Capital gains vis-à-vis business income — Transactions in shares.

The assessee company is engaged in the management
consultancy, investment advisory and equity research services and also dealing
in investments. It filed return of income declaring profits of Rs.1.03 crores
earned by it on sale of shares as long-term and short-term capital gains. The AO
noted that the assessee was regularly dealing in the shares throughout the year
and held that the profit/gain earned from dealing in the shares is a business
income. Upon further appeal, the CIT(A) also confirmed the assessment order on
this issue.

The balance sheet filed by the assessee and as per the books
of account, the assessee has treated the entire investment in the shares as an
investment only and not as a stock-in-trade. Another important aspect to be
considered here is that the assessee is not a share-broker, nor is he having a
registration with any stock exchange. Moreover, some scrips are held for more
than five years and it is not the case of the AO that there were any derivative
transactions by the assessee, nor is it a case of the AO that there were
transactions without delivery. In the present case, both the authorities have
not disputed that the transactions are complete with delivery. The assessee has
not borrowed any money for investing in shares and used his own surplus funds
and these facts have not been disputed by the AO. In the case of the assessee,
in the preceding years, the assessee is consistently declaring the gain/profit
on the sale of the shares under the head ‘capital gains’ either
long-term or short-term and the same has been accepted by the AO. It is true
that the rule of res judicata is not applicable to the income-tax proceedings,
but at the same time, it is also well-settled principle that if there is no
change in the facts, then there should be consistency in the approach of the
Revenue authorities while deciding the tax liability of the assessee. Another
aspect to be considered here is that the assessee has received substantial
dividend and that is also disclosed. After considering the totality of the
facts, it was held that the transactions of sale and purchase of the shares by
the assessee cannot be treated in the line of trading in the shares, nor can it
be treated as an adventure in the nature of the trade.