Purchase and Sale of Shares – Is it Capital Gain or Business Income ? How it has to be treated ?
Decision to choose between Business income or capital, is based on the frequency, magnitude and the volume of the transaction. While deciding this important point the Honorable judges of Andhra Pradesh High Court in (2012) 6 Tax Corp (DT) 50264 (AP) were of the opinion that in deciding the question whether the shares of a company held by a person constitute his capital assets or they constitute his stock in trade various factors have to be taken into consideration to find out the exact character of the transaction. It was also held that the magnitude, the frequency and the ratio of sales to purchases and the total holding would be the evidence from which the Income-tax Appellate Tribunal can come to a conclusion to find out the true nature of the activities of the assessee.
Finally it was held that the voluminous share transactions were in the ordinary line of the appellants’ business ; purchase of shares by them was not for the purpose of earning dividend but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but in a profit made in the carrying on of a business scheme or profit making ; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of “trade”; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the appellants had not purchased the shares as an investment, but with the intention to trade in such scrips. Thus, the profits on sale and purchase of share in the instant case was taxable as Business Income and not Capital Gains” However, We can also take single isolated transactions involving few shares along with salary income etc, under short term or long term capital gains.
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