2017 (4) TMI 113 - HC - Income Tax

Income from share transactions - business income or capital gain - Held that - In view of the frequency, volume of transactions and treatment given in the books of account and balance sheet along with the fact that dealing in shares were entirely on delivery basis, in respect of its investment portfolio to the extent of ₹ 1.46 Crores as short term capital gains. This on the basis that the intention of the Respondent Assessee was to invest in shares and not trade in shares to the extent of Rs..1.46 Crores allowed under the head capital gains . We find that both the CIT(A) and the Tribunal have come to a concurrent finding of fact that an amount of ₹ 1.46 Crores is taxable under the head short term capital gain as it is on account of investment. Both the CIT(A) and the Tribunal have applied the tests as laid down by the CBDT and as laid down by the Apex Court in various decisions to determine the issue. The Revenue has not been able to show that the application of tests/ principles laid down in the CBDT Circular and the decisions of the Court, by the CIT(A) and the Tribunal, was not correct. - Decided against revenue

Summary

Issues:
1. Classification of income under 'Capital Gains' or 'Profit and Gains of Business or Profession'

Analysis:
The High Court of Bombay heard an appeal challenging the Income Tax Appellate Tribunal's order concerning the assessment year 2006-07. The main question raised was whether the income earned by the Assessee should be assessed under 'Capital Gains' or 'Profit and Gains of Business or Profession.' The Respondent Assessee held two portfolios in shares - investment portfolio and trading portfolio. The income from the trading portfolio was declared as profit and gains of business, while the income from the investment portfolio was classified under 'capital gains.' The Assessing Officer disallowed the claim under 'short term capital gain,' treating it as business/trading income, but accepted the claim under 'long term capital gains.'

The Respondent Assessee appealed to the Commissioner of Income Tax (Appeals) who partly allowed the appeal based on CBDT Circular No.4 of 2007 and the decision of the Apex Court in CIT v/s. Holck Larsen. The CIT(A) allowed a significant amount as short term capital gain arising from investments. Both the Revenue and Respondent Assessee were dissatisfied with the CIT(A) order and appealed to the Tribunal. The Tribunal upheld the CIT(A)'s finding, considering factors like frequency, volume of transactions, treatment in books of account, and intention of the Assessee to invest in shares rather than trade. The Tribunal concluded that an amount of Rs. 1.46 Crores should be classified as short term capital gains under 'capital gains.'

The High Court observed that both the CIT(A) and the Tribunal had correctly applied the tests laid down by the CBDT Circular and previous court decisions to determine the issue. The Revenue failed to demonstrate any error in the application of these tests. The Court noted that the concurrent finding of fact by the CIT(A) and the Tribunal was not shown to be perverse. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose for consideration. The decision was made without any order as to costs.