2016 (10) TMI 892 - AT - Income Tax

Assessee wins capital gains classification for share sale income. Upheld consistency and judicial precedents.

The Tribunal ruled in favor of the assessee, holding that the income from the sale of shares should be classified as capital gains, not business income. ... Share transactions - business income or capital gain - Held that:- When the claim of the assessee was accepted by the revenue authorities in the earlier years as well as in the subsequent year, therefore AO was not permitted to take a different view on a particular issue in the absence of any change in the facts and circumstances of the case, even otherwise to maintain the principle of consistency, the claim of the assessee cannot be denied ‘until and unless’, there is a material change in the facts and circumstances of the case. Therefore in view of the above facts and circumstances we hold that the amount received from the purchase and sale of shares in the case of assessee cannot be treated as ‘business’ income. Accordingly, we allow the claim of assessee and hence the order of CIT(A) of treating the short term capital gain as business income is set aside. Issues Involved:1. Classification of income from sale of shares as business income versus capital gains.2. Consistency in the treatment of income from investments in shares in previous and subsequent years.3. Interpretation of statutory provisions and judicial precedents regarding the classification of income from share transactions.Issue-Wise Detailed Analysis:1. Classification of Income from Sale of Shares:The primary issue revolves around whether the income arising from the sale of shares should be classified as business income or capital gains. The assessee argued that the shares were held as investments and consistently treated as 'Capital Assets' in the books of account, reflecting the intention to hold them as investments. The revenue authorities, however, treated the Short Term Capital Gains (STCG) as business income, citing the frequency, volume, and period of holding of the shares. The Tribunal observed that merely considering these factors does not suffice to classify the assessee as a trader. It noted that the assessee had not shown any opening or closing stock of shares, which is typical for a trader. Furthermore, there was no evidence that the shares were purchased using borrowed funds, reinforcing the assessee's position as an investor.2. Consistency in Treatment of Income:The Tribunal emphasized the principle of consistency, noting that in previous assessments, the income from investments in shares was treated as capital gains. The Tribunal referred to the assessment order for AY 2008-09, where the assessee was considered an investor, and no new facts had emerged to warrant a different treatment for the current year. The Tribunal cited the case of CIT vs. Gopal Purohit, where the Hon’ble Supreme Court emphasized the need for uniformity in treatment and consistency when facts and circumstances are identical. It also referred to the case of Shri Rajesh C Shah, where the Tribunal held that the surplus from the sale of shares should be treated as capital gains, given the consistent treatment in previous years.3. Interpretation of Statutory Provisions and Judicial Precedents:The Tribunal analyzed various judicial precedents and statutory provisions, including sections 2(42A), 2(42B), and 111A of the Income Tax Act. It highlighted that if gains from shares held for less than a year were treated as business income, the statutory provisions for STCG would become meaningless. The Tribunal referred to the judgment in the case of Shri Jatin J Ashar, where the AO had accepted the short-term capital gains in both preceding and succeeding years, emphasizing the principle of consistency. The Tribunal concluded that in the absence of any change in facts and circumstances, the revenue authorities should not deviate from the consistent treatment of income as capital gains.Conclusion:The Tribunal held that the revenue authorities erred in treating the STCG as business income. It emphasized the consistent treatment of such income as capital gains in previous and subsequent assessments, the lack of evidence indicating a trading activity, and the principle of consistency upheld by judicial precedents. Consequently, the Tribunal allowed the assessee's appeal, setting aside the order of the CIT(A) and treating the income from the sale of shares as capital gains.Order Pronouncement:The order was pronounced in the open court on 7th October 2016, with the assessee's appeal being allowed.