2015 (7) TMI 1114 - AT - Income Tax

Shares held for long term = Capital gains, not business income. ITAT decision upheld.

The ITAT upheld the decision of the ld. Commissioner of Income Tax (Appeals) and dismissed the revenue's appeal, ruling that profit/gains from shares ... Classification of gains from sale of shares as capital gains versus business income - investor versus trader test - precedential effect of earlier tribunal decisionsClassification of gains from sale of shares as capital gains versus business income - investor versus trader test - precedential effect of earlier tribunal decisions - Assessing Officer's treatment of profits from purchase and sale of shares as business income instead of long term and short term capital gains - HELD THAT: - The Tribunal found that the Assessing Officer had not independently analysed the facts and merely followed observations made in the assessment for Assessment Year 2007 08. The appellate authorities below (CIT(A) and the ITAT in earlier years) had considered identical or closely similar factual patterns in Assessment Years 2005 06 and 2006 07 and held that the assessee was an investor, not a trader, and that gains should be assessed under the head capital gains (long term or short term) depending on the period of holding. The CIT(A) for the year under appeal had applied the ratio of those tribunal decisions and directed the AO to treat shares held for one year or more as long term capital assets and, for short term holdings, to follow the earlier ITAT guidance distinguishing holdings of one month or more (treated as investment/short term capital gains) from holdings of less than one month (treated as business income). In the absence of contrary material brought to the Tribunal and given the consistent stance of the Revenue across the years which had been rejected by the ITAT in earlier appeals, the Tribunal held that no interference with the CIT(A)'s order was warranted and affirmed that the gains be treated as capital gains in accordance with the directions of the CIT(A) and the applicable tribunal precedents. [Paras 2, 5, 6, 7, 8]Revenue's appeal is dismissed; the Assessing Officer shall assess the gains from sale of shares as long term or short term capital gains in accordance with the CIT(A)'s directions and the tribunal precedents applied by the CIT(A).Final Conclusion: The appeal filed by the Revenue is dismissed. The Tribunal affirms the CIT(A)'s direction to treat the assessee as an investor and to assess the gains from sale of shares as long term or short term capital gains in accordance with the holdings of earlier ITAT decisions applied by the CIT(A). Issues:- Appeal against the order of ld. Commissioner of Income Tax (Appeals) dated 22nd June, 2011 for assessment year 2008-09.- Dispute over treating profit/gains from purchase and sale of shares as long term capital gain or business income.Analysis:1. The revenue appealed against the order of the ld. Commissioner of Income Tax (Appeals) regarding the treatment of profit/gains from shares as long term capital gain. The revenue contended that the gains should be classified as business income instead.2. The assessee argued that the issue was previously decided in their favor by ITAT in Assessment Year 2005-06 and 2006-07. The assessee presented the Tribunal's orders as evidence.3. The Assessing Officer initially treated the profit from shares as business income based on the argument that shares held for 30 days or less should be considered business profit. The ld. Commissioner of Income Tax (Appeals) disagreed and directed the Assessing Officer to treat the gains as long term capital gain for shares held for a year or more.4. The ITAT reviewed the case history and noted that in previous years, similar disputes arose where the Assessing Officer classified the gains as business income, but the ITAT ruled in favor of the assessee, considering them as investors rather than traders in shares.5. The ITAT emphasized that shares were consistently treated as investments in the assessee's records and directed the Assessing Officer to accept the short-term capital gains declared by the assessee. The ITAT also highlighted that holding shares for a longer duration indicated an investment motive, not a business intention.6. Based on the consistent rulings in favor of the assessee in previous assessment years, the ITAT upheld the decision of the ld. Commissioner of Income Tax (Appeals) and dismissed the revenue's appeal, stating that no interference was necessary in the order.This detailed analysis of the judgment highlights the key arguments, decisions, and rationale behind the treatment of profit/gains from shares as long term capital gain rather than business income in the given case.