2004 (11) TMI 509 - AT - Income Tax

Loss on sales of shares - Correct Head - Capital gains Or Not - HELD THAT - Admittedly, most of the shares were held for more than 10 years and they were mentioned in the balance-sheet as investment , in contrast to certain shares which were clearly shown as stock-in-trade . The plea of the assessee that though the shares were held as investment, due to bad financial and market conditions, the shares were sold for augmenting the resources of the company, was not assailed by the tax authorities. The Assessing Officer appears to have been observed by the fact that number of shares were sold during the previous year relevant to the assessment year under consideration. It is well settled principles of law that mere volume of transactions would not alter the nature of transaction unless the surrounding circumstances support the same. In the instant case, the assessee s conduct of holding the shares for 10 long years and recording in the books as investment indicate that the shares were held as investment and not as stock-in-trade . We, therefore, accept the contention of the assessee that the profit/loss on sale of shares is assessable to tax under the head capital gains . The Assessing Officer is directed accordingly. In the result, the appeal is allowed.

Summary

Issues Involved: Assessment of loss on sales of shares under the appropriate head for tax purposes.

Summary:
The appeal was filed by the assessee-company against the order of the CIT(A)-IV, Hyderabad for the assessment year 2000-01, which was 11 days beyond the limitation period. The delay was condoned, and the appeal was considered on merits.

Issue 1: Classification of Loss on Sales of Shares
The main issue revolved around determining the appropriate head under which the loss on sales of shares should be assessable for tax. The assessee-company, engaged in finance and investment in shares, declared a loss of Rs. 23,09,340 under the head 'capital gains' for the sale of specific shares. The Assessing Officer contended that the transaction should be assessed under the head 'profits or gains of business or profession', based on the volume and nature of the business activity.

Issue 1 Details:
The assessee argued that the shares were held as investments, evidenced by their long-term holding and classification in the balance sheet. Despite the high volume of shares sold, the assessee maintained that they were not held as stock-in-trade but as investments. The CIT(A) and Assessing Officer had previously treated similar transactions as business activities, but the assessee contended that the shares were intended for investment purposes, not for trading.

Judgment:
After considering the submissions and evidence, the Tribunal accepted the assessee's contention that the shares were held as investments, not stock-in-trade. The long holding period and classification as investments in the balance sheet supported this conclusion. Therefore, the profit/loss on the sale of shares was held to be assessable under the head 'capital gains', directing the Assessing Officer accordingly. The appeal was allowed in favor of the assessee.