2011 (4) TMI 19 - AT - Income Tax

Capital Gain or business income - sale purchase in bulk volume - Held that - the assessee is only an investor and has not undertaken the investment in the stock market as a business venture. He is an informed individual being an economist earlier teaching the subject in a college and after leaving that job he has taken to religious preaching and investing in stock market for gains with his knowledge. One could see that he is a good timer of purchase and sale of shares whereby substantially increasing his gains in the stock market. One of the reasons taken by the A.O. was about large turnover. The reason for large turnover is because of bulk purchases and sales in a scrip. There are very few transactions of purchase and sale as the assessee is purchasing in block of a particular share in large volume. - Considering the fact that assessee is not a broker or sub-broker and also not having any office establishment and also on the fact that all the shares as available on 01.04.2005 were sold mostly by the end of May and few shares at the end of September assessee has intended to be an investor subsequent to the change in the scheme of tax by the Finance Act 2005. On these facts - income to be treated as cpaital gains Reassessment snder Section 147 - Earlier there was only a processing under section 143(1) and no assessment under section 143(3) was done - The reopening was done within 4 years - The A.O. has recorded a reason that assessee was offering the incomes as a trader in earlier years under the head Business whereas in this year offered as short term capital gains - Hence the opinion that there is a reason to believe that income escaped assessment at the time of initiation of proceedings under section 147 - Thus the order of the CIT(A) on this issue is upheld and assessee s ground on reopening of the issue under section 147 is therefore dismissed.

Summary

Issues: Reopening under section 147, Treatment of income as capital gains or business income.

Analysis:
1. Reopening under section 147: The appeals involved the Revenue challenging the reopening under section 147 for assessment years 2005-06, 2006-07, and 2007-08, while the assessee contested the issue of reopening. The CIT(A) examined the transactions and principles, concluding in favor of the assessee, allowing income from delivery-based transactions as long-term capital gains. The CIT(A) considered the appellant's history of dealing in shares, recording transactions, and the nature of purchases and sales. Referring to CBDT Circular No. 4 of 2007 and legal precedents, the CIT(A) directed not to treat capital gains as business income. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals and confirming the treatment of income as capital gains.

2. Treatment of income: The core issue revolved around whether the assessee's income from share transactions should be treated as capital gains or business income. The assessee argued being an investor, not a trader, submitting details about his investment approach, lack of speculative activities, and adherence to tax regulations. The A.O. initially treated the income as business income based on past assessments. However, the CIT(A) and Tribunal analyzed the transactions, the nature of shares held, turnover, and the assessee's investor profile. They emphasized the importance of individual case analysis without rigid parameters, ultimately concluding that the assessee's gains should be treated as short-term or long-term capital gains, based on the holding period, supporting the CIT(A)'s decision.

3. Legal arguments and precedents: Both parties presented legal arguments and relied on various case laws, especially ITAT orders, to support their positions. The Tribunal considered these arguments, emphasizing the need for a case-specific analysis. They highlighted the distinction between trading and investment activities, focusing on factors like turnover, frequency of transactions, and the nature of shares traded. Despite conflicting judgments in other cases, the Tribunal concluded that the assessee's informed investor status and lack of speculative activities warranted treating the gains as capital gains, aligning with the CIT(A)'s decision and dismissing the Revenue's appeals.

4. Final decision: The Tribunal upheld the CIT(A)'s decision regarding the treatment of income as capital gains and dismissed the Revenue's appeals. Additionally, the Tribunal upheld the reopening under section 147, citing a reason to believe that income had escaped assessment, thereby dismissing the assessee's challenge on this issue. Consequently, all appeals were dismissed, and the order was pronounced on 13th April 2011.