Recently in Acee Enterprises vs. Commissioner of Income Tax, it was held that without considering the period of holding to shares, number of transactions, income from share transactions could not be held as ‘business income’. Thus, without considering the material facts, profit from shares shall not be taxed as business profit.

Facts of the case:

The appellant changed the nature of its portfolio from shares held as stock-in-trade to that of shares held as an investment in the A.Y 2005-06. The sale consideration from such shares was claimed as short term capital gain. During the assessment proceedings, the AO merely followed his predecessor’s order for the year related to assessment years 2005-06 and 2006-07. It was held that the transactions relating to shares treated by the appellant as short-term capital gains should be taxed under the head ‘profits and gains of Business of Profession’.

On appeal to the Commissioner (Appeals), order of AO was upheld. Aggrieved by the order, the appeal was made to the Tribunal who took the same view.

On appeal to High Court

It was held that:

The High Court noticed that the assessment year 2005-06 was the first year, in which the appellant changed the nature of its portfolio from shares held as stock-in-trade to that of shares held as an investment. In regard to other assessment years, the Tribunal did not undertaken the facts of the number of transactions relating to sale and purchase, the period for which shares were held and other relevant criteria, which have been elucidated in Circular No. 4 of 2007 dated 15-6-2007.

The appellant argued that the earlier order was based on the transactions in shares of 8 companies, which were held for a period ranging from 6 days to 97 days, but the appellant states that there were other shares too, which were held for longer period. For the assessment year 2008-09, there was no discussion and elucidation. Thus, it was clear that the Tribunal’s order does not refer to the factual matrix relating to the assessment years 2007-08 and 2008-09.

It was also noticed that the appellant had declared long-term capital gains and, therefore, the stand of the appellant is that he was an investor as well as trader in shares.

Thus, the Court took the view that the Tribunal has not dealt with the contentions raised after examining and ascertaining the facts in detail. The factual position can vary and can be materially different. The Tribunal has concluded his order without referring to the facts of the particular year.

The question of law, therefore, has to be answered in favour of the appellant, but with an order of remand. Thus, the impugned order of the Tribunal was set aside and the matter was remanded back for disposal afresh.

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