2016 (8) TMI 1003 - HC - Income Tax

Transaction of shares - capital gain or business income - whether the assessee lady was a dealer in shares and was not an investor in shares? - Held that - Considering the decision of this court in the case of Smt. Divyaben C. Shah (2001 (4) TMI 920 - GUJARAT HIGH COURT ) where this court has observed the test to be considered that (i) The assessee have purchased almost all the scripts from primary market. (ii) The purchases during the year under consideration from the secondary market were quite insignificant. (iii) The investments have been mostly made out of their own funds and not out of borrowed funds. (iv) The shares have been acquired by way of subscription to the public issue. (v) The shares have been held for fairly long period. (vi) The shares once sold have never been repurchased. (vii) In the immediately preceding years, the shares shown have been accepted as investments. (viii) The purchase of shares was with an intention of keeping them as investment. (ix) The shares were never held as stock-in-trade. (x) Shares purchased were never sub-divided into group with an intention to sell. , we are of the opinion that the assessee has made investment in shares as investor and therefore, the income arisen to the assessee out of sale of shares is assessable under the head capital gain and not profit and gains of business or profession. In that view of the matter, we set aside the order of the Tribunal. - Decided in favour of the appellant-assessee

Summary

Issues Involved:
1. Determination of whether the assessee was a dealer in shares or an investor in shares.
2. Assessment of income from the sale of shares as either business income or capital gains.

Issue-wise Detailed Analysis:

1. Determination of whether the assessee was a dealer in shares or an investor in shares:
The primary issue was whether the assessee, who conducted transactions in shares over several assessment years, should be classified as a dealer in shares or an investor. The Tribunal reversed the Commissioner of Income-tax (Appeals) (CIT(A)) decision, restoring the Assessing Officer's (AO) order that classified the assessee as a dealer in shares, thereby treating the income from these transactions as business income. The CIT(A) had initially observed that the assessee's actions indicated an intention to invest, not trade, given the cumbersome procedures she undertook, such as applying for allotment and transferring shares to her name. The CIT(A) concluded that the shares held for over 12 months were investments, while those sold within a short period without registration should be treated as business income.

2. Assessment of income from the sale of shares as either business income or capital gains:
The Tribunal's decision to classify the income as business income was contested by the appellant, who cited several precedents where similar transactions were treated as capital gains. The appellant relied on the case of Dy. C.I.T. v. Smt. Divyaben C. Shah, where the court laid down tests to determine the nature of share transactions, such as the source of funds, the period of holding, and the intention behind the purchase. The appellant also referenced other cases, including Commissioner of Income-tax v. Brijesh Bhagwatilal Lavti, where the court ruled in favor of treating the gains as capital gains for a salaried individual who earned significant profits from share sales.

The appellant further argued that the Tribunal did not properly consider these precedents and the newly issued Circular No. 6 of 2016 by the CBDT, which aimed to reduce litigation by providing clear guidelines on classifying income from share transactions. The Circular specified that listed shares held for more than 12 months should be treated as capital gains unless the assessee opts otherwise.

Court's Decision:
The court, after considering the arguments and precedents, concluded that the assessee's transactions were investments rather than trading activities. The court noted that the CIT(A) had provided detailed reasons for treating the income as capital gains, aligning with the tests established in previous cases. The court also referenced the CBDT Circular, which supported the appellant's position. Consequently, the court set aside the Tribunal's order, ruling that the income from the sale of shares should be assessed as capital gains, not business income.

Conclusion:
The court answered the question in favor of the appellant-assessee, determining that the income from the sale of shares should be treated as capital gains. The appeals were allowed, reversing the Tribunal's decision and restoring the CIT(A)'s classification of the income.