2014 (8) TMI 273 - AT - Income Tax

Court classifies share sale income as 'business income' over 'Short Term Capital Gain' due to trading frequency and profit motive.

Veena Nigudkar Versus Asstt. Commissioner of Income Tax-

Veena Nigudkar Versus Asstt. Commissioner of Income Tax- - TMI Issues Involved:1. Classification of income from the sale of shares: Whether it should be assessed as 'business income' or 'Short Term Capital Gain' (STCG).Issue-Wise Detailed Analysis:1. Classification of Income from the Sale of Shares:The primary issue in this case was whether the income of Rs. 12.11 lakhs arising from the sale of shares should be classified as 'business income' or 'Short Term Capital Gain' (STCG).Facts and Arguments:- The Assessee, an individual engaged in multiple business activities, declared income under various heads including salary, business, capital gains, and other sources. She reported a speculation loss in Futures and Options amounting to Rs. 14.95 lakhs and STCG on share transactions amounting to Rs. 12.11 lakhs.- The Assessing Officer (AO) examined the volume and frequency of transactions, period of holding, and the conduct of the Assessee. The AO concluded that the Assessee was engaged in share trading operations as a sustained business activity, supported by various case laws. Consequently, the AO assessed the gains from share transactions as 'business income'.- The Assessee contended that share trading was not her main activity and that the transactions were investments, not business operations. She argued that the tax authorities had previously assessed similar income as STCG in past and subsequent years, albeit under section 143(1).Findings:- The AO's assessment was based on several observations: the Assessee's transactions were frequent and repetitive, shares were often sold within short periods, and the Assessee's conduct indicated a profit motive typical of business ventures.- The AO noted that the Assessee did not distinguish between speculative and delivery-based transactions at the time of purchase, and decisions to take delivery or square off were guided by market prices. The transactions were routed through the same broker without separate books for speculative and delivery-based transactions.- The AO also highlighted that the Assessee's activities showed a systematic course of action with regular maintenance of books of accounts, billing systems, and transaction details. The Assessee's high frequency of transactions, lack of intention to enjoy dividends or bonuses, and the rotation of funds were indicative of business activities.- The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the Assessee's substantial turnover, frequent transactions, and the use of unsecured loans for share purchases. The CIT(A) noted that the Assessee's conduct and fund utilization did not align with investment activities but rather with trading activities aimed at profit maximization.Conclusion:- Both the AO and CIT(A) concluded that the Assessee's share transactions were akin to business activities. The Assessee's short-term trading activities, speculative transactions, and the manner of fund utilization supported this view.- The Tribunal agreed with the findings of the AO and CIT(A), noting that the Assessee's conduct, frequency of transactions, and profit motive were consistent with business activities. The Tribunal upheld the order of the CIT(A) in assessing the gains from the sale of shares as 'business income'.Final Judgment:- The appeal filed by the Assessee was dismissed, and the income from the sale of shares was classified as 'business income'.The above order was pronounced in the open court on 25th July, 2014.