2010 (3) TMI 1150 - AT - Income Tax

Income from Sale of Shares Classified as Short and Long-Term Capital Gains Upheld by Tribunal

The Tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s order to treat the income from the sale of shares as short-term and long-term ... - Issues Involved:1. Whether the income from the sale of shares should be treated as short-term and long-term capital gains or as business income.Summary:Issue 1: Treatment of Income from Sale of SharesThe assessee declared a total income of Rs. 54,04,402, including short-term capital gain of Rs. 50,47,902 and long-term capital gain of Rs. 6,05,87,969 from the sale of shares. The Assessing Officer (AO) questioned why these gains should not be treated as business income, citing CBDT Circular No. 4/2007.The assessee argued that he was an investor, holding shares for long-term capital appreciation and dividends, and had consistently shown shares as investments in his books. He also highlighted that he used his own funds, had limited transactions, and did not claim tax rebate u/s 88E.The AO, despite finding the assessee's submissions convincing, assessed the gains as business income based on several factors, including the substantial value of transactions, the motive to earn profit, and the assessee's professional background related to the share market. The AO relied on multiple judicial decisions to support this assessment.The CIT(A) directed the AO to treat the income from the sale of shares as capital gains, noting that the assessee consistently accounted for shares as investments, had limited transactions, and did not use borrowed funds. The CIT(A) also emphasized the principle of consistency in the absence of new facts.The Revenue appealed, arguing that the assessee's transactions were profit-motivated and should be treated as business income. The assessee countered, emphasizing his long-term holding of shares, consistent treatment as an investor in past assessments, and the absence of borrowed funds.The Tribunal considered various judicial principles and found that the assessee's transactions did not indicate systematic and organized activity for frequent trading. The Tribunal upheld the CIT(A)'s decision, treating the gains as capital gains, citing the principle of consistency and the absence of any new facts or wrong decisions in past assessments.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to treat the income from the sale of shares as short-term and long-term capital gains as declared by the assessee.Result: The appeal filed by the Revenue is dismissed.