2012 (10) TMI 1116 - HC - Income Tax

Gain on sale of shares - capital gain or busniss income - Held that - Commissioner as well as the Tribunal concurrently found as a matter of fact that looking to the relevant factors including the amount of shareholding of the assessee the volume and the frequency of the purchase and sale of shares etc. it cannot be stated that the assessee was in the business of trading of shares. More significantly we find that the assessee had sold shares only worth 83, 712/- during the year under consideration inviting short term capital gain. As against that bulk of the shares were held by the assessee for a long period of time inviting long term capital gain for a total sum of 53, 84, 239/-. Totality of the facts and circumstances of the case would lead to an inescapable conclusion that CIT (Appeals) as well as the Tribunal correctly applied the factual and legal position.

Summary

Issues:
1. Whether gain on sale of shares should be treated as long-term capital gain or business income.
2. Whether the assessee should be considered as an investor or a trader in shares.

Issue 1:
The High Court considered whether the gain on the sale of shares, amounting to a specific sum, should be categorized as long-term capital gain or business income. The court reviewed the facts and circumstances of the case to determine the nature of the assessee's activities in trading shares. The court referred to a previous case involving a salaried individual who also engaged in share trading. In that case, the Assessing Officer had treated the income from the sale of shares as business income. However, the appellate authority and the Tribunal disagreed, emphasizing the intention of the assessee at the time of purchase and the distinction between investment and trading. The Tribunal observed that the assessee, being a salaried employee, had clear intentions of investing in shares rather than trading. The court noted that the assessee had sold only a small portion of shares for a short-term gain, while holding a significant amount for a long period, resulting in long-term capital gain. Consequently, the court upheld the Tribunal's decision, concluding that the assessee was not engaged in the business of trading shares.

Issue 2:
The second issue revolved around whether the assessee should be classified as an investor or a trader in shares. The court analyzed the factors such as the amount of shareholding, volume, and frequency of transactions to determine the nature of the assessee's activities. The court highlighted that the assessee, being a salaried individual, did not maintain separate investment and trading portfolios. The court emphasized that the intention at the time of purchase was crucial in distinguishing between investment and trading activities. The court concurred with the findings of the Commissioner and the Tribunal, stating that based on the facts and circumstances, the assessee's activities aligned more with investment rather than trading. The court dismissed the tax appeal, affirming that no question of law arose from the case.

In conclusion, the High Court dismissed the tax appeal, upholding the Tribunal's decision regarding the characterization of the gain on the sale of shares as long-term capital gain and classifying the assessee as an investor rather than a trader in shares.