2007 (7) TMI 258 - HC - Income Tax

Share/stock broker - maintaining separate books of account for the trading in shares as well as investments in shares - assessee is carrying on the business only in the name and style of Brilliant and Company - payments in shares have been done by the assessee in his personal account -it was found that assessee has been holding shares for a long time and has been utilising the surplus funds only for the investments held that profit earned on sale of surplus shares will attract capital gains

Summary

Issues:
Interpretation of income from sale of shares - whether to be assessed as capital gains or business income.

Analysis:
The case involved a dispute over the assessment of income derived from the sale of shares by the appellant, a registered share and stock broker. The appellant filed a return of income admitting a total income, which the Assessing Officer believed should be assessed under the head "profits and gains of business" due to the nature of the appellant's business as a share broker. However, the Commissioner of Income-tax (Appeals) directed that the surplus earned on the sale of shares should be treated as "capital gains." The Revenue challenged this decision before the Income-tax Appellate Tribunal, which upheld the order of the Commissioner of Income-tax (Appeals).

The Revenue contended that the Tribunal erred in assessing the profit realized by the appellant as capital gains instead of under the head "profits and gains of business." It was argued that since the appellant was dealing in shares, the income should be assessed as business income. However, upon examination of the facts, it was revealed that the appellant maintained separate books of account for trading and investments in shares, conducted business under a specific name, and had a history of treating similar transactions as capital gains in previous years, which was accepted by the Revenue.

The Court found that there was no legal prohibition for a share trader to invest in shares and that the intention of the appellant was crucial in determining whether the activity constituted business or investment. Both the first appellate authority and the Tribunal correctly assessed the surplus from the sale of shares as capital gains based on valid evidence and materials. Citing a precedent, the Court emphasized that when there is a concurrent finding by lower authorities, interference by the High Court is unwarranted. Consequently, the Court dismissed the case, stating that no substantial question of law merited consideration, and no costs were awarded.