Nagindas P. Sheth (HUF) vs. ACIT (ITAT Mumbai)

Despite Large number of transactions in shares, profit assessable as capital gains

The assessee HUF offered income from sale of shares as short-term capital gains (STCG). The AO held the income to be business profits on the ground that (i) the assessee had 158 share transactions in the year which showed the intention to trade, (ii) The regularity and frequency of transactions showed no intention to hold shares to earn dividend and (iii) Instead of one or two demat accounts, the assessee had adopted a professional approach and transacted through several brokers. On appeal, the CIT (A) held that profit on sale of shares held for less than 30 days was business profits while other profits was STCG. On appeal by the assessee and department, HELD deciding in favour of the assessee:

The fact that the assessee has transacted in 158 shares should not be the sole criterion to come to the conclusion that assessee is a trader in shares. The gains earned by the assessee deserve to be assessed as capital gains because:

(a) the assessee was holding the shares in its books as an investor;

(b) the assessee did not have any office or administration set up;

(c) the shares were acquired out of own funds and family funds and not through borrowings;

(d) there was not a single instance where the assessee had squared-up transactions on the same day without taking delivery of the shares;

(e) In the previous and subsequent assessment years, the AO had vide scrutiny assessments treated the assessee as an investor.