When income from sale of shares can be said to be income from business

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IN THE ITAT MUMBAI BENCH ‘B’

Manish P. Gandhi v. ACIT

IT APPEAL NOS. 5290 (MUM.) OF 2008 & 6430 (MUM.) OF 2009

[ASSESSMENT YEARS 2005-06 & 2006-07]

Date of pronouncement – 29.07.2011

Courts have laid down principles for deciding the question as to when income from sale of shares can be said to be income from business. The following are some of the important decisions in this regard:

(a) Whether a transaction of sale and purchase of shares were trading transactions or whether they were in the nature of investments is mixed question of law and fact. Learned CIT(A) v. H. Holck Larsen, [1986] 60 ITR 67.

(b) It is possible for an assessee to be both an investor as well as a dealer in shares. Whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those hold as stock in trade. (CIT v. Associated Industrial Development Co. Ltd., [1971] 82 ITR 586 (SC).

(c) Treatment in the books by an assessee will not be conclusive. If the volume, frequency and regularity with which transactions are carried out indicate systematic and organized activity with profit motive, then it would be a case of business profits and not capital gain. CIT v. Motilal Hirabhai Spg. & Wvg. Co. Ltd., [1978] 113 ITR 173 (Guj); Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685 (SC).

(d) Purchase without an intention to resell where they are sold under changed circumstances would be capital gains. CIT v. PKN Co. Ltd. [1966] 60 ITR 65 (SC). Purchase with an intention to resell would render the gain profit on sale business profit depending on the circumstances of the case like nature and quantity of article purchased, nature of the operation involved. Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC).

(e) No single fact has any decisive significance and the question must depend upon the collective effect of all the relevant materials brought on record. Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC).

The application of the principles as set out above will require reexamination of the correct facts that prevails in the case of the Assessee. Since, the Revenue authorities have proceeded on wrong facts and figures, we, deem it fit and proper to set aside the order of the CIT(A) and remand the issue to the AO for fresh consideration in accordance with law after taking into consideration the correct facts