2015 (7) TMI 444 - AT - Income Tax

Sale of shares of Satyam Computers - Short-term capital gain OR Business income - Held that - It is an undisputed fact that the assessee took delivery of such shares after making full payment and it was not a case of settling the transaction of purchase and sale of such shares during the settlement period itself. This is another reason to indicate that the intention of the assessee to hold them as Investment. Also the assessee was consistently holding some other shares as investment over a period of time and was regularly earning income from their sale by declaring profit as Short-term capital gain or Long-term capital gain depending upon the period of their holding. There is no doubt that shares of Satyam Computers were not purchased or treated as Investment in any of the earlier years, but at least this factor shows that the assessee was also engaged in the purchase of shares as Investment and showing profit from their sale under the head Capital gains . This treatment of profit from sale of shares held as investment has not been disputed by the AO in the assessments made u/s 143(3) of the Act. The assessee has placed on record a copy of the assessment orders for immediately preceding assessment year in which there was Short-term capital gain of ₹ 17.21 crore which has been accepted by the AO vide his order dated 29.12.2011. Similarly, there is an order passed u/s 143(3) for assessment year 2006-07 accepting that the assessee was engaged in the business as well as in investment of shares. A copy of such order dated 31.10.2008 is available on record from which it is manifest that there is no alteration in the character of income shown by the assessee. The principle of consistency in terms of the assessee holding shares as stock-in-trade as well as investment, cannot be lost sight of. CIT(A) rightly proceeded to accept the assessee s contention of purchasing the shares of Satyam Computers as Investment rather than Stock-in-trade . - Decided against Revenue.

Summary

Issues: Classification of profit from sale of shares of Satyam Computers as 'Short-term capital gain' or 'Business income'.

Analysis:
1. The primary issue in this case pertains to the classification of the profit arising from the sale of shares of Satyam Computers as either 'Short-term capital gain' or 'Business income'. The assessee declared a profit of Rs. 16.41 crore from the sale of these shares, which was treated as 'Short-term capital gain'. However, the Assessing Officer (AO) contended that the profit should be classified as 'Business income' due to the intention of the assessee to realize immediate profit rather than holding the shares for investment purposes.

2. The AO's argument was based on the timing of the share purchases in relation to an open auction held by SEBI and the subsequent sale of shares. The AO observed that the assessee started purchasing shares close to the auction date, indicating an intention to profit from the price increase. However, the Tribunal noted that purchasing shares at a low price does not preclude them from being held as an investment for future gains.

3. The Tribunal analyzed the sequence of events, noting that the assessee purchased all shares of Satyam Computers over a period before gradually selling them, indicating a strategic investment approach rather than speculative trading. Furthermore, the shares were initially recorded in the 'Investment register', reinforcing the intention to hold them as investments from the outset.

4. Crucially, the Tribunal considered the assessee's financial position, highlighting that the shares were purchased using the assessee's own funds without borrowing. Additionally, the full payment for the shares was made before taking delivery, further supporting the argument that they were held as investments.

5. The Tribunal also emphasized the principle of consistency in the assessee's treatment of shares in previous assessments, where profits from similar transactions were accepted as 'Capital gains'. This historical practice, along with the absence of contrary evidence from the Revenue, strengthened the case for treating the Satyam Computers shares as investments.

6. After a comprehensive review of all relevant factors, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to classify the profit from the sale of Satyam Computers shares as 'Short-term capital gain', dismissing the Revenue's appeal. This judgment underscores the importance of considering multiple factors to determine the nature of share transactions and the resulting income classification.