2013 (10) TMI 1182 - HC - Income Tax

Claim of exemption u/s 10(38) on sale of share on capital gains earned on it - Conversion of stock in trade of shares into investment - Held that - statute did not reject or frown upon conversion of stock in trade into investment and the said conversion was permissible Reference is made to the Circular No. 4/2007 dated 15th June, 2007 issued by the Central Board of Direct Taxes, which stipulates that two portfolios one for stock in trade and one in respect of investments could be maintained by the same assessee benefit of exemption u/s 10(38) allowed - Decided against the Revenue.

Summary

Issues:
1. Delay in filing the appeal by the Revenue.
2. Claim of long-term capital gain as exempt under Section 10(38) of the Income Tax Act, 1961.
3. Dispute regarding the nature of business activities undertaken by the assessee.
4. Assessment of the conversion of stock in trade into investment.
5. Treatment of shares in the balance sheets of the assessee.
6. Permissibility of conversion of stock in trade into investment.
7. Factual findings by the Commissioner (Appeals) and the tribunal.

Analysis:
1. The judgment deals with an appeal by the Revenue concerning the Assessment Year 2006-07, delayed by 156 days due to a prior appeal filed before the Allahabad High Court, which was withdrawn for lack of jurisdiction. The Delhi High Court decided to examine the appeal on merits before considering the application for condonation of delay.

2. The assessee, a company, declared long-term capital gain claimed as exempt under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer contended that the business of the assessee was not to invest in shares but to deal with shares as a stockbroker and trader, leading to the entire amount being considered taxable as a "trading receipt" rather than under "capital gains."

3. The assessment order highlighted the conversion of stock in trade into investment by the assessee on 1st April, 2004, with shares sold almost two years later. The judgment emphasized that the mere introduction of Section 10(38) in 2005 did not invalidate the conversion, especially when the intention to convert was not adequately disputed or discussed in the assessment order.

4. The Commissioner (Appeals) noted the treatment of shares in the balance sheets, where the stock in trade was converted to investment at book/fair value on 1st April, 2004. The conversion was accepted in previous assessments, and the subsequent sale of shares leading to long-term capital gains was considered permissible under the law.

5. The Commissioner (Appeals) and the tribunal's factual findings supported the permissibility of the conversion of stock in trade into investment, considering the period of holding by the assessee and the disclosure in audited accounts. The judgment concluded that there was no reason to interfere with the findings, leading to the dismissal of the appeal without issuing notice on the application for condonation of delay.

This detailed analysis of the judgment provides insights into the issues raised, the arguments presented, and the final decision rendered by the Delhi High Court in the case.