2016 (3) TMI 464 - HC - Income Tax

Capital gain v/s business income - nature of income - Held that - All the facts concluded that the respondent assessee has subsequent to the Resolution of its Board made investment in shares as investments. The gains / loss earned on these investments were held to be chargeable to tax under the head capital gains on consideration of all facts and application of applicable law i.e. well settled test to distinguish between gains of trading and capital gains. In the above view, as two authorities have come to concurrent findings of fact that the claim made for short term capital gains and long term capital gains by the respondent assessee was justified. This findings of fact has not been shown to be perverse and / or arbitrary giving rise to any question of law.

Issues:
1. Classification of income from shares as business income or capital gains.
2. Treatment of income in subsequent assessment year.
3. Interpretation of Memorandum of Association.
4. Justification of treatment of shares as investments.
5. Acceptance of profits earned on sale of shares in different assessment year.

Analysis:

Issue 1: Classification of income from shares
The respondent assessee, engaged in dealing in shares, classified income from investments as capital gains. The Assessing Officer disagreed, treating it as business income. The CIT(A) partially upheld the assessee's claim, allowing capital gains treatment for certain shares. The Tribunal affirmed this decision, noting consistency with an earlier assessment year. The High Court observed that the Revenue's argument based on the Memorandum of Association was unfounded, as it did not prohibit holding shares as investments. The Court upheld the Tribunal's decision, finding no substantial question of law.

Issue 2: Treatment of income in subsequent assessment year
The Revenue argued that profits in a subsequent assessment year were treated as business income, thus should be similarly treated in the present year. However, this argument was not raised before the Tribunal and lacked supporting evidence. The Court emphasized the importance of framing relevant questions in appeals to avoid wasting judicial time. Despite this, the Court found that the CIT(A) and Tribunal correctly treated the income as capital gains based on factual and legal considerations, leading to the dismissal of the appeal.

Issue 3: Interpretation of Memorandum of Association
The Revenue's argument regarding the Memorandum of Association was dismissed by the Court, as it was not raised before the Tribunal and lacked factual basis. The Court highlighted the importance of presenting relevant issues in appeals to prevent unnecessary delays and harassment to the assessee.

Issue 4: Justification of treatment of shares as investments
The respondent justified treating shares as investments based on Board resolutions and absence of borrowed funds. The Assessing Officer's contention that this classification was for convenience was rejected by the CIT(A) and Tribunal. Both authorities found the treatment as capital gains justified, considering the holding period and investment objectives. The High Court upheld this decision, noting the absence of any perversity in the factual findings.

Issue 5: Acceptance of profits earned in different assessment year
The Revenue's argument based on profits treated as business income in a subsequent year was not entertained by the Court due to lack of evidence and relevance to the present appeal. The Court emphasized the need for focused and relevant arguments in appeals to streamline the judicial process and avoid unnecessary delays.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision to treat the income from shares as capital gains based on factual and legal considerations, emphasizing the importance of presenting relevant issues in appeals to ensure efficient judicial proceedings.

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