2014 (9) TMI 1067 - HC - Income Tax

Treatment to gains from share transaction - capital gain or business income - Held that - It is seen that the appellant has consistently been showing her shares as investments and the same has been accepted as such by the department in earlier years and the Assessing Officer has not brought in any fresh evidence in his Assessment Order for the present year to the contrary. He has simply referred to the magnitude of share transaction and come to his own conclusions about the intentions of the appellant. The detailed evidences and write up given by the appellant in support her arguments substantiate her claim of being an investor. It is also clear that the assertion that she is an investor can only be challenged on the basis of her own records and transactions which could indicate that it is actually doing trading business. This is not there in the appellant s case and the A.O. has failed to do so other than making a longwinding analysis of the guidelines laid out in CBDT Circular No.4/2007. Contention of the appellant is accepted and the income from share transactions treated as Capital Gains.

Summary

Issues:
1. Whether gains from share transactions should be treated as capital gains or business income.
2. Whether the decision of the CIT(A) and the Tribunal in treating the gains as capital gains is justified.

Issue 1:
The appeal was filed under Section 260A of the Income Tax Act, 1961 by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the assessment year 2007-08. The main issue was whether gains from share transactions should be considered as capital gains or business income. The revenue argued that the shares were not purchased or sold with the sole motive of investment and the ratio between purchase and sale should be considered as per CBDT Circular No.4 of 2007. The CIT(A) had accepted the appellant's shares as investments based on consistent past practices, lack of fresh evidence, and the appellant's detailed evidences supporting the claim of being an investor. The Tribunal upheld the CIT(A)'s decision, emphasizing that the appellant's case did not exhibit factors indicative of trading business. The Tribunal found no challenge on perversity and concurred with the Commissioner of Appeals' findings based on facts.

Issue 2:
The second issue revolved around whether the decision of the CIT(A) and the Tribunal in treating the gains from share transactions as capital gains was justified. The CIT(A) had considered the appellant's contentions in light of the Assessing Officer's findings and past acceptance of shares as investments. The CIT(A) highlighted that the Assessing Officer failed to provide new evidence contradicting the investment nature of the shares. The CIT(A) also differentiated the appellant's case from precedents cited by the Assessing Officer, emphasizing factors supporting the appellant's investor status. The Tribunal, in line with the CIT(A), dismissed the revenue's appeal, stating that no substantial question of law arose. Therefore, the decision of the CIT(A) and the Tribunal in treating the gains as capital gains was upheld, and the appeal was dismissed.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the reasoning behind the decision to treat gains from share transactions as capital gains rather than business income.