2010 (10) TMI 109 - HC - Income Tax

Business profit versus capital gain - CIT(A) directed the AO to treat the profit on sale of shares as capital gain instead of income from business as assessed by the Assessing Officer - Held that - no dispute that shares had been held by the assessee since 1992 and were shown in the balance sheet separately as investments - income is capital gains.

Summary

Issues:
1. Whether the ITAT was justified in confirming the order directing the treatment of profit on the sale of shares as capital gain instead of income from business.
2. Whether the ITAT was justified in confirming the order despite the assessee being a share broker and the main business involving purchase and sales of shares.
3. Whether the ITAT was justified in dismissing the appeal of the department without appreciating certain aspects.

Issue 1:
The High Court examined whether the ITAT was correct in confirming the order directing the treatment of profit on the sale of shares as capital gain instead of income from business. The department argued that the shares were held as part of the business, citing relevant judicial pronouncements. However, the High Court noted that there were concurrent findings of fact by the CIT(A) and ITAT that the shares had been held by the assessee since 1992 and were shown in the balance sheet as investments. The Court held that with these established facts, the question of law as framed by the department did not arise.

Issue 2:
The Court delved into whether the ITAT was justified in confirming the order despite the assessee being a share broker whose main business involved the purchase and sales of shares. The department contended that income from such activities should be classified as business income, not capital gain, as per relevant judicial pronouncements. However, the Court reiterated the importance of the concurrent findings of fact by the CIT(A) and ITAT, which established the nature of the shares as investments held since 1992. Therefore, the Court upheld the treatment of profit on the sale of shares as capital gain.

Issue 3:
Regarding the dismissal of the department's appeal by the ITAT, the Court considered whether the ITAT had erred in not appreciating certain aspects. The department argued that the ITAT had not considered the department's stance on a previous order for a different assessment year. However, the Court found that since the facts regarding the shares being held as investments were well-established and consistent, the ITAT's dismissal of the appeal was justified. The Court emphasized the significance of the concurrent findings of fact by the CIT(A) and ITAT in determining the appropriate treatment of the profit on the sale of shares.

In conclusion, the High Court upheld the decisions of the ITAT and CIT(A) based on the established facts regarding the nature of the shares held by the assessee as investments since 1992. The Court emphasized the importance of concurrent findings of fact in such matters and dismissed the department's appeal, affirming the treatment of profit on the sale of shares as capital gain.