Commissioner of Income Tax vs Bankim Jayantilal Shah

Akil Kureshi, J.—Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (''the Tribunal'' for short) dated 25.5.2012 raising following question for our consideration:

Whether the Appellate Tribunal has substantially erred in directing to tax the income earned by the assessee under the head ''Long Term Capital Gain'' or ''Short Term Capital Gain'' instead of taxing it under the head ''Income from business and profession'' by not considering the fact that in this case, it was a continuous activity on part of the assessee in dealing with shares and it was carried on with a profit motive?

Controversy is with respect to the claim of the assessee for long term capital gain arising out of the sale of shares. Revenue held a belief that the assessee was in the business of buying and selling shares and such income, therefore, should be treated as business income. Tribunal ultimately ruled in favour of the assessee making following observations:

We have heard both the sides and perused the materials before us carefully. From the order of the learned CIT(A) of page 7, it is apparent that the assessee had held three scripts for the period of 1380 days and these scripts were sold for a gain of Rs. 61,11,931/- which clearly establishes that the assessee was holding these three scripts as investment and gains derived on sale of the same will result into income chargeable under the head long term capital gain. Further, during the assessment year there were only five transactions relating to such sale. The other lone transaction of sale of one script valued at Rs. 672/- which was held for one day cannot alter the position of the assessee to hold that the assessee is in the business of trading in shares. In determining whether the assessee is holding the scripts for investment or trading, the intention of such transactions should be seen. Such intentions can be construed by the pattern of purchase and sale of the scripts and period of holding. For the year under consideration, the assessee had sold three scripts in five transactions which he had held for as long as 1380 days. The only other transaction relates to sale of one scripts amounting to Rs. 672/- which he had held for a day. Considering the overall facts and circumstances of the case, we do not have any hesitation to hold that the transactions effected by the assessee for the assessment year 2007-08 resulting in gain of Rs. 61,11,931/- and Rs. 672/- to be long term capital gain and short term capital gain respectively and not income chargeable under the head of business and profession. It is ordered accordingly.

Having perused the documents with the assistance of the learned counsel for the Revenue, in the present case, the Tribunal noted that the assessee had held three scrips for period of 1380 days which were then sold for a gain of Rs. 61.11 lacs. Other lone transaction during the year under consideration was sale of one scrip valued at Rs. 672/-. The Tribunal was of the opinion that merely this scrip was held only for one day would not be sufficient to hold that the assessee was in the business of trading in shares. The entire issue having been examined by the Tribunal on the basis of peculiar facts, in our opinion, no question of Law arises in this appeal. To reiterate, during the entire year under consideration the assessee had sold only three scrips which were previously held by the assessee for 1380 days. One more transaction of solitary nature in addition to the above sale of three scrips was entered by the assessee. To our mind, the Tribunal was, therefore, justified in repelling the Revenue''s stand that the assessee was engaged in the business of trading in shares.

Tax Appeal is, therefore, dismissed.