Sale-purchase in only few share scrips not high volume. STCG was not business income as a person can act both as trader and investor-ITAT
ABCAUS Case Law Citation:
1053 (2016) (11) ITAT
Assessment Year 2010-11
Brief Facts of the Case:
The appellant assessee was an individual. Her The total income for the relevant year included short term capital gain (STCG) of Rs. 48,96,441/- arising on sale of shares, against which brought forward short term capital loss of Rs. 30,47,389/- was adjusted.
The Assessing Officer (AO) took the view that the assessee was carrying on purchase and sale of shares in a systematic and organized way. Further the volume of transaction was also considered to be very high and the assessee was carrying on such activities year after year. Therefore, the AO took the view that there was continuity and regularity in purchase and sale of share.
Accordingly he held that the assessee was carrying on shares trading activity as a trader and not as investor. He accordingly assessed the short term capital gain as business income.
On appeal by the assessee, the CIT(A) also confirmed the same and consequently, the assessee went in appeal before ITAT.
Contentions of the Appellant assessee:
The assessee contended that the activities of the assessee, if examined in terms of various criteria listed out by the CBDT and Courts, would lead to a conclusion that the assessee was acting as an investor only. Broadly the following submissions were made:
1. The assessee had shown shares as investment in the balance sheet
2. All the shares on which short term capital gain arose were delivery based transactions which is evident from demat accounts
3. The assessee had earned STCG by making investment in only 12 scrips and out of these 12 scrips
4. The Revenue had accepted the capital gains on similar facts in all the preceding assessment years except the year under consideration.
5. Out of short-term capital gain of Rs. 48.96 lakhs, Rs. 1.6 lakhs was on account of holding of shares which are less than 1 month, Rs. 30.20 lakhs was on account of shares held for less than 3 months, and the balance Rs. 18 lakhs was from the scrips held for more than 3 months.
6. As per CBDT Circular No.4 of 2007 dated 15-06-2007, para 10, an assessee can hold shares on account of investment as well as stock-in-trade.
7. The AO was not justified in assessing capital gain as business income on the ground that the firm in which assessee was a partner was engaged in the business of buying and selling shares.
8. As per CBDT Circular No.6 of 2016 dated 29-02-2016 if the assessee opts for treating the shares as investment then same has to be assessed as capital gain.
9. As per para 8 of Instruction No.1827 dated 31-08-1989, one of the parameters to decide the issue is under what head shares are reflected in the balance sheet.
10. The parameter of dividend is not a material factor in the current scenario where even the IPO are issued at a huge premium and the face value of the shares is Re.1/. Furthermore dividends are declared on the face value and the shares are acquired from the secondary market at the market price with an intention to earn gain from appreciation in the value of the shares.
Observations made by the Tribunal:
The ITAT noted that the assessee had dealt in 196074 number of shares. However as pointed out by the assessee, out that she had dealt in only 12 scrips, out of which four scrips were bought last year. Thus, the assessee had purchased and sold higher number of shares in respect of 12 scrips only, meaning thereby, the volume could not be taken to be high.
The Tribunal also noted that the holding period of shares for major portion of shares was reasonable. Also it was noticed that the AO had accepted the profit as Capital gains in AY 2009-10 and 2013-14 in the scrutiny assessment made u/s 143(3) of the Income Tax Act, 1961.
The ITAT opined that it is a established principle that a person can act both as trader and investor. There was no reason to assess the capital gains arising on sale of shares as business income.
The order of CIT(A) was set aside with direction to the AO to assess the gains arising on sale of shares under the head Capital gains only.
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