TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 186
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....lected for scrutiny and the assessment order under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was passed. In the assessment order, the Assessing Officer (AO) treated the income declared under the head "Short Term Capital Gain" of Rs. 81,99,593/- and Long Term Capital Gain" of Rs. 35,18,354/- as "business income". The AO noted that in view of the volume frequency, continuity and regularity of purchase and sale transactions of shares, the assessee was not justified in treating the gains arising on sale of shares under the head "Capital Gains". He accordingly concluded that impugned gain arising on sale of shares is the systematic course of activity or conduct with said purpose and is in the nature of business income. Consequently, the AO treated the LTCG & STCG as business income in the hands of the Assessee. 3. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A), who after examining the relevant facts and referring to several decisions on the subject, reversed the action of the AO and decided the issue in favour of the assessee. The relevant extract of the order of the CIT(A) dealing with the issue is reproduced h....
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....eated as a trader in shares. In fact, even during the year under consideration the appellant has earned long term capital gains of Rs. 6,40,470/- which were claimed as exempt u/s.10(38) and the same have been accepted as such by the A.O. (c) The A.O. seems to have been guided by the reason that major part of the appellant's income for the year has been derived from sale of shares. Theappellant has logically explained; that he is nearing 60 years and has built his investments over the past 20 years. Most of his investments are in stocks and mutual funds, since these are meant .for his children d long term perspective. Due to building of investments over a long period of nearly 20 years, he has a portfolio of around Rs. 3 crores in securities. Under these circumstances, it is but natural that the income from these savings forms a large percentage of his annual income. 1 am of the view that the appellant is justified in arguing that just because the capital gain earned by an assessee is higher than his income from salary, it cannot lead to the conclusion that his income from investments should be classified as business income. (d) With reference to the reasoning of the A.O. ....
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....nsideration, the assessee had also claimed Long Term Capital Loss of Rs. 1,02,31,691 on sale of shares which were hold by the assessee as investment and duly reflected in his Balance Sheet as investment. Similar transaction of sale and purchase of shares are being carried out by the assessee in preceding years, details of which have been filed on record. In addition to the Capital Gains received from Sale of Shares the .assessee had declared income from dividend received from the said shares being held as investment by the assessee. The mere volume of transaction transacted by the assessee would not alter the nature of transaction. It is an established principle that income is to be computed with regard to the transaction. The transaction in whole has to be taken into consideration and the magnitude of the transaction does not after the nature of transaction. Though the principle of res judicata does not apply to the Income-tax Proceedings as each year is an independent year of the assessment but in order to maintain consistency, it is a judicially accepted principle that same view should be adopted for the subsequent years, unless there is a material change in the facts. The....
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....fully relied upon. The said case relates to the income arising from the purchase and sale of securities by FIIs. Although such income amounting to crores of rupees was earned by the FIIs, it was held to be in the nature of capital gains and not as business income. The said view was arrived at by the AAR on the basis that since the provisions of SEBI did not permit a FII to trade in securities in India and the income had been shown by the FII in its Income tax Return as Capital Gains, it was required to be taxed as capital gains and not as business income. In this context the following observations of the AAR are significant: "If would be preposterous to impute an intent/on to FIIs, who responded to the offer of investment in securities in response to guidelines, got themselves registered under the SEBI Regulations and undertook to abide by those regulations, that they would, in the very first step itself, have intended to * violate all the legislative requirements which provide them an opportunity to enter the capital market in India. That the FIIs could not have intended to trade in the first step of purchase of shares, is also strengthened by the fact that in the IT Returns fi....
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....been taxed as such and therefore no perceptible reason exists to take a different stand in this year. The Ld.AR thereafter referred to the balance-sheet of the assessee and submitted that own capital has been deployed for the acquisition of shares as investments and no borrowed funds have been utilized for the investment purposes. This also reflects the intention of the assessee to act as investor with regard to the shares with a view to enjoy capital accretion. The Ld.AR thereafter referred to the decision of Hon'ble Gujarat High Court in the case of Deepaben Amitbhai Shah vs. Dy.CIT reported in [2016] 72 taxmann.com 202 (Guj.) and submitted that in the similar circumstances, Hon'ble Gujarat High Court has decided the issue in favour of assessee. The Ld.AR also relied upon the decision of the Pune Bench of Tribunal in the case of Suresh Babulal Shah (HUF) reported in [2016] 75 taxmann.com 105 (Pune - Trib.) and submitted that the Coordinate Bench of Tribunal having interpreted the effect of CBDT Circular No.6/2016 dated 29/12/2016 has decided the issue in favour of assessee in the similar circumstances as existing in the present case. The Ld.AR thereafter referred to the decision ....
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....at no interference with the order of the CIT(A) is called for. 8. We have carefully considered the rival submissions and orders of the authorities below. The assessee has declared gain arising on purchase and sale of shares to the tune of Rs. 13,59,6697- as short term capital gain assessable under the head capital gains. As per the scheme of the Act, the assessee is entitled to beneficial treatment in taxation on short term capital gains and long term capital gains on sale of shares and securities listed on a recognize stock exchange. Accordingly, the assessee has sought to avail the concessional tax treatment in respect of capital gains offered that arose to him. The Revenue, on the other hand, has taken a view that the gain arising on impugned purchase and sale of shares is nothing but a business activity and therefore taxable under the head 'business income'. By doing so, the Revenue has sought to forfeit the concessional tax treatment available to the assessee where income is chargeable under the head 'capital gains'. 9. The controversy, in essence, is in a narrow compass i.e. whether the impugned transactions of purchase of shares and sale thereof tantamo....
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....s for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income)., CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following)- (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income,....