2017 (10) TMI 537 - AT - Income Tax

Income from sale of shares - nature of income - Business income OR STCG - as per revenue intention of the assessee was not to invest in shares, but to earn profit from sale of shares - Held that - We find that during the year, the assessee has purchased and sold the shares of ₹ 22.03 crores and odd and ₹ 24.12 crores and odd respectively. Some of the shares of Axis Bank were purchased in the previous year, out of which some were sold and balance has been shown as on 31.03.2009. On examination of the tables reproduced above, we observe that the assessee has made purchase of shares 57 times and sale of shares 59 times. There are several instances when the assessee has purchased the shares and sold them either the same day or after a few days. In most of the cases, the assessee has done intraday transactions. From the above part of the balance sheet, it is clear that there is no change in the shares of some companies, which remained as it is in F.Y. 31.03.2009 and 31.03.2010. In case of other shares K.K. Securities, the assessee had value of shares at ₹ 1,71,62,647/- as on 31.03.2009 but up to the impugned year, the assessee has sold all the shares. On perusal of the computation filed by the assessee and the capital account, the assessee has not received any dividend during the year. The assessee has received only dividend of ₹ 350/- in F.Y. 31.03.2009. In view of the characteristics of share transactions undertaken by the assessee, we do not find any justification to discard the findings reached by the authorities below on this issue. See MANOJ KUMAR SAMDARIA Versus COMMISSIONER OF INCOME TAX-I 2014 (5) TMI 229 - DELHI HIGH COURT - Decided against Assessee. Non accepting Jobbing Losses as Business Loss/Short Term Capital Gains - Held that - Assessing Officer has noted that there is net speculation loss on jobbing transactions of ₹ 2,13,007/- which has not been allowed to the assessee for carry forwarding in the next year because the assessee has filed the return on 20.03.2011 and the ld. CIT(A) has upheld the action of the Assessing Officer which, in our opinion, does not call for any interference. The return of income has been filed belatedly. Therefore, the loss cannot be carried forward as per provisions of the Income-tax Act. Therefore, the ground taken by the assessee for carry forward of the speculation loss is also dismissed.

Issues Involved:
1. Classification of income from share transactions as business income vs. short-term capital gains.
2. Treatment of jobbing losses as business loss/short-term capital gains vs. speculation.
3. Allowance of loss from jobbing in shares to be carried forward.
4. Allowance of Securities Transaction Tax (STT) paid against business income from shares.
5. Set-off of brought forward losses against short-term capital gains.
6. Carry forward of losses of short-term capital gains for subsequent years.
7. Acceptance of returned income.

Issue-wise Detailed Analysis:

1. Classification of Income from Share Transactions:
The key issue was whether the income from share transactions should be classified as business income or short-term capital gains. The Assessing Officer (AO) determined that due to the high frequency and volume of trades, the transactions were indicative of a business activity rather than investment. The AO's decision was based on the observation that "the frequency of trades and the time gap between buying and selling of various scrips does not show intention of the assessee for investment for appreciation but a cautious decision to earn higher profit from price movement of shares on regular basis." The Tribunal upheld this view, emphasizing that the magnitude and frequency of trades suggested a business motive.

2. Treatment of Jobbing Losses:
The AO treated the jobbing losses as speculative losses rather than business losses. The Tribunal supported this classification, noting that the speculative transactions were not consistent with the characteristics of a regular business activity. The AO's observation was that the assessee's jobbing transactions were speculative in nature and thus should be treated as such.

3. Allowance of Loss from Jobbing to Be Carried Forward:
The AO did not allow the carry forward of jobbing losses because the return of income was filed belatedly. The Tribunal agreed with this decision, citing that as per the provisions of the Income-tax Act, losses cannot be carried forward if the return is filed late. The Tribunal stated, "The return of income has been filed belatedly. Therefore, the loss cannot be carried forward as per provisions of the Income-tax Act."

4. Allowance of STT Paid Against Business Income:
The AO did not allow the STT paid against business income from shares. The Tribunal did not specifically address this issue in detail, but by upholding the AO's overall treatment of the transactions, it implicitly agreed with this disallowance.

5. Set-off of Brought Forward Losses Against Short-Term Capital Gains:
The AO did not allow the set-off of brought forward losses against the short-term capital gains of the current assessment year. The Tribunal upheld this decision, agreeing with the AO's classification of the transactions as business income rather than capital gains.

6. Carry Forward of Losses of Short-Term Capital Gains:
The AO did not give a finding regarding the carry forward of losses of short-term capital gains to subsequent years. The Tribunal upheld this decision, noting that due to the classification of the transactions as business income, the issue of carry forward of capital gains losses was not applicable.

7. Acceptance of Returned Income:
The AO did not accept the returned income as filed by the assessee. The Tribunal upheld this decision, agreeing with the AO's reclassification of the income from share transactions as business income rather than short-term capital gains.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the assessee's arguments. It upheld the AO's classification of the income from share transactions as business income and the treatment of jobbing losses as speculative. The Tribunal also agreed with the AO's decision to disallow the carry forward of losses due to the late filing of the return and did not interfere with the disallowance of STT paid against business income. The appeal was dismissed in its entirety.

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