2016 (5) TMI 690 - AT - Income Tax

Tax Tribunal Classifies Share Sale Income as Capital Gains, Emphasizes Judicial Trends

Shri Rashmikant Chhaganbhai Patel, C/o. Prannath Petroleum Versus Addl. CIT, Range-3, Baroda

The Tribunal allowed the assessee's appeals for Assessment Years 2006-07 and 2008-09, directing the AO to classify income from the sale of shares as ... Share transactions - Capital gain or income from business - Held that:- In the facts and circumstances of the instant case, on the basis of principle of consistency alone, the action of the revenue authorities was liable to be quashed. It was ordered accordingly and the Assessing Officer was directed to accept the claims of assessee in regard to short-term capital gain and long-term capital gain. The ratio laid down in Gopal Purohit vs. JCIT (2009 (2) TMI 233 - ITAT BOMBAY-G ) supports the case of assessee before us. We find that the assessee is only an investor in shares. Merely because the volume of transactions had gone up, the character of the assessee as an investor does not change. Thus, addition made by the Assessing Officer treating the Short Term Capital Gain as business income is not justified and assessee's claim to treat the profit on sale of shares as Short Term Capital Gain, is required to be accepted. Assessing Officer is directed accordingly. - Decided in favour of assessee Issues Involved:1. Classification of income from sale of shares as 'Profits and Gains from Business and Profession' versus 'Short Term Capital Gain' (STCG) and 'Long Term Capital Gain' (LTCG) for Assessment Years 2006-07 and 2008-09.Detailed Analysis:Issue 1: Classification of Income from Sale of SharesAssessment Year 2006-07:- Facts and Findings:- The assessee reported STCG of Rs. 2,00,41,453 and LTCG of Rs. 70,64,982.- The Assessing Officer (AO) observed substantial and continuous dealings in shares, involving 167 different scripts and multiple daily trades, primarily funded by borrowed capital.- The AO argued that the transactions indicated a business activity rather than investment, as shares were disposed of without waiting for dividend distribution dates.- The AO applied Section 45(2) to treat the shares as converted into stock-in-trade and taxed the difference between sale price and fair market value as business income.- The CIT(A) upheld the AO's decision, classifying the income as business income.- Tribunal's Decision:- The Tribunal referred to CBDT Circular No. 6/2016, which supports treating shares held for more than 12 months as investments, thus classifying the LTCG of Rs. 70,64,982 as LTCG.- For STCG, the Tribunal considered the assessee's claim that the facts were identical to a previous case involving the assessee’s wife, where the ITAT had treated similar transactions as capital gains.- The Tribunal noted recent judicial trends and decisions, including those from the Hon'ble High Courts and ITAT, which favored treating such transactions as capital gains.- The Tribunal emphasized consistency in tax treatment across years unless there is a material change in facts, citing various judicial precedents.- The Tribunal concluded that the assessee's transactions should be treated as investments, not business activities, and directed the AO to classify the STCG of Rs. 2,00,41,453 as STCG.Assessment Year 2008-09:- Facts and Findings:- The assessee reported income from the sale of shares amounting to Rs. 65,61,832, claimed as STCG.- The AO treated this income as business income based on similar observations as in the previous assessment year.- Tribunal's Decision:- Following the same reasoning and judicial precedents as applied for the Assessment Year 2006-07, the Tribunal directed the AO to classify the income of Rs. 65,61,832 as STCG.Conclusion:The Tribunal allowed the appeals of the assessee for both assessment years, directing the AO to classify the income from the sale of shares as capital gains (STCG and LTCG) rather than business income. The decision emphasized the importance of consistency in tax treatment across years and the judicial trend favoring the classification of such transactions as capital gains.