2015 (3) TMI 705 - AT - Income Tax

Income from share sale deemed capital gains, not business income. Revenue appeal dismissed, citing consistency and assessee's intent.

The Tribunal upheld the CIT (A)'s decision, classifying income from the sale of shares as capital gains, not business income. The appeal of the revenue ... Profit on sale of shares - short term and long term capital gain v/s business income - Held that:- The assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. Since in earlier assessment years the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon'ble Bombay High Court in the case of Gopal Purohit (2010 (1) TMI 7 - BOMBAY HIGH COURT), it is fairly applicable and the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (2011 (4) TMI 3 - ITAT MUMBAI ) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is further fortified by these decisions more specifically when the assessee was hold the shares in his books as investor, as well as stock-intrade separately. The decision in the case of Janak S Ranawala,(2006 (12) TMI 261 - ITAT MUMBAI ) further supports the case of he assessee. Likewise, the decision from Hon'ble Madras High Court in CIT vs N.S.S. Investment Pvt Ltd. (2005 (4) TMI 45 - MADRAS High Court ), CIT vs. Associated Industrial Development Company, (1971 (9) TMI 3 - SUPREME Court) supports the case of the assessee. Accordingly, we uphold the order of CIT(A) and dismiss the appeal of the revenue. - Decided in favour of assesee. Issues Involved:1. Classification of income from sale of shares as either business income or capital gains.2. Consistency in tax treatment of similar transactions in previous assessment years.3. Assessing Officer's (AO) errors and incorrect statements in the assessment order.4. Legal principles and precedents applicable to the classification of income from share transactions.Detailed Analysis:1. Classification of Income from Sale of Shares:The primary issue in this case was whether the income from the sale of shares should be classified as business income or capital gains. The AO treated the profits from the sale of shares as business income, citing the high volume and frequency of transactions, the intention to make profits, and the use of borrowed funds for purchasing shares. The AO rejected the assessee's claim of Rs. 61,66,584 under short-term capital gains and prepared a trading and loss account, determining the total income at Rs. 88,85,670.The assessee contended that he was an investor in shares, not a trader, and provided detailed records showing the holding periods of shares, the nature of transactions, and the dividend income received. The assessee argued that all transactions were delivery-based, shares were held in a demat account, and no shares were sold without taking delivery.2. Consistency in Tax Treatment:The assessee emphasized that in previous assessment years, similar transactions were treated as capital gains and not business income. The principle of consistency was highlighted, referencing the case of Gopal Purohit, where the Bombay High Court upheld the consistency in tax treatment for similar transactions in subsequent years.3. AO's Errors and Incorrect Statements:The assessee pointed out several incorrect statements and errors in the AO's assessment order, including incorrect observations about the nature of transactions and the appellant's submissions. The CIT (A) acknowledged these errors as typing mistakes and noted that they did not affect the overall assessment. However, the CIT (A) agreed with the assessee that these errors should be corrected.4. Legal Principles and Precedents:The CIT (A) and the Tribunal referred to several legal precedents supporting the assessee's claim that the income from the sale of shares should be treated as capital gains. Key cases cited included Gopal Purohit vs. JCIT, where the principle of consistency was upheld, and other cases like DCIT vs. E-cap Partners, which emphasized the intention behind purchasing shares and the treatment in the books of account as decisive factors.The Tribunal reiterated that the intention of the assessee while purchasing shares, the treatment in the books of account, and the volume and frequency of transactions are crucial in determining whether the income is from business or capital gains. The Tribunal found that the assessee's intention was to earn dividend income and capital appreciation, not to trade in shares. The shares were treated as investments in the books of account, and there was no evidence of a business-like infrastructure or activities.Conclusion:The Tribunal upheld the CIT (A)'s decision, concluding that the income from the sale of shares should be treated as capital gains and not as business income. The appeal of the revenue was dismissed, and the order of the CIT (A) was affirmed. The Tribunal emphasized the importance of consistency in tax treatment and the intention behind the transactions, aligning with established legal precedents.Order:The appeal of the revenue is dismissed. The order was pronounced in the Open Court on 4th March 2015.