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2012 (8) TMI 542 - HC - Income TaxWhether assessee was a dealer in shares and profits arising on the sale of shares should be assessed as business income Held that - Right from the beginning of the incorporation of the company, it had held shares only as an investment and 90 per cent. of its investment were only in the group companies. The assessee never intended to keep them as stock-in- trade and the Revenue also accepted the contention of the assessee for the preceding years and in the two following assessment years too - when the investment originally made in the group concern and holding of shares therein are not by way of stock-in-trade, the result following therein, cannot be held as business to result in business income - sale during the year was of the shares of the Bank of Madura and was only on account of reorganising the business - profit that the assessee made on the sale of shares are assessable to capital gains and not as business income - in favour of the assessee
Issues Involved:
1. Classification of income from the sale of shares as business income or capital gains. 2. Assessment of discounted interest on IDBI bonds for the assessment year 1993-94. Issue-Wise Detailed Analysis: 1. Classification of Income from Sale of Shares: The primary issue in both tax case appeals was whether the income from the sale of shares should be classified as business income or capital gains. The assessee, a private limited company involved in financing hire purchases and investments, argued that its investments in shares were long-term and should be treated as capital gains. The Assessing Officer, however, treated the income from the sale of shares as business income, asserting that the assessee's activities were akin to those of a dealer in shares. The Commissioner of Income-tax (Appeals) sided with the assessee, holding that the sales were for business regrouping and not for profit-making, thus categorizing the income as long-term capital gains. The Income-tax Appellate Tribunal reversed this decision, agreeing with the Assessing Officer that the assessee's activities constituted a business venture. Upon appeal, the High Court analyzed several precedents, including the Supreme Court rulings in Bengal and Assam Investors Ltd. v. CIT and CIT v. H. Holck Larsen, which established that mere holding of investments does not amount to business. The court emphasized that the assessee's consistent treatment of shares as investments and the lack of systematic trading activity supported the classification of income as capital gains. The court noted that the assessee's primary business was not dealing in shares and that the investments were mainly in group companies. Consequently, the court held that the Tribunal erred in treating the income as business income and ruled in favor of the assessee, classifying the income from the sale of shares as capital gains. 2. Assessment of Discounted Interest on IDBI Bonds for the Assessment Year 1993-94: The second issue, specific to the assessment year 1993-94, was whether the entire discounted interest on IDBI bonds should be assessed in that year. The assessee conceded that this issue was covered by precedents in E.I.D. Parry (I.) Ltd. v. CIT and CIT v. A. R. Santhanakrishnan, which held in favor of the Revenue. Accordingly, the court ruled that the entire discounted interest should be assessed in the assessment year 1993-94, siding with the Revenue. Conclusion: The High Court concluded that the income from the sale of shares should be treated as capital gains and not business income. The court set aside the Tribunal's order, restoring the Commissioner of Income-tax (Appeals)'s decision. On the issue of discounted interest on IDBI bonds, the court ruled in favor of the Revenue. The appeals were allowed with no costs, and the Tribunal's order was overturned regarding the classification of income from the sale of shares.
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