2018 (12) TMI 594 - AT - Income Tax

Tribunal reclassifies share income for tax purposes, highlights need for consistent treatment

The Tribunal directed the Assessing Officer to treat a portion of the income from share transactions as business income for the assessment year 2010-11. ... Income from share transaction - Income to be treated as income under the head short term capital gain or income from business or profession - sale of shares held for less than 30 days - Held that:- On a perusal of the assessment orders passed under section 143(3) of the Act for assessment years 2014–15 and 2015–16, it is evident, though, the assessee offered substantial income from share transaction as short term capital gain compared to business income, the AO has accepted assessee’s claim without treating the short term capital gain as business income. Merely because the business income is shown at a lesser figure, that by itself cannot be a reason to treat the short term capital gain derived from sale of share as business income. More so, when the Assessing Officer has not disturbed the assessee’s claim in any other assessment year. Therefore, applying the rule of consistency also assessee’s claim of short term capital gain has to be accepted. We direct the Assessing Officer to assess the amount of ₹ 4,17,413, received from sale of shares held for less than 30 days and shown under the head short term capital gain as business income. Grounds raised are partly allowed. Issues: Determination of whether income from share transactions should be treated as short term capital gain or income from business or profession for the assessment year 2010-11.Analysis:1. Background and Assessing Officer's Decision:The assessee, an individual, declared income of `1,30,75,858 for the assessment year 2010-11, with `1,14,79,724 from share transactions. The Assessing Officer observed that a significant portion of the income came from short term capital gain, indicating organized commercial activity. Referring to past assessments, the Assessing Officer treated the income from share transactions as business income, leading to the assessment of `1,14,79,724 as business income.2. Appeal before Commissioner (Appeals):The assessee appealed the decision, arguing a consistent method of maintaining separate portfolios for business and investment activities. The assessee highlighted that income from intra-day transactions was treated as business income, while long-term investments were considered capital gains. The assessee emphasized the absence of borrowed funds for investments and pointed out the lack of previous instances where the Assessing Officer treated such income as business income.3. Tribunal's Decision:The Tribunal noted the assessee's long-standing share transaction activity and the segregation of portfolios for different types of transactions. The Tribunal acknowledged the assessee's willingness to treat income from short-term sales as business income. Noting the lack of consistency in the Assessing Officer's treatment across assessment years, the Tribunal directed the Assessing Officer to assess `4,17,413 from sales of shares held for less than 30 days as business income, while accepting the rest as short term capital gain. The Tribunal emphasized the importance of consistency in tax treatment and partially allowed the assessee's appeal.4. Conclusion:The Tribunal's decision balanced the assessee's consistent approach to portfolio management and the lack of uniform treatment by the Assessing Officer. By accepting the majority of the income as short term capital gain and only converting a specific amount to business income based on the assessee's concession, the Tribunal ensured fairness and adherence to established practices. The ruling highlighted the significance of maintaining consistency in tax assessments and provided clarity on the treatment of income from share transactions for the assessment year in question.