1997 (10) TMI 394 - AT - Income Tax

Summary

Issues Involved:
1. Nature of Income from Sale of Shares: Whether the surplus from the sale of 7,00,000 shares is assessable under 'Profits & gains of business' or 'Capital gains'.
2. Treatment of Fractional Bonus Coupon: Whether the income from the sale of fractional bonus coupon of shares in Manjushree Plantation Ltd. is business income.

Summary:

1. Nature of Income from Sale of Shares:
The core issue is whether the surplus from the sale of 7,00,000 shares of Indo-Gulf Fertilizers & Chemicals Corporation Ltd. (IGFCCL) should be assessed under 'Profits & gains of business' or 'Capital gains'. The assessee, who had initially purchased 2,50,000 shares of IGFCCL, later acquired another 7,00,000 shares. The Assessing Officer and CIT(A) determined that the transaction was an adventure in the nature of trade, citing factors such as the utilization of borrowed funds, the short holding period, and the large scale of transactions. The Tribunal, however, had previously ruled that the sale of the first lot of 2,50,000 shares was on capital account.

The Tribunal, in the current appeal, upheld the revenue's view, emphasizing that the acquisition of 7,00,000 shares was substantially financed through borrowed funds, indicating a trading intention. The Tribunal noted that the assessee's financial position at the time of acquisition did not support the claim of investment, as she had significant liabilities and limited personal funds. It concluded that the purchase and sale of 7,00,000 shares constituted a business transaction, thus the profit of Rs. 2,57,42,175 is assessable as business income.

2. Treatment of Fractional Bonus Coupon:
The assessee received a fractional share in Manjushree Plantation Ltd., which was sold. The CIT(A) treated the income from this sale as business income. However, the Tribunal found no evidence suggesting an intent to trade in this share and noted that the tax impact was negligible. Consequently, the Tribunal allowed this ground, treating the income from the sale of the fractional share as a short-term capital gain rather than business income.

Conclusion:
The appeal was largely dismissed, with the Tribunal affirming the assessment of the profit from the sale of 7,00,000 shares as business income. The only relief granted was regarding the sale of the fractional bonus coupon, which was treated as a short-term capital gain.