2017 (5) TMI 983 - HC - Income Tax

Income from share transactions - AO, CIT annd also ITAT held that the assessee had traded in shares and the income was liable to be taxed as business income. - Held that - The authorities found that though the shares were purchased by the assessee at ₹ 5.50 Ps. Per share and ₹ 4/per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at ₹ 486.55 Ps and ₹ 485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer s letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth ₹ 5/had jumped to ₹ 485/in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth ₹ 5/of a little known company would jump from ₹ 5/to ₹ 485/. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. - Decided against assessee.

Summary

Issues:
Challenge to tax treatment of income from share trading as 'business income'.

Analysis:
The appellant-assessee contested the tax treatment of income from share trading as 'business income' by the Assessing Officer, the Commissioner of Income Tax, and the Income Tax Appellate Tribunal. The assessee had purchased shares of two penny stock Kolkata-based companies on the advice of a tax consultant and later sold them at significantly higher rates. The assessing officer held that the transactions fell within the ambit of an adventure in the nature of trade, resulting in a substantial profit for the assessee. Despite the assessee's claim for exemption under Section 10(38) of the Income Tax Act, the assessing officer taxed the income as 'business income'.

The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the assessing officer's decision, emphasizing that the motive behind the investment was profit-making rather than income generation. The authorities highlighted the lack of investment intent on the part of the assessee, as she had little knowledge about the companies she invested in and the share transactions were facilitated through brokers without her full understanding. The rapid escalation in share prices from the initial purchase to the subsequent sale raised suspicions regarding the nature of the transactions.

The authorities concluded that the assessee engaged in a dubious share transaction aimed at concealing undisclosed income under the guise of long-term capital gains. They noted the absence of convincing evidence explaining the substantial increase in share value within a short period. The Income Tax Appellate Tribunal specifically questioned the feasibility of such a drastic price surge without any economic or financial basis, casting doubt on the legitimacy of the transactions.

In dismissing the appeal, the High Court concurred with the findings of the lower authorities, emphasizing that the assessments were based on factual evidence and consistent with established legal principles. The Court highlighted that the judgments cited by the assessee's counsel were not directly applicable to the case at hand due to factual distinctions. Since no substantial legal question arose from the appeal, it was rejected without costs.