2018 (6) TMI 614 - AT - Income Tax

Tribunal reclassifies income as Capital Gain, emphasizing intent & case law.

The Tribunal allowed the appeal challenging the assessment of short term Capital Gain under 'Income from business or profession' instead of 'Capital ... Gain on sale of shares - taxable under the head Capital Gain or under Income from business or profession - whether the assessee company was engaged in the business of purchase and sale of shares as a trader or as an investor? - Held that:- The assessee has shown the investment in its books of accounts under the head ‘investment’ and not under the head ‘stock in trade’, therefore, the intention of the assessee is not to treat them business income but to treat them as an investment - assessee is having only one portfolio that is of investment and is consistently following to declare capital gain or loss on sale on investment, dividend is earned on investment and there is not stock in trade portfolio - the assessee is consistently valuing investment at cost and does not claim the diminution in valuing of investment - we have noted the intention of the assessee that the Board of Directors of the assessee company has passed the resolution stating that the motive of the company is to deal in investment and not to trade in shares - hence assessee’s income i.e Short term Capital Gain by way of sale of investment should be assessed under the head ‘capital gain’ instead of ‘business income - Decided in favor of assessee. Issues:Assessment of short term Capital Gain under the head 'Income from business or profession' instead of 'Capital Gain.'Analysis:1. The appeal pertains to the Assessment Year 2010-11, challenging the order passed by the Ld. Commissioner of Income Tax (Appeals) and the assessment order by the Assessing Officer under section 143(3) of the Income Tax Act, 1961.2. The main contention is the treatment of short term Capital Gain on the sale of shares in Gati Ltd under the head 'Income from business or profession' instead of 'Capital Gain.'3. The Assessing Officer questioned the nature of the transaction based on criteria like frequency of transactions, period of holding, quantum of turnover, intention to make quick profits, and classification of shares in the books of accounts.4. The Ld. CIT(A) upheld the Assessing Officer's decision, emphasizing the frequency of transactions as indicative of engaging in a systematic business activity.5. The appellant argued that the shares were purchased for investment purposes, consistently valued at cost, and not claimed as stock in trade, citing previous assessments where the Department accepted the treatment as 'Short Term Capital Gain.'6. The Tribunal considered the intention reflected in the books of accounts, the absence of diminution in value claims, and the company's resolution to keep shares as investments, concluding that the income should be assessed under 'Capital Gain.'7. Referring to relevant case law and a CBDT circular, the Tribunal emphasized the consistency in treatment across assessment years and the intention to deal in investments rather than trade in shares.8. Consequently, the appeal was allowed, directing the Assessing Officer to assess the income as 'Short Term Capital Gain' under the head 'Capital Gain.'