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2019 (1) TMI 649 - AT - Income TaxIncome from purchase and sale of shares - income from business against OR short term capital gain - Held that - We notice that assessee has declared income from salaries business and short term capital gains (STCG). The majority of the income is derived from STCG. A.O. treated the STCG as business income with the observation that the assessee has dealt in the share market regularly and the volume of transaction denotes that the assessee is in the business of share trading. Further he observed that majority of the profits earned are through buying and selling of shares which taken place within a period of 10 days and 100% share transactions were completed within one month. In our considered view the intention to hold the investment for long period or transfer within that period to earn additional profit is depending upon the action of the assessee but cannot be demonstrated. This is the one issue always lead to litigation. For this purpose and to reduce the litigation the CBDT has issued a circular No. 06/2016. - Decided in favour of assessee.
Issues:
1. Whether the income derived from the purchase and sale of shares should be treated as business income or short term capital gains. Detailed Analysis: 1. The appellant derived income from various sources, including short term capital gains from share trading. The Assessing Officer (AO) treated this income as business income due to the volume and frequency of share transactions, the intention to resell shares immediately after acquisition, and the systematic trading in shares. The AO disregarded the fact that the shares were shown under the head "Investments" in the balance sheet. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. The appellant contended that the profit from share transactions should be treated as short term capital gains, not business income. The appellant argued that the shares were intended for long-term investment, occasional sales were made based on price movements, and all transactions were done through recognized channels. The appellant also cited consistency in declaring income from shares as capital gains in previous years. 3. The CIT(A) confirmed the AO's decision, emphasizing the volume and frequency of share transactions as indicative of a business activity, regardless of the accounting treatment given by the appellant. The appellant, dissatisfied with this decision, appealed to the Income Tax Appellate Tribunal (ITAT). 4. The ITAT analyzed the case in light of a CBDT Circular issued to reduce uncertainty and litigation regarding the treatment of income from share transactions. Referring to a similar case, the ITAT concluded that the appellant's treatment of shares as investments, not stock-in-trade, was consistent with the CBDT Circular. Therefore, the ITAT allowed the appeal, holding that the income from share transactions should be treated as short term capital gains, not business income. 5. The ITAT decision was based on the principle that the intention behind share transactions, whether for investment or trading, is a fact-specific determination. The CBDT Circular provided guidelines for assessing such transactions, emphasizing the taxpayer's choice in treating shares as stock-in-trade or investments. The ITAT's decision aligned with the Circular, maintaining consistency in the appellant's treatment of shares and dismissing the revenue's contrary view. 6. Ultimately, the ITAT allowed the appeal, noting that the appellant's treatment of shares as investments over the years was in accordance with the CBDT Circular. The ITAT upheld the appellant's position that the income from share transactions should be classified as short term capital gains, not business income, in line with the Circular's guidelines and to reduce litigation.
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