2016 (7) TMI 961 - HC - Income Tax

Sale of shares - Business income or capital gain - Held that - It is not in dispute that in the previous years, the assessee was held to be an investor. Hence, in the facts of the present case, we are of the view that the assessee should be termed as an investor and therefore, the issue raised in this Appeal is answered in favour of the assessee

Summary

Issues:
Challenge to ITAT's judgment on tax treatment of shares sold by assessee as business profits or capital gains.

Analysis:
1. The appellant challenged the ITAT's decision regarding the tax treatment of shares sold in the Assessment Year 1993-1994. The Tribunal held that the shares were held on a business account, not an investment account, reversing the CIT (Appeals) decision. The primary question of law framed was whether the shares sold were held on a business or investment account.

2. The appellant sold TISCO and Essar Shipping shares in the said assessment year. The Assessing Officer concluded that since the appellant borrowed from a bank to purchase shares in that year, the shares were acquired on a business account. However, the appellant argued that in previous years, she was considered an investor, and the burden was on the Department to prove the conversion of investment shares into stock-in-trade.

3. The appellant contended that the Tribunal erred in taxing the income from share sales as business profits instead of capital gains. The Department argued that the appellant's behavior, lack of borrowing for investments, and receipt of dividends indicated an investor, not a trader. The CIT (Appeals) also supported the appellant's status as an investor.

4. The Tribunal considered the overall conduct of the assessee in dealing with shares and debentures. It held that the income from share sales should be treated as business income, not capital gains. However, in a similar case, the ITAT had ruled in favor of capital gains due to the nature of transactions. The Court, after analyzing the facts, held in favor of the assessee, terming her as an investor, and reversed the Tribunal's decision.

5. The Court noted that the appellant's history as an investor, lack of evidence of conversion of shares into stock-in-trade, and the nature of the loan availed supported the conclusion that the appellant should be considered an investor. The Court referred to a similar case where the Tribunal ruled in favor of capital gains due to the conduct of the assessee, but in this case, the Court held in favor of the appellant, emphasizing her status as an investor.

6. Ultimately, the Court ruled in favor of the appellant, holding that the shares sold should be treated as capital gains, not business income. The decision was based on the appellant's conduct, loan nature, and lack of evidence supporting the shares being held on a business account.