2011 (12) TMI 630 - AT - Income Tax

Income from share transactions treated as capital gain, not business income for AY 2006-07.

The Tribunal upheld the CIT(A)'s decision, determining that the income from sale and purchase of shares should be treated as capital gain and not business ... Characterisation of income from sale and purchase of shares - Capital gain versus business income - investor versus trader - frequency, volume and regularity test - portfolio reshuffle as not altering investment characterCharacterisation of income from sale and purchase of shares - Capital gain versus business income - investor versus trader - frequency, volume and regularity test - portfolio reshuffle as not altering investment character - Whether the income from sale and purchase of shares declared by the assessee for Assessment Year 2006-07 is to be treated as capital gains (long term and short term) or as business income. - HELD THAT: - The Tribunal examined the factual matrix and applied the settled approach that characterisation depends on facts of each case, including period of holding, frequency, volume and regularity. The assessee's transactions in the year under appeal showed predominance of long-term holdings (from more than one year up to ten years) and the principal income arose from long-term holdings. Short-term disposals largely involved holdings of more than 90 days and were explained as portfolio reshuffle rather than carrying on a business of trading in shares. Precedent and contemporaneous treatment in adjoining assessment years (acceptance of capital gains by AO in earlier and subsequent years and the Tribunal's earlier decision in the assessee's favour for a prior year) reinforced the factual conclusion that the assessee was an investor. Given these facts, applying the frequency, volume and regularity test did not justify recharacterising the declared capital gains as business income. The Tribunal therefore found no infirmity in the CIT(A)'s factual conclusion accepting the assessee's declaration of long-term and short-term capital gains.The income from sale and purchase of shares for AY 2006-07 is to be treated as declared long-term and short-term capital gains and not as business income; the CIT(A) order is upheld.Final Conclusion: The Revenue's appeal is dismissed and the order of the CIT(A) accepting the assessee's treatment of the share transactions as capital gains for AY 2006-07 is upheld. Issues involved: The judgment deals with the treatment of income from sale and purchase of shares for the Assessment Year 2006-07.Details of the Judgment:Issue 1: Treatment of income from sale and purchase of shares- The assessee declared Short Term Capital Gain, Long Term Capital Gain, income from share trading business, dividend income, and speculation income.- The AO concluded that the entire Short Term Capital Gain and Long Term Capital Gain should be treated as business income due to the volume and regularity of transactions.- The assessee contended that the income was mostly from Long Term Capital Gain and that the Short Term Capital Gain was from shares held for more than 90 days.- CIT(A) accepted the claim of the assessee as an investor based on the details of share transactions.- The Tribunal upheld the CIT(A)'s decision, noting that the assessee had held shares for a long time and that the income was mostly from long-term holdings.Issue 2: Consistency in treatment of income- The assessee's history of being treated as an investor in previous assessment years was highlighted.- The Tribunal considered the factual situation of the case and previous decisions where the assessee's claim as an investor was accepted.- The order of the CIT(A) accepting the claim of the assessee was upheld by the Tribunal based on the facts and circumstances of the case.In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the order of the CIT(A) regarding the treatment of income from sale and purchase of shares as capital gain and not business income.