Sale of shares was not business income but investment income ITAT held so quoting CBDT latest circular no. 6/2016, F.No. 225/12/2016/ITA.II dt. 02/5/2016

In a recent judgment, ITAT has held that the sale of shares by the assessee was not business income but short term capital gain in view of the over all facts and in particular as per CBDT lates circular in this regard.

ABCAUS Case Law Citation:
937 2016 (06) ITAT

Brief Facts of the Case:
The Assessing Officer during the course of the scrutiny proceedings examined the issue with the angle that whether sale of shares by the assessee was short term capital gain (STCG) or business income. He considered the holding period, frequency of transaction, intention of the assessee, dividend income etc. and found that the assessee had shares as on 31/3/2008 at Rs. 4.00 lacs. Thereafter the assessee made transaction throughout the year in the Demat account wherein total purchase value came at Rs. 13,80,972/- and the total value for the financial year was at Rs. 72,79,970/-. These transactions led to a gain of Rs. 58,98,998/-. The transactions, which were carried through a share broker had a total purchase value of Rs. 1,01,03,377/- and total sales value of Rs. 1,28,21,809/- with a declared short term capital loss of Rs. 30,13,224/-.

According to the AO, the activity of the share buying and selling was done and the amount fetched by the same was a clear proof of the intentions of the assessee and supported the presumption that the assessee had no intention of holding the shares so bought and was solely driven by the market sentiments. He found that holding period and quantity of purchase and sale of shares was not investment but were made for the purpose of business to earn profit. The taking delivery and making full payment, paid security transaction tax cannot absolve the transaction from being business in nature. The share business can be done without any help of the stock exchange or share broker. The assessee’s argument that the assessee had disclosed buying and selling of the shares in investment and regularly showing in return which has been accepted by the department, which were rejected by the Assessing Officer considering the circular No. 1827 and Supreme Court decision in the case of Karan Chand Thapar and brothers (P) Ltd. Vs. CIT (1971) 83 ITR 899 wherein it was held that certain shares has been shown in the books as well as balance sheet as investment by itself not a conclusive circumstance though it was relevant circumstances. Finally he held that short term capital gain income claimed by the assessee at Rs. 29,21,048/- was a business income. 

Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the CIT(A), who also confirmed the order of the Assessing Officer.

Finally the assessee filed an apeal before ITAT. 

Contentions of the assessee:
The assessee contended that the CBDT by an large has accepted that income from shares should be considered as business income/capital gain according to the treatment accorded by the assessee but once he has accepted the taxability under the particular head, he would not be allowed to adopt a different head in subsequent years. Further, in case of unlisted shares, the taxability would always be under the head ‘capital gain’, irrespective of the period of holding. The assessee was a salaried employee, having income from interest, EPF and dividend. The assessee was a regular investor and carried out the share transaction through share broker by using his own fund and he had not maintained any office, employed any staff or maintained any books of account. The value of the transaction in shares was also meagre. Thus  all these facts indicated that the assessee wa only an investor in shares and not a trader in shares. As per the latest circular of CBDT, if assessee treats to disclose the shares as stock in trade, then the income would be treated as business income.. Conversely, where shares are held as investment, the income would be capital gain. It was further clarified through circular that where listed shares are held more than 12 months and the assessee treated this transaction as investment and shown capital gain on it. The assessee had shown shares as investment and earned the dividend not as business in the return. Therefore the latest circular issued by the CBDT was squarely applicable to the assessee.

Important Excerpts from ITAT Judgment:

It is undisputed fact that the assessee had disclosed these transactions as investment in the return during the year under consideration. It is also a fact that the assessee was in investment in shares from 2000-01 to till date and in all the years, he has disclosed short term/long term capital gain on account of investment in shares which has been accepted by the department. The ld Assessing Officer as well as ld CIT(A) has considered the various decisions on which they came to conclusion that these transactions are business transactions but latest circular issued by the CBDT No. 6/2016 dated 29/2/2016 and F.No. 225/12/2016/ITA.II dated 02/5/2016 have set a guidelines to assess the share trading income under the head investment or trading. The assessee is a salaried person. He has income from interest and income from other sources. The share trading is not a main business of the assessee but he made investment in part time individually with his own fund without any assistance of the man power or office, which itself shows that the intention of the assessee was to invest in shares to get gain from it on the basis of period of holding. Accordingly, he has disclosed short term capital gain in the return. After considering both sides, we have considered view that the assessee was in investment of shares not share trading.

Sale of shares was not business income in view of CBDT Circular

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