2013 (1) TMI 892 - HC - Income Tax

Whether the income earned from the sale of shares is admissible as business income or capital gains - Held that - The assessee was carrying business of investment in shares for last 30 years and for the last 25 years was assessed to tax under the head capital gains and not under the head of profit and gains of business by the revenue - The revenue never treated the shares as stock in trade of the respondent assessee - hence assessee is not carrying on business of shares trading- thus no question of law arises - appeal is dismissed in favor of assessee

Summary

Issues:
1. Whether income from the sale of shares is admissible as business income or capital gain.
2. Whether the Tribunal's decision regarding the nature of the assessee's share transactions is correct.
3. Whether the profits from share transactions should be treated as investment income for tax purposes.

Issue 1:
The dispute revolves around whether the income derived from the sale of shares should be categorized as business income or capital gain. The revenue contends that the assessee was engaged in share trading business based on volume, turnover, holding period, and transaction value. However, both the Commissioner of Income Tax (Appeals) and the Tribunal found that the assessee had been involved in the investment business for 30 years, with 25 years of assessment under capital gains. The revenue never treated the shares as stock in trade. The concurrent factual finding by both authorities, which the revenue failed to challenge effectively, supports that the assessee was not conducting share trading as a business. Consequently, no question of law arises in this regard.

Issue 2:
The revenue raised questions challenging the Tribunal's decision to treat the assessee's share transactions as capital gains instead of business income. The Tribunal's findings were based on the assessee's long history of investment in shares and the absence of treating shares as stock in trade. The Tribunal's decision was supported by the Commissioner of Income Tax (Appeals), and the revenue failed to demonstrate any perversity in this factual finding. Therefore, the Tribunal's determination that the assessee was not engaged in share trading business but rather in investment activities was upheld.

Issue 3:
The final issue concerns the treatment of profits from share transactions for tax purposes. The revenue argued that all profits from share transactions should be considered business income, while the assessee claimed benefits like indexation and exemptions on share investments as long-term investments. The Tribunal and the Commissioner of Income Tax (Appeals) found that the assessee's activities were more in line with investment rather than trading. As a result, the profits were correctly treated as investment income, and the benefits claimed by the assessee were allowed. The revenue's contentions were dismissed, and the appeal was rejected with no costs awarded.

This judgment clarifies the distinction between share trading as a business activity and share investment for capital gains. The courts emphasized the importance of factual findings in determining the nature of the taxpayer's activities and upheld the treatment of the assessee's share transactions as capital gains from investment activities rather than business income.