Profit arising out of Sale & Purchase of Shares as “Short Term Capital Gain”, not “Business Income”: ITAT Mumbai [Read Order]

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The Mumbai bench of Income Tax Appellate Tribunal, has recently ruled that the income/profit earned by the assessee from the sale and purchase of shares must be treated as “Captal Gain” and not as “Business Income for the purpose of the Income Tax Act, 1961.” The Tribunal while upholding the order of the CIT(A), opined that if the assessee invests money in shares by considering it as an investment, then the profit arising out of such investment cannot be charged under the head “business income.”

The assessee-company, Jai Vijay Resources P Ltd, received profit from the sale and purchase of shares and conceded the same as short term capital gains in his annual return. The assessing officer rejected the same by holding that the same amounts to “business income”. The Officer, relied upon the precedent of the case for A.Y. 2009-10, took a view that the investment held by the company are not be treated as business income.

Being aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) in which their submissions were allowed. The CIT(A), following the decision in M/s Payas Securities Pvt. Ltd, held that the above income  must be treated as “capital gain” since the appellant has earned income in the capacity of investor of shares and not as a trader. Therefore, the Revenuefiled an appeal before the Appellate Tribunal.

While confirming the decision of the Commissioner of Income Tax (Appeals), the Tribunal observed that “We noted that if the average holding period is calculated from all the transactions, it will be more than 157 in respect of sales and purchase of the shares transaction giving rise to Short Term Capital Gain, which indicates that there is no difference in the nature of transaction for the year under consideration from that of the earlier years in the case of PSPL. Further in this year also, Revenue has accepted the profit arising out of sales and purchase of shares giving rise to the Long Term Capital Gain. We also find that the assessee is treating the transaction as investment in its books of account and these are delivery base transaction as in earlier years. In view of the above facts and circumstances, we are of the view that CIT (A) has rightly treated the profit arising out of sales and purchase of shares as capital gain and we confirm the same.”

Read the full text of the order below.