Short Term Capital Gain when purchases of any share not repeated. Income held by ITAT as capital gain not business income
ABCAUS Case Law Citation:
ABCAUS 1270 (2017) (06) ITAT
The appeal of the assessee was directed against the order passed by CIT(A) confirming the assessment of Short term capital gain (STCG) arising on sale of shares as business income.
Assessment Year : 2010-11
Date/Month of Pronouncement: May, 2017
Brief Facts of the Case:
The assessee had filed her return of income declaring income from other sources and capital gains, i.e., short term capital gains arising from sale of shares. The Assessing Officer (‘AO’) held that the STCGs declared by the assessee should be treated as business income of the assessee, since the volume and quantity of trade were high. Accordingly he assessed the short term capital gains as business income of the assessee.
The CIT(A) also confirmed the same and hence the assessee had filed the present appeal before the Tribunal.
Contentions of the appellant assessee:
It was submitted that the assessee was a dentist and was studying abroad during the year under consideration meaning thereby the trading in shares was not the main profession of the assessee. That she had not used any interest bearing borrowed funds for investing in shares. That the majority of shares had been held for a reasonable period and as “Investments” in the past and during the year under consideration also. At the year end, the shares had been valued at Cost only.
It was submitted that the in the earlier and succeeding years, the short term capital gain declared by the assessee had been accepted by the AO. There was no repeated purchase and sale of any of the shares. The assessee had dealt with only 18 scrips only and the average holding period was reasonable in most of the scrips.
Observations made by the Tribunal:
The ITAT observed that the nature of share transactions, i.e., whether an assessee has acted as an investor or trader, has to be judged on the basis of various criteria laid down by the Courts and the CBDT in its Circular. Out of those criteria, the intention of the assessee at the time of making purchase is one of the main criterias that need to be examined.
It was noted that:
The assessee had accounted the shares as investment at the time of purchase.
There was no repetition of purchases in any of the scrips.
The assessee had used his own funds and interest free family funds only for making investments.
The assessee had dealt with only 18 shares, out of which 7 scrips were held for a period of less than 30 days
The net capital gain declared from those 7 scrips was less than 5% of the total capital gains.
There was no repetition of purchases of any of the shares, even though the assessee had purchased shares in more than one installment and sold in more than one installment.
It was held that there was no reason to suspect the intention of the assessee and the nature of shares. The ITAT set aside the order passed by Ld CIT(A) and directed the AO to assess the gains under the head Short term capital gains.