2015 (1) TMI 1294 - HC - Income Tax

Nature of income - Share transaction - Short term capital gain v/s business income - ITAT confirmed gain as STCG - Held that - The bulk of the shares held by the assessee were for a substantial period; this persuaded the appellate authorities to hold that the test indicated by the previous rulings of the Supreme Court as to whether the income was derived on account of liquidation of investments stood satisfied. In similar circumstances in Commissioner of Income Tax v. Devasan Investments Pvt. Ltd. (2014 (4) TMI 682 - DELHI HIGH COURT ) and other decisions this Court has held that there cannot be a single factor or criterion to determine whether income falls under the head of short term capital gain or of business income. The ITAT has followed the reasoning indicated in the judgment of the Supreme Court and appropriately applied the tests. Consequently we find no infirmity in this order. As urged on behalf of the appellant that no claim for expenditure could have been allowed given that the income is not a business income. Consequently we hereby direct that while giving effect to the order of the ITAT the AO shall examine the permissibility of expenditure in relation to the short term capital gain as well as in relation to the business income in accordance with law.

Summary

Issues: Revenue appeal under Section 260A of the Income Tax Act, 1961 regarding classification of income as short term capital gain or business income.

Analysis:
The judgment involves a revenue appeal under Section 260A of the Income Tax Act, 1961, challenging the classification of income by the Income Tax Appellate Tribunal (ITAT) as short term capital gain instead of business income. The respondent, a non-banking finance company, had purchased and sold shares for a specific amount, claiming it as short term capital gain. However, the Assessing Officer (AO) considered it as business income and taxed it accordingly. The appellate authorities, including the CIT (A) and the ITAT, ruled in favor of the assessee based on the substantial holding period of the shares. The court noted that previous rulings indicated that the income derived from the liquidation of investments could be classified as short term capital gain. The judgment cited Commissioner of Income Tax v. Devasan Investments Pvt. Ltd. and other decisions to emphasize that no single factor determines the classification of income. The ITAT's application of the tests based on Supreme Court judgments was found appropriate, leading to the dismissal of the appeal as no substantial question of law arose.

Furthermore, the court addressed the appellant's argument regarding the permissibility of expenditure in relation to the income classification. It directed the AO to examine the claim for expenditure while implementing the ITAT's order, considering both short term capital gain and business income, in accordance with the law. The judgment concluded by disposing of the appeal with the aforementioned directions, emphasizing the importance of proper examination of expenditure claims in the context of different income classifications.