2015 (5) TMI 225 - HC - Income Tax

Transaction of shares - short term capital gain v/s business income - Held that - In the given facts of the case, the mere circumstance that for the previous year, a part of the stock in trade was converted into investments would not have been conclusive as to whether the realisation out of purchase and sale of shares was by way of income from business. The AO had accepted the assessee's claim for long term capital gains and completed the assessment. Having done so, he could not have fallen back upon the facts of the previous years when the conversion took place. Furthermore, we are of the opinion that the ITAT duly considered the applicable law in deciding that the income was not business income but in fact short term capital gain. The question of law urged, therefore, does not arise. - Decided against revenue. Disallowance under Section 14A - Held that - The order of the ITAT merely remands the matter for re-adjudication afresh in the light of the directions in Maxopp Investment Ltd. v. CIT, ( 2011 (11) TMI 267 - Delhi High Court ) - Decided against revenue.

Summary

Issues involved:
1. Classification of income as short term capital gain or business income for AY 2007-08.
2. Disallowance under Section 14A.

Issue 1: Classification of income as short term capital gain or business income for AY 2007-08:
The case involved the Revenue appealing against the ITAT's order regarding the assessee's claim of short term capital gain for AY 2007-08. The Revenue argued that the sum should have been treated as business income rather than short term capital gain. The Assessing Officer disallowed the claim, stating that the assessee's intention was to take advantage of the concessional tax rate by converting stock into investment. The Commissioner of Income Tax (Appeals) upheld the decision, but the ITAT accepted the appeal. The ITAT considered the conversion of stock in trade into investment inconclusive in determining whether the transaction was for investment or business purposes. The High Court agreed with the ITAT, stating that the mere conversion of stock in the previous year did not conclusively prove the nature of the realisation from shares. The Court held that the income was short term capital gain, not business income, as decided by the ITAT. The appeal was dismissed on this issue.

Issue 2: Disallowance under Section 14A:
Regarding the disallowance under Section 14A, the ITAT's order remanded the matter for re-adjudication based on the directions in Maxopp Investment Ltd. v. CIT. The High Court noted this and decided not to interfere, as the ITAT's decision to remand the matter for fresh adjudication was appropriate. Therefore, no further action was required on this issue. The appeal was dismissed accordingly.

In conclusion, the High Court upheld the ITAT's decision regarding the classification of income as short term capital gain and dismissed the appeal. The matter of disallowance under Section 14A was remanded for re-adjudication as per the directions in a previous case.