the assessee's contention and held that the assessee is an investor in shares. Consequently, gains from the sale of shares held for more than 30 days but not more than twelve months should be treated as short-term capital gains, while gains from shares held for up to 30 days should be treated as business income.

2. Re-computation of the Value of Opening Stock:

The second issue was the direction by the CIT(A) to re-compute the value of the opening stock as on 01/04/2003 at cost or market price, whichever is lower. The assessee argued that the opening stock in a particular year is always the closing stock of the previous year and cannot be re-computed. The Tribunal agreed with the assessee, stating that the opening and closing stock of shares held as investments should be valued at cost, as done by the assessee, and not at cost or market value whichever is lower, as directed by the CIT(A).

Conclusion:

The Tribunal concluded that the assessee should be treated as an investor in shares, and the gains from the sale of shares should be taxed accordingly. The direction by the CIT(A) to re-compute the value of the opening stock was also overturned. The appeal filed by the assessee was partly allowed, and the order was pronounced in the open court on 14th March 2017.