CIT vs. Naishadh V. Vachharajani (Bombay High Court)

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 and Tribunal upheld the assessee’s claim on the basis that (a) As the LTCG shares were held for several years, the assessee acted as investor, (b) the STCG shares were assessable as such because (i) there was no intra-day trading, (ii) most of the shares were held for a period of 2 to 5 months, (iii) 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, (iv) the assessee has no borrowings and (v) merely because there was a speculative business does not mean that even delivery based transactions of shares should be assessed under the head business. On appeal by the department, HELD dismissing the appeal:

The Tribunal recorded the finding that in a number of cases the assessee had held the LTCG shares for more than 10 years and that the purchase and sale of shares within a period of one year had been offered as STCG. In the preceding AY, the AO accepted this. As per Gopal Purohit 228 ITR 582 (Bom) (SLP dismissed) it is open to an assessee to trade in the shares and also to invest in shares. When shares are held as investment, the income arising on sale of those shares is assessable as LTCG/STCG. Accordingly, the decision of the Tribunal in holding that the income arising on sale of shares held as investment were liable to be assessed as LTCG/STCG cannot be faulted.