2016 (7) TMI 6 - AT - Income Tax

Assessability of gain on purchase and sale of shares - business income or capital gain - Held that - In the present case, it is an established position that assessee company is an investment company primarily involved in undertaking transactions in the shares of Piramal Group of companies. This feature contrasts it from an investment company, who otherwise freely operates in the market place looking for opportunities to trade in all or any available scrips in the market. Therefore, in such a situation, in our view, the onus is on the Revenue to establish that assessee has indeed undertaken trading in the shares, though the transaction have been confined to the scrips of Piramal Group of companies. Having regard to the facts and circumstances of the case, we are unable to uphold the stand of the Revenue that the purchase and sale of shares have been undertaken regularly so as to be treated as a business activity. Reference made by the CIT(Appeals) in assessment year 2001-02 to the factum of assessee not disputing the stand of Assessing Officer in assessment year 1999- 2000 is not determinative of the issue because ostensibly, the amount involved was very small and for that reason assessee did not prefer an appeal before the Tribunal, an assertion of the Ld. Representative for the assessee, which is not controverted by the Ld. Departmental Representative for the Revenue before us.Considering the entirety of facts and circumstances of the case, we hereby affirm the stand of the assessee and hold that the impugned income earned on sale and purchase of shares is liable to be assessed as capital gains, as claimed by the assessee.- Decided in favour of assessee Enhance the income on account of disallowance of interest cost - Held that - Consequent to our decision to treat the gain on sale and purchase of shares as income assessable under the head capital gains, the interest costs incurred for investment in shares held as investment is liable to be added to the cost of acquisition of the shares for computing capital gains. In this view of the matter, the disallowance made by the CIT(Appeals) becomes untenable. - Decided in favour of assessee

Summary

Issues involved:
Assessment of long term and short term capital gains as business income, disallowance of interest costs, determination of shares sale and purchase as trading activity or investment activity.

Analysis:

Assessment of capital gains as business income:
The appellant, an investment company, earned long term and short term capital gains on the sale of shares, which the Assessing Officer treated as business income. The CIT(Appeals) upheld this decision, emphasizing the regularity of share transactions. However, the appellant argued that the shares were held as investments, not for trading purposes. The tribunal noted that the appellant primarily dealt with shares of specific group companies, indicating an investment activity rather than trading. The tribunal analyzed the sale and purchase details, concluding that the transactions did not reflect a trading pattern. Therefore, it held that the gains should be assessed as capital gains, not business income.

Disallowance of interest costs:
The CIT(Appeals) enhanced the income by disallowing interest costs, citing Section 14A of the Act. However, the tribunal disagreed, stating that interest costs for shares held as investments should be added to the acquisition cost for computing capital gains. Consequently, the disallowance of interest costs was deemed unjustified, and the appellant succeeded on this issue as well.

Conclusion:
The tribunal allowed the appeal for the assessment year 2000-01, ruling in favor of the appellant on both issues. The decision for 2000-01 applied mutatis mutandis to the assessment year 2001-02. Therefore, both appeals of the appellant were allowed, and the judgments were pronounced on 29/04/2016.