Mere liquidation of shares in short span of time doesn’t mean that assessee was doing business in shares

Mere liquidation of shares in short span of time doesn’t mean that assessee was doing business in shares

Section 45, read with section 28(i), of the Income-tax Act, 1961 – Capital gains- Chargeable as – Business income vs Capital gains – Shares dealings

Circulars and Notifications: Circular No. 4/2007, dated 15-6-2007.

Where assessee made investment in shares with intention to earn dividend income, merely because she liquidated its investment within a short span of time which had given better overall earning to her, it could not be concluded that assessee was doing business in shares and profit arising from sale of shares was taxable as business income  [2015] – ITAT MUMBAI -Smt. Sujata Kapadia v. JCIT

FACTS

During relevant year, the assessee sold shares of ‘T’ Ltd. to foreign company. The income arising from sale of shares was declared as short term capital gain. The Assessing Officer opined that profit earned by assessee was taxable as business income.

The Commissioner (Appeals) confirmed the order of the Assessing Officer. On second appeal:

HELD

From the record, it was found that assessee was investing in shares as investor. In the earlier assessment years 2006-07 and 2007-08, the short term capital gain offered by the assessee was accepted by the Assessing Officer while making scrutiny assessment under section 143(3). Furthermore, in the immediately subsequent assessment year i.e. 2009-10, the Assessing Officer has also accepted assessee’s claim of short term capital gain after aking detailed enquiry. Thus, there is no change in the facts and circumstances during the year under consideration.

Even though principle of res judicata is not applicable to Income-tax proceedings but at the very same time, the rule of consistency still applies when there is no change in the facts and circumstances. It is pertinent to mention that assessee’s treatment of shares as investment and thereby declaring short term capital gains have been accepted by the Assessing Officer. It was also found that assessee had entered into transaction only for 23 days when the market was at peak, accordingly, assessee took the benefit of peak market and sold its investment. it was also found that these shares were accepted as investment by department as on 31-3-2007, which was carried as opening investment as on 1-4-2007 and the same was sold during the year.

Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares.

It is also noted that the CBDT vide its Circular no.4 of 2007, dated 15-6-2007 has also recognized possibility of two portfolios, i.e. one ‘Investment portfolio’ comprising of securities which are to be treated as capital assets and the other ‘Trading portfolio’ comprising of stock in trade which are to be treated as trading assets. In view of these facts, profit arose on shares in respect of delivery based transaction are liable to be taxed as capital gain and not as business income.

In the instant case, it was noted that the assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business.

In view of the above, there was no merit in the action of the Assessing Officer for treating the short term capital gain as business income.

In the result, appeal of the assessee is allowed.

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