2019 (3) TMI 1108 - HC - Income Tax

Gains arising from transfer of shares held for a period of less than 30 days - classification of income - correct head of income - busniss income or capital gain - buying and selling shares of sizable volume and value - Tribunal treated it as business income and not as capital gains - whether mere demarcation of holding shares for less than 30 days or more cannot be conclusive or even in a given case the determinative factor? - HELD THAT - The facts on record would suggest that during the period relevant to assessment year 2007-08, which is under consideration, the assessee had executed as many as 106 transactions of buying and selling shares within less than 30 days. The total value of sale transactions was ₹ 7.11 crores. The assessee had also engaged in buying and selling shares of sizable volume and value after holding them for a period ranging between two months to upto 200 days. It was also noticed that the assessee was indulging intra-day transactions without taking delivery of the shares which gave rise to the assessee s speculative income. When seen in totality of the facts and circumstances of the case, one cannot find fault to the Tribunal s conclusion that the assessee was not purely an investor in shares. The Tribunal introducing the demarcation line of holding of shares of less than 30 days and more than 30 days for giving different treatment for receipts arising out in sale of such shares would not vitiate the very foundation of the Tribunal s finding. No question of law arises

Summary

Issues:
1. Whether gains from the transfer of shares held for less than 30 days should be treated as business income or capital gains?
2. Whether the disallowance under Section 14A of the Act for the assessment year 2007-08 was rightly upheld by the Tribunal when no prescribed method was available?

Analysis:

Issue 1:
The appellant challenged the Tribunal's decision to treat the gains from the sale of shares held for less than 30 days as business income. The appellant argued that the Assessing Officer had arbitrarily set a 30-day threshold not provided in the Income Tax Act. However, the Tribunal considered various factors such as the frequency of transactions, duration of holding, and volume of shares traded. The Tribunal concluded that shares held for more than 30 days qualify as capital gains. The appellant's counsel contended that the demarcation based on the holding period is not conclusive. The High Court acknowledged this but emphasized that the Tribunal's decision was based on the peculiar facts of the case, including the appellant's trading activities and income generated. The court noted that the appellant conducted numerous transactions within 30 days, including intraday trades without taking delivery, leading to speculative income. Considering the entirety of circumstances, the High Court upheld the Tribunal's decision, stating that the appellant was not solely an investor in shares. The demarcation of holding period by the Tribunal was deemed reasonable, and no legal question arose, leading to the dismissal of the Income Tax Appeal.

Issue 2:
Regarding the disallowance under Section 14A of the Act for the assessment year 2007-08, the appellant's counsel chose not to press the issue due to the minimal amount involved. Therefore, the High Court did not delve into this matter further as it was not pressed for consideration.

In conclusion, the High Court upheld the Tribunal's decision regarding the treatment of gains from the sale of shares held for less than 30 days as business income, emphasizing the specific circumstances of the case. The demarcation based on the holding period was considered valid, and no legal question was found to challenge the Tribunal's findings.