Income from Transaction of Securities held by the assessee for not more than one year is ‘Short Term Capital Gain’, not ‘Business Income’: ITAT Mumbai [Read Order]

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The Mumbai bench of Income Tax Appellate Tribunal, in a recent ruling held that the income earned by the assessee from sale of shares held by him for a period not more than one year should not be treated as his “Business Income”. The Tribunal while following CIT v. Gopal Purohit and the Apex Court’s decision in Radhasoami Satsang v. CIT, held that the said income must be considered as income from “Short Term Capital Gain.”

The assessee, Mr. Atul A. Shah is a partner in various Firms. The assessee disclosed his income from securities transaction as capital gains, while filing returns for the relevant previous years. However, the Assessing Officer, while completing assessment, observed that the said income has to be categorized under the head “business income, and not as “capital gain”. He observed that while considering thevolume, frequency, continuity and regularity of the share transactions, it can be inferred that these transactions made by the assessee with a profit motive.The assessee maintained that the Assessing Authorities has accepted the similar income as capital gains during the earlier assessment years.While for the assessment year 2006-07 the same was treated as business income.

On appeal, the Commissioner of Income Tax (Appeals) sustained the impugned order. Being dissatisfied with the order, the assessee preferred an appeal before the Appellate Tribunal.

The Appellate Tribunal observed that the assessee is a working partner in partnership firms from where he is deriving income from share from partnership firm(exempt), interest on capital and remuneration. Further, has purchased and sold the shares through recognized stock exchanges through brokers or IPO and the payments were made through cheque. The shares /Mutual Funds have been shown as investment in the books of account and valued at cost. There were no borrowings by the assessee and no interest was paid.

While quashing the impugned order, the Tribunal held that “Keeping in view of the above facts and circumstances of the case , we are of the considered opinion that principle of consistency has to be maintained and followed in this year as facts are almost similar to that of preceding years and hence we direct that the income earned by the assessee from purchase and sale of shares with respect to shares held for not more than one year be held as short term capital gains chargeable to tax under the head ‘Capital Gains’ and not as business income chargeable to tax under the head ‘Profits and Gains from Business or Profession’ as held by the authorities below . The reliance is placed upon the decision of Hon’ble Bombay High Court in the case of CIT v. Gopal Purohit (2011) 336 ITR 287(Bom.) and decision of Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321(SC).The assessee succeeds in this appeal as per our discussions and reasoning as set out above.”

Read the full text of the order below.