2014 (10) TMI 260 - AT - Income Tax

Assessee classified as investor, not trader, for Capital Gains. Appeal allowed, Revenue appeal dismissed.

Smt. Pooja Manu Goel Versus Assistant Commissioner of Income Tax

The Tribunal determined that the assessee should be classified as an investor rather than a trader in the case of Short Term Capital Gain (STCG) and Long ... STCG on sale of shares – Transaction treated as business income – Held that:- The assessee is a house wife and she has carried out the purchase and sale of transactions in the past years also - In AYs 2007-08 and 2008-09, the assessments were completed by accepting the activity of the assessee as Investment activity - the assessee has incurred Long term Capital loss and only in the present AY, the assessee has incurred net Short term Capital gain and Long term Capital gain - the assessee has used her own funds only for making investments - the assessee has placed a fund flow statement for the year under consideration and for the three years immediately preceding - The assessee has not invested her funds only in share trading activity - She has invested in property, Shares, Jewellery, PPF and also for giving loans to others - The assessee has also parked her funds in banks – thus, assessee should be considered as an Investor only - the profits arising on sale of shares should be assessed under the head “Capital gains” only – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Issues Involved:1. Assessment of Short Term Capital Gain as 'Business Income.'2. Assessment of Long Term Capital Gain as 'Business Income.'Issue 1: Assessment of Short Term Capital Gain as 'Business Income'The assessee declared Short Term Capital Gain (STCG) of Rs. 47,82,664/- arising from the sale of shares and paid tax at a concessional rate. The Assessing Officer (AO) assessed this gain as 'Business Income', arguing that the assessee's frequent and high-volume transactions in 61 types of scrips, with a sales turnover of Rs. 14.45 crores and around 300 transactions, indicated an adventure in the nature of trade rather than investment. The AO noted that 63.5% of the profit was earned by holding the scrips for less than 30 days. The CIT(A) upheld the AO's decision, citing various case laws to support the view that the transaction frequency and volume indicated a business activity.The assessee contended that she maintained two separate portfolios for 'Investments' and 'Stock in Trade' and used her own funds for investments. The assessee argued that her intention was to hold the shares as investments, supported by the fact that in previous assessment years, the AO had accepted her gains as capital gains. The assessee also highlighted that only in two scrips did she indulge in repetitive transactions.The Tribunal found that the assessee used her own funds for investments and spread her investments across various assets, including property, shares, jewelry, PPF, and loans. The Tribunal noted that only 20% of the profit was from short-term trading activity, and the assessee's transactions did not indicate continuous trading in particular shares. The Tribunal concluded that the short holding period in certain scrips and the ratio of turnover to value of shareholdings were not determinative factors. The Tribunal held that the assessee should be considered an investor, and the STCG should be assessed under 'Capital Gains.'Issue 2: Assessment of Long Term Capital Gain as 'Business Income'The assessee declared Long Term Capital Gain (LTCG) of Rs. 2,52,69,254/- and claimed it as exempt under section 10(38) of the Act. The AO assessed this gain as 'Business Income', arguing that the gains were earned within the first year of investment, indicating a trading motive rather than an investment intention. The CIT(A) disagreed with the AO and directed that the LTCG be assessed as 'Capital Gains.'The AO's decision was based on the observation that the assessee had purchased and sold three out of four scrips on a short-term basis and had declared speculation profit as business income. The AO argued that holding the scrips for more than one year did not change their character as business assets.The Tribunal observed that the assessee's intention at the time of purchase is the main determining factor. The Tribunal noted that the assessee had a consistent history of being treated as an investor in previous assessment years. The Tribunal found that the assessee's investment strategy involved holding shares for more than a year, and the mere fact of short-term transactions in some scrips did not alter the investment nature of the LTCG. The Tribunal upheld the CIT(A)'s decision to assess the LTCG under 'Capital Gains.'Conclusion:The Tribunal concluded that the assessee should be considered an investor and directed the AO to compute the profits arising from the sale of shares under 'Capital Gains.' The appeal filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed.