2014 (2) TMI 505 - AT - Income Tax

Tribunal rules in favor of assessee, treating shares as investments over business income

In multiple assessment years, the Tribunal upheld the consistent treatment of shares as investments by the assessee, directing the profits from the sale ... Profits from sale of shares treated as STCG against Business income – Held that:- The assessee showed profit from the transfer of shares as Long term capital gain and Short term capital gain which was assessed by the Assessing Officer as such in assessment made u/s 143(3) of the Act - This shows that the assessee held and declared the shares as `Investment' and this stand came to be accepted by the Revenue - different treatment cannot be given in the previous year relevant to the assessment year under consideration – Relying upon CIT vs. Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] – the view approved in which the principle of consistency was followed and the profit from transfer of shares was accepted as capital gain on the strength of similar view taken and accepted in the earlier orders – the CIT(A) has taken an unimpeachable view on the issue and the order is upheld – Decided against Revenue. Nature of F/O losses – Business loss OR Speculative loss – Held that:- The decision in CIT v/s Bharat R. Ruia (HUF) [2011 (4) TMI 37 - BOMBAY HIGH COURT] followed - the loss on account transactions in derivatives is speculative up to A.Y. 2005-06 and further that the insertion of clause (d) to the proviso to the section 43(5) is prospective and hence applicable from assessment year 2006-07 - As the assessment year under consideration is prior to the insertion of clause (d) – the order of the CIT(A) set aside and the order of the AO restored – Decided in favour of Revenue. Income treated as Business Income istead of STCG – Held that:- The assessee continued to make investment in shares as was done in earlier years and earned Long term/ Short term capital gain - Both the sides are in agreement that the facts and circumstances of this issue are mutatis mutandis similar to those for the assessment year 2005-06 - While disposing of the appeal for the A.Y.2005-06, the similar amount should be considered as Short term capital gain instead of `Business income' –the order of the CIT(A) set aside and the AO is directed that transfer of shares to be treated as Short term capital gain and not as `Business income’ – Decided in favour of Assessee. Issues:1. Treatment of profit from sale of shares as short term capital gain vs. business income.2. Treatment of F/O losses as business loss vs. speculative loss.3. Assessment of income as business income instead of short term capital gain.A.Y.-2006-07:Issue 1 - Profit from Sale of Shares:The Revenue challenged the direction of the ld. CIT(A) to treat profit from the sale of shares as short term capital gain instead of business income. The assessee consistently held the shares as investments, declaring capital gains based on the holding period. The Assessing Officer recharacterized the gains as business income. However, the Tribunal noted the past acceptance of similar treatment by the Revenue in earlier years. Citing the principle of consistency, the Tribunal upheld the CIT(A)'s decision, emphasizing the assessee's treatment of shares as investments and the acceptance of capital gains in prior assessments. The Tribunal referred to relevant case laws supporting the capital gain treatment and dismissed the Revenue's grounds.Issue 2 - F/O Losses Treatment:The Revenue contested the CIT(A)'s direction to treat F/O losses as business loss instead of speculative loss. Referring to legal precedents, the Tribunal determined that the losses on derivatives transactions were speculative until A.Y. 2005-06. As the assessment year in question predated the relevant clause, the Tribunal overturned the CIT(A)'s decision and restored the assessment order. The assessee accepted this position, leading to the allowance of the Revenue's appeal on these grounds.A.Y.-2006-07:Issue 3 - Assessment of Income:The assessee appealed against the assessment of income as business income instead of short term capital gain. Similar to the preceding year, the assessee's investment in shares resulted in capital gains, which the Assessing Officer classified as business income. In alignment with the decision for the previous year, the Tribunal directed the treatment of the amount from share transfers as short term capital gain, rejecting the business income classification. Grounds 2 to 4 were dismissed as they were related to the first ground, which was decided in favor of the assessee.A.Y.-2008-09:Issue 1 - Treatment of Short Term Capital Gain:The assessee challenged the treatment of short term capital gain as business income. The Tribunal, considering the similarities with the prior years, directed the amount to be treated as short term capital gain, aligning with the decisions for the A.Y. 2005-06 and 2006-07. This ground of appeal was allowed by the Tribunal. Ground 2 regarding the disallowance under section 14A was not pressed by the assessee and was dismissed.In conclusion, the Tribunal's judgments across the assessed years emphasized the consistent treatment of shares as investments by the assessee and the acceptance of capital gains in previous assessments. The Tribunal upheld the capital gain treatment over business income classification, citing legal principles and precedents, leading to the partial allowance of the appeals.