INCOME TAX ACT, 1961

Section 14

Head of income - Business income or capital gains - AO assessed profit on sale of shares as capital gain considering high volume of transactions and utilization of borrowed funds -

Assessee declared short-term and long-term capital gains on shares and mutual fund units. AO treated capital gains on share transactions as business income, on the ground that volume and frequency of transactions were high but systematic and undertaken with profit motive. Held: Magnitude of the transactions do not alter the nature of the transactions. Also the Act does not prohibit assessee from making investments in capital asset after using borrowed funds. Assessee had consistently disclosed/reported her holdings in shares/mutual funds in the balance sheet under the head investments which manifests intention of being an investor. The same had been reported in the income-tax return form consistently under the head 'Investments', and not under the head 'Current assets'. Also revenue had not disturbed the status declared by assessee and accepted the returns under section 143(3) in the earlier as well as subsequent years assessee purchased the shares on delivery basis. Though volume of transactions was high and certain borrowed funds were also deployed, however, mere volume of transactions and utilization of borrowed funds could not be criterion to alter the treatment given by assessee about her investment in the books. Therefore, AO was directed to treat the income earned by assessee on share/mutual funds transactions under the head Capital Gains by considering the assessee as an investor.

Relied:Sarnath Infrastructure (P.) Ltd. v. Asstt. CIT (2009) 120 TTJ 216 (Lkw-Trib) : 2009 TaxPub(DT) 0241 (Luck-Trib), CIT v. Rewashanker A. Kothari (2006) 283 ITR 338 (Guj) : 2006 TaxPub(DT) 1357 (Guj-HC), Pari Mangaldas Girdhardas v. CIT (1977) 6 CTR 647 (Guj.) : 1977 TaxPub(DT) 928 (Guj-HC), ITO v. Divyam Tie-up (P.) Ltd. [ITA No. 164 (Kol.) of 2016, dated 26-4-2018] : 2018 TaxPub(DT) 2366 (Kol-Trib), CIT v. Amitabh Sonthalia [G.A. No. 2877 of 2013, dated 8-1-2014], CIT v. Gopal Purohit (2011) 336 ITR 287 (Bom-HC) : 2010 TaxPub(DT) 1272 (Bom-HC) and CIT v. Kapur Investments (P.) Ltd. (2015) 234 Taxman 149 (Karn-HC) : 2015 TaxPub(DT) 3032 (Karn-HC).