Court Upholds Capital Gains Treatment for Share Trading Income

The High Court of Calcutta dismissed the appeal, upholding the Tribunal's decision. The court emphasized the importance of consistency in assessing income from trading in shares and ruled against treating such income as business income instead of capital gains. Additionally, the court held that the principle of consistency in assessment across different years should be maintained, and a circular issued after the assessment year in question could not be used to challenge the assessment order.

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Issues:
1. Treatment of income from trading in shares as capital gains or business income.
2. Principle of consistency in assessment across different years.
3. Applicability of circular no. 6/16 dated 29/2/2016 to assessment year 2006-07.

Analysis:
1. The first issue revolves around determining whether income from trading in shares should be treated as capital gains or business income. The appellant, the revenue, contested that the shares were treated as stock in trade and not as an investment. However, the Tribunal and CIT had previously held the shares as investments. The volume of transactions and the intention of the assessee were also considered. The Tribunal concluded that the volume of transactions should not impact the classification of income, especially when the assessee was engaged in the business of investing in shares for several years. The principle of consistency was highlighted, emphasizing that similar transactions in previous and subsequent years were accepted as capital gains, not business income.

2. The second issue addresses the principle of consistency in assessment across different years. The appellant argued that an under assessment in one year should not dictate the assessment in subsequent years. However, the Tribunal rejected this argument, stating that the rule of res judicata does not apply to income tax proceedings, but consistency in treatment does. The Tribunal referred to previous and subsequent assessments where similar transactions were accepted as capital gains, supporting the assessee's claim for consistency.

3. The final issue concerns the applicability of circular no. 6/16 dated 29/2/2016 to the assessment year 2006-07. The respondent argued that this circular, issued in 2016, could not be used to challenge the assessment order for 2006-07. The Tribunal agreed, stating that the circular's issuance post-dated the assessment year in question, making it irrelevant for assessing the correctness of the order. The Tribunal also cited a relevant legal precedent to support this conclusion.

In conclusion, the High Court of Calcutta dismissed the appeal, upholding the Tribunal's decision. The substantial questions of law were answered against the revenue, emphasizing the importance of consistency in assessing income from trading in shares and the inapplicability of a circular issued after the assessment year.

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