2012 (5) TMI 679 - AT - Income Tax

Income from Share Transactions Classified as Capital Gains Upheld by Tribunal and High Court

The Asst. Commissioner of Income Tax, 25 (3), C-11, Mumbai Versus Shri Chhitubhai N. Patel

The Tribunal upheld the classification of income from share transactions as capital gains, emphasizing the investment nature of the transactions and ... - Issues involved: Determination of whether the income from the purchase and sale of shares should be classified as short term capital gain and long term capital gain or as business income.Summary:1. The Revenue appealed against the CIT(A)'s order directing the acceptance of short term and long term capital gains on profit from shares as opposed to treating it as business income. 2. The AO observed that all receipts were from shares transactions, but the appellant classified profits as capital gains. The AO considered the volume, turnover, and holding period of shares, concluding that short term gains should be assessed as business income due to profit motive and organized activity. 3. The CIT(A) noted that the appellant distinguished between delivery and non-delivery based transactions, holding that income from sale of shares held as investment should not be taxed as business income. The appellant's actions, including transferring shares to their name before sale, indicated investment intent. 4. The Tribunal previously ruled in favor of the appellant, emphasizing the investment nature of the transactions and consistency in accounting treatment. The High Court upheld the Tribunal's decision. 5. Following the High Court's decision, the appeal by the Revenue was dismissed.Judgment: The Tribunal upheld the classification of income from share transactions as capital gains, emphasizing the investment nature of the transactions and consistency in accounting treatment.