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Issues involved: Assessment of profit earned on sale of shares as capital gains or business income.
Summary: The High Court of Kerala heard an appeal by the Revenue against the order of the Income-tax Appellate Tribunal regarding the assessment year 1991-92. The main issue was whether the profit from the sale of shares by the assessee, a share broker, should be treated as capital gains or business income. The assessing authority considered all shares held by the assessee as stock-in-trade due to being a dealer in shares, denying the claim for relief under section 54F of the Income-tax Act. However, the Commissioner of Income-tax (Appeals) found that not all shares were converted into stock-in-trade, directing the Assessing Officer to allow deductions under relevant sections. The Tribunal upheld this view, leading to the Revenue's appeal before the High Court. The Income-tax Department argued that since the assessee was a regular dealer in shares, all shares should be considered as stock-in-trade regardless of their original acquisition nature. Citing a Supreme Court decision, the Department emphasized that the key factor is whether the shares were initially acquired in the course of business. However, as per the Tribunal's findings, the shares in question were consistently treated as personal investments by the assessee, reflected in wealth-tax returns and not converted to stock-in-trade. Therefore, the Tribunal's decision to grant relief under section 54F was deemed appropriate by the High Court. In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision to assess the profit from the sale of shares as capital gains based on the assessee's treatment of the shares as personal assets and the lack of evidence showing their acquisition in the course of business.
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