2017 (1) TMI 186 - AT - Income Tax

Tribunal: Capital Gains Treatment Prevails Over Business Income

The ACIT Circle-8, Ahmedabad Versus Shri Ashish Navnitlal Shah

The Tribunal upheld the CIT(A)'s decision, concluding that the short term capital gain (STCG) and long term capital gain (LTCG) should be treated as ... Income from share transactions - short term capital gain (STGC) and long term capital gain (LTCG) OR business income - Held that:- The intention of the assessee in this respect can be gauged from the fact that the assessee is drawing salary income and therefore not occupied primarily as a trader. Secondly, the acquisition of capital asset are from own funds which are to the tune of ₹ 5.15 crores. Thirdly, the shares were declared to have been held as “capital asset” in the earlier years which have been sold during the year giving rise to LTCGs. Similarly, the shares hold as Short Term Capital Asset were also held for fairly long time prior to its sale giving rise to STCGs. On the totality of these facts, we find no reason to disturb the conclusion reached by the CIT(A). Mere fact that the assessee has also quickly sold shares in some instances within short interval would not ipso facto lead to conclusion that the assessee was a trader in the shares. - Decided in favour of assessee Issues Involved:1. Whether the short term capital gain (STCG) and long term capital gain (LTCG) should be taxed as business income or capital gains.Detailed Analysis:Issue 1: Tax Treatment of STCG and LTCGFacts of the Case:- The assessee, a Director of Wealth First Portfolio Managers Pvt. Ltd., filed a return of income for AY 2007-08 declaring a total income of Rs. 1,01,26,583/-.- The Assessing Officer (AO) treated the declared STCG of Rs. 81,99,593/- and LTCG of Rs. 35,18,354/- as business income due to the volume, frequency, continuity, and regularity of purchase and sale transactions of shares.CIT(A) Decision:- The CIT(A) reversed the AO's decision, treating the gains as capital gains, not business income. The CIT(A) considered several factors:- The assessee is a full-time employee drawing a salary and has been investing in shares for several years without the sole intention of resale at profit.- Historical data showed consistent treatment of gains as capital gains in previous years.- The appellant’s portfolio adjustments were for long-term investments, not trading.- Minimal use of borrowed funds for share investments.- Reference to judicial precedents supporting the view that the volume of transactions alone does not determine the nature of income.Tribunal's Observations:- The Tribunal noted that the assessee’s shares were declared as investments in the books of accounts.- The assessee held shares for a substantial period before selling, indicating an investment intention.- The assessee used own funds for acquiring shares, further supporting the investment intention.- Judicial precedents, including decisions from the Supreme Court and High Courts, supported the view that the nature of transactions should be determined by the intention of the assessee and historical treatment of similar transactions.Tribunal's Conclusion:- The Tribunal upheld the CIT(A)'s decision, agreeing that the gains should be treated as capital gains.- The Tribunal emphasized that the intention of the assessee, historical treatment, and the nature of transactions were crucial in determining the nature of income.- The Tribunal dismissed the Revenue's appeal, finding it devoid of merits.Key Judicial Precedents and Circulars Referenced:- Decisions from the Supreme Court in H. Holck Larsen and CIT v/s. Associated Industrial Co. Pvt. Ltd. emphasized the importance of the assessee's intention.- ITAT Mumbai's decision in Janak S. Rangwalla highlighted that volume alone does not alter the nature of transactions.- CBDT Circular No. 6/2016 provided guidelines for determining the nature of income from share transactions, supporting the assessee's position.Final Judgment:- The appeal of the Revenue was dismissed, and the gains were directed to be taxed as capital gains as per the assessee's return of income.This comprehensive analysis maintains the original legal terminology and significant phrases, ensuring an in-depth understanding of the judgment.