In ITO v. Kalpana Khandelwal, the Mumbai ITAT held that the amount received by a Share Broker is taxable as capital gain under the provisions of the Income Tax Act.
The decision was based on the well settled proposition that the question as to whether a person has acted as a trader or as an investor in respect of share transactions, has to be decided on the basis of various factors listed out by the CBDT and Hon’ble Courts. While dismissing the departmental appeal, the bench noticed that the intention of the party is relevant in such cases.
Assessee, who is registered as sub-broker with SEBI, claimed that the receipt out of sale of shares is asseaable to tax under the head “capital gain”. AO, however, completed assessment by holding that the same constitutes business income of the assessee. The first appellate authority reversed the decision on appeal.
Aggrieved by the order of the CIT(A), Revenue preferred an appeal before the Tribunal contending that the assessee has been indulging in the activities of purchase and sale of shares as a trader. Assessee, on the other hand, contended that she has acted as an Investor only in these share transactions.
The division bench of the Tribunal relied on the CBDT circular as per which, the assessing officers were advised not to disturb long term capital gains. “In respect of short term capital gains, we notice that the major portion of gains (88.50%) was made in respect of shares held for more than 90 days. Though more than 50% of the volume of shares was held for less than 30 days, the assessee has actually incurred loss there from, meaning thereby, there is merit in the contention of the assessee that the assessee was constrained to sell shares in order to minimise the loss. The assessee has also submitted that there is no repetitive transaction and further she has also earned considerable brokerage income. In the case of Gopal Purohit (supra), the Hon’ble Bombay High Court has held that a person can act both as trader and investor. In the instant case, the assessee is a share broker and there is no case of trading in shares. In the past also, the assessee has declared gains arising on sale of shares as Capital gains only”.
Read the full text of the Order below.
