2015 (11) TMI 1658 - AT - Income Tax

Income from sale of certain shares - LTCG or Business income - Held that - It is true that in the various judicial pronouncements cited by the ld. Counsel for the assesese, the conversion of shares from stock in trade into investment has been accepted despite there being no specific provision to recognize such conversion. However, in assessee s own case, the Tribunal has not accepted such conversion in the immediately preceding year, i.e. A.Y. 2005-06 and it, therefore, follows that the shares sold by the assessee during the year under consideration continued to constitute its stock in trade and not investment. Consequently the profit arising from the sale of the said shares, in our opinion, is chargeable to tax in the hands of the assessee as its business income as rightly held by the Assessing Officer and not long-term capital gain as held by the ld. CIT(Appeals). We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore that of the Assessing Officer. - Decided in favour of assessee

Summary

Issues:
1. Treatment of profit from sale of shares as long-term capital gain or business income.
2. Disallowance made under section 14A.

Analysis:

Issue 1: Treatment of profit from sale of shares
The appeal involved a dispute over the categorization of profit from the sale of shares by the assessee as long-term capital gain or business income for the assessment year 2006-07. The Revenue challenged the action of the ld. CIT(Appeals) in treating the profit as long-term capital gain instead of business income as held by the Assessing Officer. The assessee, engaged in leasing, finance, and investment, transferred shares from trading stock to investment, subsequently selling them. The Assessing Officer disallowed the claim for exemption on long-term capital gain, treating it as business profit. The ld. CIT(Appeals) accepted the assessee's claim, citing judicial precedents and lack of specific provisions prohibiting such conversions. The Tribunal, however, upheld the Assessing Officer's decision, stating that since the conversion was not accepted in the previous year, the shares sold continued as stock in trade, making the profit taxable as business income. The Tribunal set aside the ld. CIT(Appeals) order and restored that of the Assessing Officer, allowing the Revenue's appeal.

Issue 2: Disallowance under section 14A
The Cross Objection filed by the assessee related to the disallowance made under section 14A, which was sustained by the ld. CIT(Appeals). The Tribunal noted a similar issue in the assessment year 2005-06 and decided to restore the matter to the file of the Assessing Officer for fresh consideration. As the facts and issues were similar in the current year, the Tribunal set aside the ld. CIT(Appeals) order on this issue as well, treating the Cross Objection of the assessee as allowed for statistical purposes. The appeal of the Revenue was allowed, and the Cross Objection of the assessee was treated as allowed for statistical purposes.

In conclusion, the Tribunal upheld the Revenue's appeal regarding the treatment of profit from the sale of shares as business income instead of long-term capital gain. Additionally, the Tribunal allowed the Cross Objection of the assessee related to the disallowance under section 14A, directing a fresh consideration by the Assessing Officer in line with the decision for the assessment year 2005-06.

This detailed analysis covers the issues involved in the judgment comprehensively, highlighting the key arguments, decisions, and legal principles applied in the case.