2012 (2) TMI 135 - AT - Income Tax

Sale/Purchase of Shares assessable under Capital Gain or Business Income - Held That - Assessee hold shares for more than One year and upto ten year - Investments have been mostly from Owned Funds - main objects was to make investments. Therefore such income shall be treated as Capital Gain and not business Income.

Summary

Issues involved:
Nature of income earned from sale and purchase of shares.

Analysis:
The appeal and cross objection were against the CIT(A) order for the Assessment Year 2006-07, focusing on the nature of income from shares. The AO questioned the categorization of income as capital gain, suspecting it to be business income due to significant share transactions and an interest-free loan from directors. The assessee argued that it was an investment company since 1954, investing for dividends, occasionally trading shares with owned funds, and holding shares for long periods, even reshuffling the portfolio for better investments. The AO, however, viewed the transactions as a tax advantage scheme, assessing the entire income as business income.

In the appeal, CIT(A) referred to previous years where the Tribunal had accepted the income as capital gain, directing the AO to do the same. The Tribunal analyzed the facts, emphasizing the debatable distinction between investment and trading activities in share transactions. Noting the long-term holdings, occasional short-term sales for portfolio optimization, and investments from owned funds, the Tribunal found no fault in CIT(A)'s decision to accept the claim as capital gain. The Tribunal upheld CIT(A)'s order, dismissing the Revenue's appeal.

The cross objection by the assessee supported CIT(A)'s decision, which became moot after the Tribunal upheld the order. Consequently, both the Revenue's appeal and the assessee's cross objection were dismissed.