Appellate Tribunal: Share sale income not business income

The Appellate Tribunal ruled in favor of the appellant, determining that the income from the sale of shares should not be categorized as business income. The Tribunal considered various factors, including the appellant's conduct, lack of borrowed funds, and treatment of similar transactions in previous and subsequent years as capital gains. It concluded that the appellant was an investor, not a trader, and therefore, the income from the sale of shares should not be treated as business income. The appeal filed by the appellant was allowed.

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Issues:
1. Treatment of short term capital gain as business income.
2. Treatment of long term capital gain as business income.
3. Treatment of gain on sale of shares as business income without adjustments.
4. Recasting of Trading and Profit and Loss Account without rejecting books of accounts.

Issue 1: Treatment of Short Term Capital Gain as Business Income

The Assessing Officer (AO) determined the total income of the assessee, an individual, at Rs. 1.18 Crores, including Long Term Capital Gain (LTCG) of Rs. 62.7 lacs and Short Term Capital Gain (STCG) of Rs. 46.06 lacs. The AO considered various factors like treatment in books of account, dividend income, transactions with brokers, volume, and frequency of transactions, holding period of scrips, and the motive of the assessee. Referring to a circular by the CBDT, the AO treated LTCG and STCG as business income due to the nature of the transactions and the intent to earn profits in a short time span as a trader.

Issue 2: Treatment of Long Term Capital Gain as Business Income

The First Appellate Authority (FAA) upheld the AO's decision, emphasizing that the nature of transactions as trading or investment had to be determined based on the specific facts of each case. The FAA considered previous cases and concluded that the appellant's intention could be inferred from the facts of the case. The FAA confirmed the share transactions as business activity and the profits earned as business income, based on the appellant's conduct and the nature of the transactions.

Issue 3: Treatment of Gain on Sale of Shares as Business Income without Adjustments

Before the Appellate Tribunal, the Authorized Representative argued that the appellant had not borrowed funds for purchasing shares, the scrips were based on actual delivery, and the shares were shown as investments in the books of accounts. The Tribunal found that the appellant's conduct indicated an investor approach, as she had not dealt in more than 150 scrips resulting in STCG and LTCG. The Tribunal disagreed with the AO and FAA, stating that transactions by Portfolio Managers should not be considered as business activities. Considering various factors, the Tribunal held that the income from the sale of shares should not be assessed as business income, ruling in favor of the appellant.

Issue 4: Recasting of Trading and Profit and Loss Account

The Tribunal reversed the FAA's decision, highlighting that the appellant's conduct, lack of borrowed funds, and treatment of similar transactions in previous and subsequent assessment years as capital gains supported the conclusion that the appellant was an investor. The Tribunal considered various factors and reversed the order, holding that the income from the sale of shares should not be treated as business income. Consequently, the appeal filed by the appellant was allowed.

In conclusion, the Appellate Tribunal ruled in favor of the appellant, determining that the income from the sale of shares should not be categorized as business income based on the specific facts and circumstances of the case, the appellant's conduct, and the nature of the transactions.

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