The Hon’ble ITAT, Ahmedabad in Swatiben Anilbhai Shah v. DCIT [Income Tax Appeal Nos. 1513, 1514 and 1515/Ahd/2019 decided on January 29, 2021] held that where assessee purchased shares and recorded them in investment portfolio and it was justified that the intention of the assessee was to purchase the shares as capital asset, then income arising out of such shares was to be taxed as ‘short term capital gain’ (STCG) under the head ‘Capital Gains‘ and not as business income under the head ‘Profit and Gains from Business or Profession’ (PGBP).
A return of income was filled by Swatiben Anilbhai Shah (“the Appellant”) on November 7, 2007 declaring a total income of Rs. 1,41,20,990/-. Search and seizure was conducted on February 02, 2008 under Section 132 of the Income Tax Act, 1961 (“the IT Act”) and a notice dated August 01, 2008 was issued under Section 153A of the IT Act.
In response to the above notice dated August 01, 2008 the Appellant filed another return of income under Section 153A of the IT Act declaring total income at Rs. 1,58,02,820/- which was revised to Rs. 1,54,88,670/- thereafter. As per the returns filed under Section 153A of the IT Act, the Appellant inter alia declared income under the head ‘Capital Gains’ as STCG of Rs. 1,40,01,808/-
An order dated May 05, 2009 was passed under Section 153A read with Section 143(3) of the IT Act wherein STCG of Rs. 1,40,01,808/- was treated as ‘business income’ by the Assessing Officer (“AO”) as against the claim of the Appellant to be assessed as STCG.
The matter travelled up to the Hon’ble ITAT, Ahmedabad but they set aside the issue regarding the nature and character of gains arising to the Appellant amounting to ₹ 1,40,01,808/- for re-examination through an order dated May 19, 2016.
The AO, once again called for the details of borrowed funds and details of transactions of purchase and sales of shares of Pyramid Siamira Theater Ltd. (“PSTL”) wherefrom the capital gain was mainly derived and passed the order concluding that in the absence of utilization of own funds for purchase of shares and in the absence of separate de-mat account maintained for purchase and sale of shares in investment account vis-a-vis trading account, the gains arising on sale of shares are required to be treated as ‘business income’.
Aggrieved by the Impugned order, the Appellant preferred an appeal before the CIT(Appeals) but the appeal was rejected.
Further aggrieved, the Appellant preferred an appeal before the Hon’ble ITAT, Ahmedabad.
Whether the gains arising on sale of shares be treated as STCG and taxed under the head ‘Capital Gains’ or Business Income and taxed under the head ‘PGBP’?
The Hon’ble ITAT, Ahmedabad in Income Tax Appeal Nos. 1513, 1514 and 1515/Ahd/2019 decided on January 29, 2021 has held as under:
The CBDT had issued an Office Memorandum dated December 13, 2005 to clarify the basis of difference between shares held as stock in trade and shares held as investments. Circumstances that need to be considered by the AO in determining whether a person is a trader or an investor in stocks are as follows:
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