2018 (10) TMI 1127 - HC - Income Tax

Income from sale of shares - Short-term capital gains on sale and purchase of shares as well as speculation income from trading of shares - assessee is a housewife - Tribunal held that the short-term capital gain offered by the assessee cannot be treated as business income - Held that - The details of the sales and purchase in shares during the year resulted in the conclusion of the Tribunal that total 73 transactions were disclosed. Only one transaction is shown in long-term capital gain category. The other transactions are sales and purchase of shares during the year itself. Out of 72 transactions showing the short-term capital gain, only in the case of ten transactions, the holding period is more than one month. In the majority of the transactions the period of holding is even less than one week. That is ranging from one day to seven days. Hence the argument was rejected that merely because ten transactions disclose holding period of more than one month that is not reflective of the transactions undertaken during the year under assessment. The trend is that the majority transactions have a feature in the holding of shares from one day to seven days. The assessee sold the shares within a period of one week from the date of purchase in more than eighty per cent. of the cases. It is this trend which resulted in the concurrent finding against the assessee. The intention of the assessee in indulging in these transactions is to earn profit at the earliest possible occasion and when there is a rise in the price. The assessee is moving as per the stock market trend. At the first available opportunity, the assessee is selling the shares. This type of activity of sale and purchase is rightly termed, not as an investment, but actuated by motive of sale and purchase so as to earn profit at the earliest occasion. In the year 2006-07, which is immediately preceding the assessment year, the assessee herself offered the profit from sale and purchase of shares as business income. Hence, the shifting stands as also the peculiar nature of the transactions resulted in the Tribunal upholding concurrent findings against the assessee.

Summary

Issues:
Assessment of short-term capital gains as business income based on trading activity and business motive.

Analysis:
The appellant contested the concurrent findings of the Commissioner (Appeals) and the Tribunal regarding the treatment of short-term capital gains as business income due to trading activity. The Assessing Officer concluded that the integration of sale and purchase activities indicated a systematic trading motive, leading to the classification of short-term capital gains as business income. The Commissioner upheld this decision, dismissing the appeal. The Tribunal was then approached, where the appellant argued that past treatment of similar transactions as capital gains should apply for the current assessment year. However, the Tribunal found that the majority of transactions involved short holding periods, indicating a profit-driven motive rather than investment. The Tribunal's decision was based on the trend of quick sales after purchase, suggesting a speculative approach to earn immediate profits rather than long-term investment strategies.

The appellant's representative cited a previous judgment to support the argument that the Tribunal failed to consider all relevant facts, specifically transactions with holding periods exceeding one month. However, the Tribunal's detailed analysis revealed that the majority of transactions had short holding periods, with quick sales after purchase to capitalize on price fluctuations. This trend, coupled with the appellant's past declaration of similar transactions as business income, supported the Tribunal's decision to classify the short-term gains as business income. The Tribunal's approach was deemed reasonable and not erroneous in law, leading to the dismissal of the appeal.

The Tribunal's decision was based on a comprehensive review of the appellant's trading activities, emphasizing the profit-driven nature of quick sales after purchase. The Tribunal's findings were supported by the appellant's historical treatment of similar transactions as business income and the predominant trend of short holding periods in the transactions. The Tribunal's conclusion aligned with the appellant's past behavior and the observed trading patterns, justifying the classification of short-term gains as business income. Consequently, the appeal was dismissed, with no costs awarded.