Business income or STCG-Frequency-repetition of sale purchase not conclusive factors – ITAT

Business income or STCG-Frequency-repetition of sale purchase not conclusive. Factors like main business / profession of assessee, intention while purchasing shares, holding the same as investment, earning of dividend income thereon etc. are required to be seen -ITAT

ABCAUS Case Law Citation:
ABCAUS 1064 (2016) (11) ITAT

Assessment Year: 2010-11
Date of Judgment: 23-11-2016

Important Case Laws cited:
(i) CIT Vs. Gopal Purohit, 336 ITR 287;
(ii) Dr. Priyanka Doctor Vs. ACIT, ITA No.1454/Mum/2012, dated 22- 4-2014;
(iii) Dr. Rahul Doctor Vs. ACIT, ITA No.827/Mum/2012, dated 5-12- 2014;
(iv) Darshak Dadbhawala Vs. ACIT, ITA No.3522/Mum/2012, dated 5-12-2014
(vi) ACIT Vs. Mrs. Kinnary Sanghavi, 56 Taxmann.com 288;
(vii) Hitesh Satishchandra Doshi Vs. JCIT, 140 TTJ 32;
(viii) Janak s. Rangwalla Vs. ACIT, 11 SOT 627;
(ix) CIT vs. Darius Pandole’ (2011 330 ITR 485 (Bom.)
(x) CIT vs. Gopal Purohit (2011) 336 ITR 287 (Bom.)

Brief Facts of the Case:
The appellant assessee was an individual deriving income from salary, house property, capital gains and income from other sources. The assessee had shown short term capital gain (STCG) of Rs. 25,54,555/- arising from transactions in shares. The Assessing Officer (AO) treated the STCG as business income by on the plea of high volume and frequency of transaction of purchase and sale.

CIT(A) also confirmed the action of the AO against which assessee was in appeal before the Tribunal.

Contentions of the Assessee:
It was contended that the department had accepted assessee’s claim of short term capital gains in earlier years, therefore, rule of consistency should be followed when the facts and circumstances are same during the year under consideration. The assessee placed reliance on the number of judgments as stated above.

Observations made by the Tribunal:
The ITAT observed that during the year the assessee had LTCG in 5 scrips and STCG in 60 scrips. The AO accepted LTCG but treated the STCG as business income. ITAT also observed that for A.Y. 2007-08, scrutiny assessment was completed u/s 143(3) and in earlier and subsequent years orders u/s 143(1) were passed. In all these years, the capital gains declared by the assessee was accepted as short term or long term depending on the period of holding

The Tribunal observed that the AO had changed the treatment of income only in the current isolate year which was contrary to the accepted legal position by the Bombay High Court in the case of Gopal Purohit. The SLP filed by the department against the same has been dismissed by the Hon’ble Supreme Court.

The ITAT opined that the frequency and repetition of the purchase and sale transactions play important role, but the same is not conclusive and other factors like main business / profession of assessee, intention while purchasing shares, holding the same as investment, earning of dividend income thereon etc., are required to be seen for reaching to the conclusion regarding assessee being investor of trader in shares.

The Tribunal was of the view that in the instant case, the assessee had acquired the shares with intention of holding as investment. Therefore, gains arising on its sale was liable to be assessed as capital gains rather than business income.

Even the principle of res judicata is not applicable in income tax proceedings but the principle of consistency requires that the view taken in one year should be followed in subsequent years unless the facts or the legal position justify departure there from. The shares held as investment for more than 12 months were accepted by the AO as long term investment, under these facts and circumstances, there was no merit for not accepting the capital gain earned in respect of shares held for less than 12 months as short term capital gains.

Held:
Appeal of the assessee allowed.