2014 (5) TMI 321 - HC - Income Tax

Court rules disputed amount as business income, not capital gain due to unusual share transaction.

CIT Versus Maina Devi Karnani

The Court upheld the assessing officer and CIT (Appeal)'s view that the disputed amount should be treated as business income rather than short-term ... Nature of income – STCG or not – Trading in shares - Whether the Tribunal fall into error in upsetting the findings of the AO and CIT (A) that the amount determined by the AO as business income of the assessee was liable to be treated as short-term capital gain – Held that:- Even though the Tribunal has made an exhaustive discussion of the law as to what kind of transaction would amount to capital gains, the assessment of the present transaction - which by all counts appears to be extremely unusual - has escaped its attention as is evident from the above extract - The assessee had in fact not purchased the shares in late October as claimed by her - She raised a loan of Rs.1 lakh indirectly from someone to pay for the purchase price of shares on 04.01.2007 - The amount was paid on 05.01.2007 and on the same day the shares were transferred to her DMAT account - the shares appear to have been sold on 10.01.2007 - the transaction was a solitary one, is justified - The conclusion of the AO and the CIT(A) that the profit derived was not a short-term capital gain but in reality a business perhaps a short-term one-engaged in by the assessee cannot be faulted at all – thus, the order of the Tribunal is set aside and the matter is remitted back to the AO – Decided in favour of Revenue. Issues:1. Whether the Tribunal erred in treating the amount determined by the assessing officer as business income instead of short-term capital gainRs.Analysis:The case involved a dispute regarding the tax treatment of a sum declared by an individual for the assessment year 2007-08. The individual claimed a portion of the amount as short-term capital gain, while the assessing officer and CIT (Appeal) considered it to be business income. The ITAT accepted the individual's contention, emphasizing her lack of prior share transactions and other sources of income. The revenue argued that the transaction did not qualify as short-term capital gain due to the circumstances surrounding the purchase and sale of shares.The CIT (Appeal) highlighted discrepancies in the appellant's claim, noting the absence of supporting documentation for share purchase in October 2006 and the quick sale of shares after obtaining a loan for the purchase price. The Court observed that the transaction was indeed unusual, with shares being purchased after obtaining a loan and sold shortly thereafter. Given these facts, the Court upheld the assessing officer and CIT (Appeal)'s view that the profit should be treated as business income rather than short-term capital gain.Conclusively, the Court set aside the ITAT's order, restoring the assessing officer's initial decision. The substantial question of law was answered in favor of the revenue, resulting in the appeal being allowed in favor of the revenue.This detailed analysis of the judgment showcases the key arguments presented by both parties, the reasoning behind the decision, and the ultimate outcome of the case.