2023 (9) TMI 207 - AT - Income Tax

Correct head of income - gain from sale of shares - business income or short term capital gain - assessee has categorized the purchases of shares/securities in two categories; one is investment portfolio and the second is trading portfolio and has shown the gain/income these shares under these two sections as and when the shares were sold - HELD THAT - It is the decision of the assessee as to which purchase to be treated as investment and which to be treated in trading section. The mere fact that the assessee has purchased shares and disposed them off within a short span of time will not justify the gain to be treated as business income while the same was shown in the investment portfolio in the books of the assessee. In our opinion, the decision of both the authorities below is not sustainable as this being a factual issue and the assessee has maintained the books clearly maintaining the dichotomy in the purchase of securities in the books of accounts. The case of the assessee finds support from the decision of HK Financers Pvt. Ltd. 2015 (5) TMI 828 - CALCUTTA HIGH COURT and Purvanchal Leasing Ltd. 2022 (2) TMI 437 - CALCUTTA HIGH COURT - Thus we direct Ld. AO to treat it as short term capital gain. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
The issue involved is whether the short term capital gain shown by the assessee from the sale of shares should be treated as business income.

Issue 1: Classification of Income
The Assessing Officer treated the short term capital gain of Rs. 20,66,939/- as business income instead of capital gain. The appellant argued that the shares were held as investments, not stock-in-trade, and relied on accounting standards and judicial decisions to support the claim.

Issue 2: Judicial Analysis
The Appellate Tribunal analyzed the transactions and observed that the shares were held for a short period, indicating a business activity rather than investment. The Tribunal upheld the Assessing Officer's decision based on the frequency and intent of the transactions, despite the appellant's classification in the books.

Issue 3: Decision and Precedents
The Tribunal found that the assessee clearly maintained separate portfolios for investment and trading, with income categorized accordingly. Relying on precedents like CIT Vs. HK Financers Pvt. Ltd., the Tribunal concluded that the gain should be treated as short term capital gain, overturning the decision of the lower authorities.

Separate Judgment:
The appeal filed by the assessee was allowed, directing the Assessing Officer to treat the amount as short term capital gain. Ground no. 3, which was not pressed at the hearing, was dismissed, while other general grounds did not require adjudication.