2012 (1) TMI 242 - AT - Income Tax

Tribunal affirms capital gains treatment for assessee, rejects Revenue appeal

The Tribunal upheld the CIT(A)'s decision to treat the assessee's share transactions with delivery as short and long term capital gains, rejecting the ... Income from sale of shares - nature of income - capital gain or business income - Held that:- AO in the case of assessee while making the assessment for the assessment year 2004-05 has accepted the short term capital gain and the long term capital gain on sale of shares vide order dated 22.12.2006 passed u/s 143(3) of the Act, therefore, we are of the view that the assessee’s case is squarely covered in favour of the assessee by the decision of the Tribunal in the case of Shri Satpal Singh Sethi (2011 (9) TMI 1035 - ITAT MUMBAI). This being so and in the absence of any distinguishing features or contrary material brought on record by the Revenue, we respectfully following the consistent view of the Tribunal and the ratio of the decision of the Hon’ble Jurisdictional High Court in the aforementioned cases, hold that the ld. CIT(A) was fully justified in directing the AO to accept the appellant’s claim of short term capital gain and long term capital gain on share transactions, where the delivery has been taken or given and Security Transaction Tax has been paid. Issues:Assessment of capital gains as business income, classification of share transactions as trading or investment, applicability of tax treatment on share transactions with or without delivery.Analysis:1. The appeal by the Revenue challenged the order of the ld. CIT(A) for the assessment year 2006-07, where the Assessing Officer (AO) treated the capital gains declared by the assessee as business income due to the high frequency and volume of share transactions. The AO considered the assessee a trader based on various criteria and circulars, leading to the assessment of income at a higher amount.2. The ld. CIT(A), after considering the period of holding of shares for capital gains, referred to a Tribunal decision approved by the Bombay High Court. The CIT(A) concluded that the appellant could not be classified as a trader for delivery-based share transactions, directing the AO to accept short and long term capital gains where delivery was involved, while treating non-delivery speculative transactions as part of speculation business.3. The Revenue, aggrieved by the CIT(A)'s order, contended that the assessee should be considered a trader for all share transactions, including delivery-based ones. The ld. DR argued for the reversal of the CIT(A)'s decision and restoration of the AO's assessment.4. The assessee's counsel relied on a Tribunal decision involving the assessee's father, where a similar stand was accepted by the Tribunal and the CIT(A). The counsel presented relevant orders and assessments to support the argument that the CIT(A)'s decision should be upheld.5. The Tribunal, after reviewing the submissions and precedents, found that the AO had accepted short and long term capital gains in a previous assessment of the assessee for the year 2004-05. Therefore, the Tribunal upheld the CIT(A)'s decision based on consistency with past assessments and relevant legal precedents, rejecting the Revenue's grounds and dismissing the appeal.6. In conclusion, the Tribunal pronounced the order in favor of the assessee, upholding the CIT(A)'s directive to accept short and long term capital gains on share transactions involving delivery, while dismissing the Revenue's appeal. The decision was based on the application of consistent legal principles and past assessments in similar cases.