2011 (5) TMI 971 - AT - Income Tax

Tax Tribunal rules on shares vs. mutual funds categorization for business vs. investment activity

Mr. Chetan R. Parikh Versus The Income-tax Officer

The Tribunal dismissed the assessee's appeal and upheld the Commissioner of Income Tax (Appeals)' decision that the purchases and sales of shares ... - Issues Involved: Determination of nature of income from purchase and sale of shares and units for assessment year 2006-07.Issue 1: Nature of Income from Purchase and Sale of SharesThe Assessing Officer (AO) noted the assessee's short term capital gain from sale of shares and mutual funds, and concluded that the assessee was trading in shares based on the frequency and volume of transactions. The assessee claimed to be an investor, but the Commissioner of Income Tax (Appeals) upheld the income as business income due to continuous transactions and organized activity in dealing with shares. The Tribunal considered various factors including intention at the time of purchase, frequency of transactions, holding period, and use of own funds. The Tribunal observed that the assessee had regular and continued transactions in shares of 74 companies, with no satisfactory explanation for frequent purchases and sales. The Tribunal concluded that the transactions declared as short term purchases and sales should be considered as business activity, while the purchase and sale of mutual fund units should be considered as investment activity. The Tribunal confirmed the CIT(A)'s decision regarding the nature of income from shares.Outcome: The appeal of the assessee was dismissed, and the order of the CIT(A) holding the purchases and sales of shares as business activity was confirmed.