Earlier the income tax department had said that if shares are held for less than 30 days then the transaction will be considered as income from business and hence they will be charged taxes at 30%. But with the ruling by ITAT, the tax rate will be brought down to the earlier 15% tax, as considered for short-term capital gains.
The statute provides distinction between long-term and short-term capital gains. For long-term capital gains, shares have to be held for more than 365 days, they are not taxed. If a share is held for less than 365 days then profit on it will be taxed as short-term capital gains, the tax rate for this is 15%.
Meanwhile ITAT observed that the law does not use 30-day mark for distinguishing between business income and short-term capital gains. And it also drew attention to the parameters that was laid by the Supreme Court to distinguish between investment and trading in shares.
The intention of the assessee at the time of buying shares, if the assessee had borrowed money to purchase the shares and paid interest on it, it also takes into account the frequency of such purchases and disposal in that particular item, whether the purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value, and how the value of items has been taken in the balance sheet, are critical component to decide whether a gain is business income or a short-term capital gain.
The ITAT held that its a combination of factors that helps determine if a transaction was trading activity or investment. Each of the case will be decided based on the facts presented during the case. Therefore, it sis not correct to treat a transaction as investment if the holding period is more than 30 days and then treating it as business income because the holding period is less than 30 days is not correct.