The Mumbai division of the Income Tax Appellate Tribunal, has recently ruled that the income earned by the assessee on account of sale and purchase of shares will be considered as “capital gain.” The Tribunal observed that consistently investing in shares will not amount to “business income” since the said activity is notan “adventure in the nature of trade.”
Coming to the facts of the case, the assessee, an individual,filed returns of income by declaring its income including the amount received by her on account of Short Term Capital Gain. The Assessing Officer completed the assessment by treating the same as “business income” for the reason that the magnitude of transactions are voluminous in very frequent interval which clearly establish that the motive for transactions was to earn profit by pursuing an adventure in the nature of trade.
The Commissioner of Income Tax (Appeals) on an appeal preferred by the assessee, held that the capital gain on sale of shares as capital gains and not as business income, by following the decision of the Bombay High Court in CIT v. Gopal Purohit (2011) 336 ITR 287(Bom).The Revenue preferred an appeal against the said order.
The Tribunal found that the assessee has purchased and sold the shares for a period of not more than one year for which no borrowings were made and the investments have been made out of her own funds and no interest was paid. The average holding period of the shares was less than 180 days and the shares were reflected as investment in books of accounts and were valued at cost. It was further observed by the Tribunal that the Tribunal has decided the same issue in favour of the assessee in the earlier assessment years by considering the income in dispute as “capital gains”.It was noted by the Tribunal that the Department, in the earlier years, had been accepted the stand that the assessee was consistently investing in shares and the capital gains, offered by the assessee was assessed either as long term gain or short term gain while passing order.
While confirming the order of the CIT(A), the ITAT held that “Respectfully following the afore-stated decision of the co-ordinate Bench of this Tribunal in assessee’s own case in preceding assessment year 2007-08 in ITA no. 6227/Mum/2012 for the assessment year 2007-08 vide orders dated 17-03-2016 , wherein we do not find any difference on facts in the instant year under appeal as compared to the preceding year , thus, keeping in view the principles of consistency to be adopted on similar facts, we are inclined to confirm the orders of the learned CIT(A) in which we do not find any infirmity. Thus keeping in view the facts and circumstances of the instant case and principles of consistency to be followed on similar facts, we therefore hold that the gain arising from the sale of shares held by the assessee for not more than twelve months shall be held to be short term capital gain chargeable to tax under the head ‘Capital Gains’ and not as income from business chargeable to tax under the head ‘Profits and gains of Business or Profession’as was held by the AO. Thus, we uphold and confirm the order of learned CIT(A).”
Read the full text of the order below.