Business income or short term capital gain – A. Ys. 2005-06 and 2006-07 – Transaction in shares NBFC – Whether business transactions or investment – Frequency of transactions is not conclusive test – Concurrent finding that transactions not business activity – Upheld

The assessee was a certified NBFC. Its main activities were giving loans and taking loans and investing in shares and securities. For the A. Ys. 2005-06 and 2006-07, the Assessing Officer opined that the activity which, according to the assessee was on investment account amounted business activity and, therefore, he treated the short term capital gains of Rs.1,01,00,000 as business income. The Commissioner (Appeal) and the Tribunal accepted the assessee’s claim that it is short term capital gain.

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

“i) The frequency of transactions in shares alone cannot show that the intention of the investor was not to make investment. The Legislature has not made any distinction on the basis of frequency of the transactions. The benefit of short term capital gains can be availed of, for any period of retention of shares upto 12 months. Although a ceiling has been provided, there is no indication as regards the floor, which can be as little as one day. The question essentially is a question of fact.

ii) The assessee had adduced proof to show that some transactions were intended to be by way of investment and some transactions were by way of speculation. The revenue had not been able to find fault from the evidence adduced. The mere fact that there were 1,000 transactions in a year or mere fact that the majority of the income was from the share dealings or that the managing director of the assessee was also the managing director of a firm of share brokers could not have any decisive value.

iii) The Commissioner (Appeals) and the Tribunal have concurrently held against the views of the Assessing Officer. On the basis of the submissions made on behalf of the Revenue, it was not possible to say that the view entertained by the Commissioner (Appeals) or the Tribunal was not a possible view. Therefore, the decision of the Tribunal could not be said to be perverse. No fruitful purpose was likely to be served by remanding the matter.”