ACIT vs. Naishadh V. Vachharajani (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: March 2, 2011 (Date of publication)

Click here to download the judgement (vachharajani_shares_stcg_business_income.pdf)

Despite high volume & short holding period, shares gain is STCG

The assessee, a marine consultant, offered income by way of LTCG, STCG, speculative profit & profit from futures trading. The AO held that as the volume of transactions was high (222), the period of holding of the STCG shares was short (2 -5 Months) & there was speculation & F&O profit, the LTCG & STCG was assessable as business profit. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:

(i) As regards the LTCG, the shares were held for several years and so the assessee has acted as investor and not as a trader and so the gains are assessable as LTCG;

(ii) As regards the STCG, the view of the CIT(A) had to be upheld because

(a) there was no intra-day trading,
(b) most of the shares were held for a period of 2 to 5 months,
(c) In the preceding AY, the AO did not assess the STCG as business income and on the principles of consistency, a different view cannot be taken on the same facts,
(d) the assessee has no borrowings and
(e) merely because there was a speculative business does not mean that even delivery based transactions of shares should be assessed under the head business.

For more see SMK Shares & Stock Broking, Nehal V. Shah, Vinod K. Nevatia, Gopal Purohit 228 CTR 582 (Bom), PNB Finance & Industries (Delhi High Court), Management Structure & Systems 41 DTR 426, Paresh D. Shah 2 ITR 311 (Trib) & Smt. Sadhana Nabera (contra)
One comment on “ACIT vs. Naishadh V. Vachharajani (ITAT Mumbai)
  1. gopal says:

    sir in view of difference of opinion on the point in issue by the benchs matter should be resolved by making certain rule as to define nature of transaction.

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  1. […] For more on whether profits from shares is assessable as capital gains or business profits see ACIT vs. Naishadh V. Vachharajani (ITAT Mumbai) & the cases referred to […]

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