The central legal point established in the judgment is that the intention of the assessee and the distinction between shares held as stock in trade and as investment are crucial in determining the nature of income from shares.

JUDGMENT

T.S.Sivagnanam, J. - This appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated October 28, 2009 passed by the Income Tax Appellate Tribunal, 'A' Bench, Kolkata (Tribunal) in ITA No. 1563/Kol/2008 for the Assessment Year 2005-06. The appeal was admitted on 31.03.2010 to decide the following substantial question of law:

'Whether the Tribunal was justified in law in holding that the gain of Rs. 2,52,87,056/- made by the appellant from shares held as investments was business income and not short term capital gains as claimed by the appellant and its purported findings in that behalf and reversing the order of the Commissioner of Income Tax (Appeals) are arbitrary, unreasonable and perverse?'

2. We have heard Mr. J.P. Khaitan, learned Senior Advocate assisted by Mr. Sanjay Bhawmik, Mrs. Swapna Das and Mr. Siddhartha Das, advocates for the appellant assessee and Mr. Tilak Mitra, learned Senior Standing Counsel for the respondent.

3. The Assessee was engaged in the business of stock broking, investment in shares and mutual funds from which income by way of dividend was earned. The assessee claimed short-term capital loss on sale of units of mutual fund of Rs. 1,68,19,921/-. The assessee received dividend in respect of the said units of mutual fund of Rs. 1,50,79,850.06/-.

4. The assessee had furnished the details pertaining to the purchase of units of mutual fund, giving the date of purchase, record date, dividend received, dates of sale and the loss on sales of the units of mutual fund. The Assessing Officer referring to Section 94(7) of the Act, as amended by Finance (No. 2) Act with effect from 01.04.2005 stated that the assessee acquired the units within a period of 3 months prior to the record date and sold them within a period of 9 months after the record date, therefore, disallowed the loss to the extent of dividend of Rs. 1,50,79,850/- and added the same to the assessee's total income. Aggrieved by such order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), VIII, Kolkata [CIT(A)]. The CIT(A) on considering the facts held that the assessee has been investing in shares out of its own funds all along from its inception and the shares have been kept in the balance-sheet of the company and the books of accounts under the investment portfolio and has been valued at cost all along. Further it held that the assessee is being assessed under the head of Long Term Capital Gains and Short Term Capital Gains in respect of its holdings in shares and securities and the own funds of the assessee were sufficient enough for investing in shares and securities. Further the CIT(A) observed that the Assessing Officer himself has treated the investment for more than 12 months to be falling under the head of Capital Gains and only because some shares were sold within the period of 12 months giving rise to income from Short Term Capital Gains, the Assessing Officer held that the income arising therefrom was income from business which according to the CIT(A) was 'heads I gain and Tails you lose'. Further, on noticing the facts the CIT(A) held that in the earlier years the assessee has paid tax at normal rates on income from short term capital gains and the rule of consistency requires the same treatment to be metted to a particular source of income unless there is a change in law or a mistake has occurred in the previous assessment. Thus, the CIT(A) held that the assessee has proved its bona fide as an investor of shares and taking totality of the facts into consideration, the assessee was allowed to compute the income arising from purchase and sale of shares to be income arising from investment chargeable to tax as Capital Gains. The appeal accordingly stood allowed. The Revenue filed appeal before the Tribunal challenging the said order. It wa