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2022 (10) TMI 130 - HC - Income TaxCorrect head of income - gain on sale and purchase of shares - normal business profit or short term capital gain - shares by way of investment were held for period varying from one day to more than 100 days - whether the tribunal was right in reversing the order passed by the CIT(A) holding that the gain made by the assessee on sell and purchase of shares was business profit and not short term capital gains? - HELD THAT - As decided in M/S. GYAN TRADERS 2022 (10) TMI 47 - CALCUTTA HIGH COURT transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. Further it was pointed out where the purchase of any article or of any capital investment, for instance shares is made without the intention to resell it at a profit, the resale under such changed circumstances would only be realization of capital and would not stamp the transaction with a business character. If the above legal principles are applied to the facts of the case on hand, the only irresistible conclusion is to approve the view of the CIT(A) who had considered all the relevant materials and details which were placed by the assessee. The learned tribunal had failed to note that the assessee had maintained a separate account for investment, which fact was very material to consider the nature of transactions effected by the assessee during the relevant period. Thus, for the above reasons, we are of the considered view that the learned tribunal erred in reversing the order passed by the CIT(A). - Decided in favour of assessee.
Issues Involved:
1. Whether the gain of Rs. 21,31,153/- made by the appellant on the sale and purchase of shares was normal business profit or short-term capital gain. Issue-wise Detailed Analysis: 1. Classification of Gains from Share Transactions: The primary issue in this appeal is whether the gain of Rs. 21,31,153/- made by the assessee from the sale and purchase of shares should be classified as normal business profit or short-term capital gain. The Income Tax Appellate Tribunal (ITAT) reversed the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], who had classified the gains as short-term capital gains. The CIT(A) noted that the assessee maintained separate accounts for trading and investment in shares, and the shares held as investments were debited to the investment account. The CIT(A) found that the shares were held for varying periods, from one day to more than 100 days, and were intended as investments. 2. Tribunal's Reversal Based on Group Company Precedent: The ITAT reversed the CIT(A)'s decision by relying on the reasoning used in the case of the assessee's group company, M/s. Gyan Traders Limited. However, the decision in the Gyan Traders case was later set aside by the High Court, which found that the ITAT had erred in its judgment. 3. CBDT Circular and Legal Precedents: The judgment references CBDT Circular No. 4 of 2007, which outlines the principles for distinguishing between shares held as stock-in-trade and those held as investments. The circular, supported by various Supreme Court decisions, emphasizes that taxpayers can have dual portfolios'investment and trading'and income from these portfolios can be classified separately as capital gains and business income, respectively. 4. Principles for Classification: The judgment outlines three principles from the Authority for Advance Rulings (AAR) and Supreme Court decisions: - The nature of transactions, maintenance of books, and ratio of purchases to sales. - The motive behind the transactions'whether for profit or for earning dividends. - The intention of the assessee, which can be inferred from how the shares are treated in the books of accounts. 5. Examination of Facts and Tribunal's Error: The High Court noted that the assessee maintained two separate accounts for investment and trading, used its own funds for investment, and recorded shares as investments in its D-Mat account. The CIT(A) had considered these facts and concluded that the gains were capital gains. The ITAT, however, did not consider all relevant materials and facts, leading to an erroneous reversal of the CIT(A)'s decision. 6. Supporting Case Laws: The judgment references several case laws, including decisions in Avinash Jain, Merlin Holding Private Limited, and Jet Age Securities Private Limited, which support the view that the intention of the assessee and maintenance of separate accounts are crucial in determining the nature of gains. 7. Final Decision: The High Court concluded that the ITAT erred in reversing the CIT(A)'s order and held that the gains should be classified as short-term capital gains, not business income. The appeal filed by the assessee was allowed, and the substantial question of law was answered in favor of the assessee. Conclusion: The High Court allowed the appeal, confirming that the gains from the sale and purchase of shares by the assessee were short-term capital gains, not business profits, based on the intention, maintenance of separate accounts, and the nature of transactions. The ITAT's reversal of the CIT(A)'s decision was found to be erroneous.
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