2018 (10) TMI 1094 - AT - Income Tax

Income from sale of shares - capital gain or busniss income - period of holding - Held that - In the instant case, the assessee has entered repeatedly in the above scrips which he had already disposed of. The same is done in a systematic and organized manner which is sine qua non of business income. In view of the above repetitive transactions of purchase and sales in the scrips of Bharati Shipyard and Sah Petro, the Ld. CIT(A) has rightly treated the amount as business income. However, we direct the AO to allow the related business expenses on the above income. The assessee is directed to file before the AO the relevant documents/evidence on the above. Needless to say, the AO would give reasonable opportunity of being heard to the assessee in this regard. - decided in favour of assessee.

Summary

Issues Involved:

1. Treatment of Short Term Capital Gain (STCG) as Business Income.
2. Consistency in treatment of capital gains across different assessment years.
3. Allowance of business expenses against business income.

Detailed Analysis:

1. Treatment of Short Term Capital Gain (STCG) as Business Income:

The assessee filed returns declaring STCG from share transactions. The Assessing Officer (AO) observed that a significant portion of shares was sold within a short period, indicating a profit motive rather than investment. The AO, therefore, treated the STCG of ?13,47,000 and LTCG of ?1,87,561 as business income. The CIT(A) partially agreed, treating ?1,29,033 of the STCG as business income due to repetitive transactions in certain scrips, while the rest was treated as capital gains.

2. Consistency in Treatment of Capital Gains:

The CIT(A) noted inconsistency in the AO's treatment of capital gains across different assessment years. While the AO assessed STCG as business income for AYs 2006-07 to 2007-08, the same was treated as capital gains for AYs 2009-10 to 2012-13. The CIT(A) held that except for the gains involving repetitive transactions, the income from the sale of shares should be taxed as capital gains, consistent with prior assessments.

3. Allowance of Business Expenses Against Business Income:

The CIT(A) did not allow any business expenses against the business income of ?1,29,033, as no such claim was made in the return, and any allowance would be disallowed under Section 14A r.w. Rule 8D(2)(iii). However, the Tribunal directed the AO to allow related business expenses after the assessee provides relevant documents.

Case Laws and Precedents:

The Tribunal reviewed several case laws, including:
- Jaya Chheda v. ACIT: Holding period alone cannot determine the nature of transactions.
- CIT v. Gopal Purohit: It is permissible to maintain separate portfolios for investment and business.
- Bhanuprasad D. Trivedi (HUF): Gains from shares held as investments should be treated as capital gains.
- P.N. Kamdar: Consistent treatment of similar transactions in past assessments.
- Manish Karwa v. ACIT: Short-term liquidation of investments does not necessarily imply trading intent.
- Business Match Services (I) (P.) Ltd.: Intention at purchase time determines the nature of gains.
- Dr. Rahul Doctor v. ACIT: Diversification to mitigate risk does not equate to trading.
- Naishadh V. Vachharajani: Magnitude of transactions alone does not decide the nature of gains.

Tribunal's Decision:

The Tribunal upheld the CIT(A)'s decision to treat ?1,29,033 as business income due to repetitive transactions in specific scrips. However, it directed the AO to allow related business expenses after the assessee submits relevant evidence. For AY 2008-09, similar repetitive transactions in various scrips led to ?21,80,288 being treated as business income, with the same directive for allowing business expenses.

Conclusion:

The appeals were partly allowed, with the Tribunal directing the AO to allow related business expenses for the income treated as business income, ensuring the assessee is given a reasonable opportunity to provide necessary documentation. The Tribunal emphasized the importance of consistency in the treatment of capital gains and recognized the distinct nature of repetitive transactions in determining business income.