Ramesh Babu Rao vs. ACIT (ITAT Mumbai)

Large volume in shares not deciding factor to hold assessee trader

The assessee, a retired professor, offered gains from sale of shares as short-term capital gains (STCG). The AO assessed the gains as business profits on the ground that (a) in the earlier years, the assessee had offered similar gains as business profits and the volume of transactions was higher in the present year, (b) there were 54 scrips which were purchased and sold during the year which resulted in sales of more than Rs. 24 crores, (c) In one particular share, the assessee purchased on 54 occasions and sold on on 25 occasions within a short duration. On appeal, the CIT (A) reversed the AO. On appeal by the department, HELD dismissing the appeal:

The assessee was an investor and the gains are assessable as capital gains because:

(a) The assessee was a good timer of purchase and sale of shares thereby substantially increasing his gains in the stock market;

(b) The large turnover was because of bulk purchases and sales in a scrip. There were very few transactions of purchase and sale, as the assessee was purchasing in block of a particular share in large volume. Accordingly, large volume cannot be a deciding factor to hold as a trader;

(c) the assessee was not a broker or sub-broker and did not have any office establishment;

(d) The assessee did not do any speculative activity nor indulge in any sales without delivery;

(e) The shares were shown as capital assets in the books of account;

(f) The assessee had not pledged any shares with any financial institutions, nor borrowed any funds