While remitting a matter back to the files of the Appellate Tribunal, the Jammu and Kashmir High Court held that the department cannot treat the income from share transaction as Assessee’s “Business Income” or “Capital Gain” merely on the basis of conclusion made in the past years.
The question before the Court was that whether the income earned by the assesse from sale/purachse of shares constitutes his business income or investment.
While pronouncing the order, Chief Justice Badar Durrez Ahmed said that the issue is a mixed question of facts and law.
He further noticed the Gujarat High Court decision in the case of Commissioner of Income Tax v. Rewashanker A. Kothari, wherein the Court laid down various tests were in order to determine whether an assesse could be said to be carrying on the business of sale and purchase of various securities or whether the said assesse was holding them as an investment.
“One of the most important tests outlined in that decision was as to whether the transactions in the shares were of a large volume and were frequent and whether there was continuity and regularity in such transactions of purchase and sale. It was noted that if there was repetition and continuity coupled with the magnitude of the transactions bearing a reasonable proportion to the holding then it would be an important circumstance in considering such activity to be in the nature of trade and business.”
The bench further noted that the aspect pertaining to the volume of transactions, the frequency of transactions and the continuity and regularity of the purchase and sale of the shares which was formulated by the Gujarat High Court and the Delhi High Court was not been examined by the Tribunal in the present case.
“It appears that the tribunal was impressed by the fact that a similar treatment had been given and accepted by the department in earlier assessment years. But in our view, that alone cannot form the basis of the conclusion as to whether the said shares were bought and sold as a part of trading activity or as a part of investments. All the circumstances outlined in the decision of the Delhi High Court and that of the Gujarat High Court as also the guidelines of the Central Board of Direct Taxes referred to in the impugned order needed to be considered and then a view was required to be taken on the totality of circumstances. Unfortunately, that has not been done. It is for this reason that we feel that the present appeal ought to be disposed of by setting aside the impugned order and by remitting the matter to the tribunal for a fresh consideration in the manner indicated above.”
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