Income from Share Transactions is Taxable as ‘Capital Gain’ if the ‘Initial Intention’ of assessee was to make Investment: ITAT [Read Order]

The Kolkata bench of the ITAT, while considering the case of I.T.O, Wd-12(1), Kolkata Vs. M/s Nupur Carpets Pvt. Ltd, held that the income from share transactions is taxable as “capital gain” under the Income Tax Act if the ‘initial intention’ of the assessee was to make investment.

The bench comprising Judicial Member N.V. Vasudevan & Accountant Member Dr. A.L.Saini was held so while dismissing the revenue’s appeal.

Against the impugned order of CIT (A) which in turn arises out of an order passed by the Assessing Officer under Section 147/143(3) of the Income Tax Act 1961 revenue preferred the matter before the tribunal bench.

During the reassessment proceedings the AO asked the assessee to explain why the income found shall not be considered business income. In reply assessee stated that assessee is a NBFC Company and such shares and mutual funds were held by the assessee as investment only and hence the gain has to be treated as capital gain.

But AO was not satisfied with the assessee’s contention since the duration of earnings was short; AO stated that the mentioned transactions of shares and liquid mutual funds were in the nature of business activities and not in the nature of capital investment.

Accordingly AO declared the issue as profits arising out of purchase and sale of shares/mutual funds should be treated as profits from business and not under the head ‘capital gain’. Aggrieved assessee filed an appeal before CIT (A) wherein allowed the appeal in favour of assessee.

Aggrieved, revenue carried the matter before the tribunal and reiterated their part and assessee relied on the decision of identical case law of Tribunal, Kolkata, in assessee`s own case wherein held that the treatment given in the books under the head ‘investment’ clearly shows that the assessee’s intention to deal in shares as investment.

The tribunal bench observed the issue that the main test prescribed is the ‘initial intention’ of the assessee to decide whether an activity amounts to ‘trading activity’ or ‘investment activity’.

The ITAT observed that the intention of assessee from the mentioned transaction evidencing that is to hold the shares as ‘investments’ and not as ‘stock-in-trade’ is justified. The tribunal also noted that assessee had been keeping its holdings in certain companies from a few months to a few years which is crystal clear that intention of the assessee is to earn returns in the form of capital gain apart from dividend income and also the treatment given in the books of accounts is also evidencing the fact.

Finally bench observed “the profit that has been attributable to this trading activity corresponding to conversion of stock-in-trade into investment is to be treated as ‘business income’ and accordingly to be taxed”.