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In India, there are two heads in which generally income from securities is recognised-
HEAD | NATURE | RATE OF TAX |
Capital Gain | Long Term | 20% |
Long Term (Shares)* | Exempt | |
Short Term | 30% | |
Short Term (111A)* | 15% | |
PGBP | All | 30% |
*Share which are listed in Recognised Stock Exchange.
Generally, investors intend to tax their income under head Capital Gain than PGBP, because it attracts around half tax than business income. Consequently litigations arise between assessee and income tax authorities due to contradictory views regarding income of assessee.
Here are some generally accepted rules are given, considering which decisions are made-
If any of former condition is satisfied, then it is treated under the head PGBP.
A person is allowed to invest in securities through two DMAT Accounts, in which he/she has to specify its nature, i.e, for cc or for personal purpose (Capital Gain).
Venkata Swami Naidu & Co.v.CIT [1959] 35 ITR 594
Supreme Court was dealing with a question whether the excess sum realized on the sale of certain plots was assessable as income from an adventure in the nature of business. The Supreme Court held that in deciding the character of such transaction, several factors were relevant.
The Supreme Court in this case also discussed the test of intention. It held that in cases where the purchase has been made solely and exclusively with the intention of resale at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such intention is a relevant factor and unless it is off-set by the presence of other factors, it would raise a strong presumption that a transaction is an adventure in the nature of trade.
Mohammad & Co.v.CIT [1977] 107 ITR 637
In this case, Gujarat High Court observed that a stock-in-trade is something in which a trader or a business man deals, whereas his capital asset is something with which he deals.
According to the High Court one of the indicators for deciding as to what is stock-in-trade is whether a particular assessee is buying or selling the goods or commodity or whether he has merely invested his money with a view to earning further income or with a view to carrying on his other business.
It was further held by the High Court that the distinction between stock-in-trade and investment is that of selling outright in the course of the business activity and deriving income from exploitation of one’s own assets.
Rohit Anand v. CIT [2010] 327 ITR 445 (DELHI)
Tribunal observed that the assessee invested in shares and treated shares as investment in his books of account; thus, intention was manifested by treatment given to such investment that the investment was out of own fund and not from borrowed funds, that the investment was not rotated frequently; the total number of transactions were very few; all shares purchased were not sold and rather held for quite number of days.
The assessee held also earned huge dividend income from such shares. The Assessing Officer, merely because the total volume of transactions was substantial, was guided to hold the income as business income.
However, he failed to recognise that the volume of transactions included the appreciation in shares also and such appreciation had been offered for tax.
Hence, the Tribunal was justified in holding that respondent-assessee was not a trader in stock but only a investor and further his income on sale of shares was capital gain and not business income.
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