2017 (9) TMI 840 - HC - Income Tax

Surplus arising from sale of shares and securities - short terms capital gains OR income from business - period of holding - Held that - CIT (Appeals) and the Tribunal having applied parameters on the facts of the case and having come to the conclusion that the assessee s stand that the shares were held by way of investment and therefore the sale thereof should result in long term capital gain instead of business income, calls for no interference. Addition u/s 68 - Held that - Tribunal confirmed the view of the CIT (Appeals) that the Assessing Officer had made the additions only on the presumption that the loan was not found reflected in the balance-sheet of the donor which was wrong presumption. The Tribunal confirmed the view of the CIT (Appeals)) that the assessee had demonstrate the genuineness of the transaction as also the reliability and creditworthiness of the donor. Such being the facts, no question of law arises.

Summary

Issues:
1. Treatment of surplus arising from sale of shares as short term capital gains or income from business.
2. Deletion of addition made on account of unexplained cash credit.

Analysis:

Issue 1: Treatment of surplus arising from sale of shares
The primary issue in the case was whether the surplus arising from the sale of shares should be treated as short term capital gains or as income from business. The Revenue challenged the judgment of the Income Tax Appellate Tribunal, which had deleted the additions made by the Assessing Officer. The Tribunal relied on the decision of the Supreme Court in the case of Associated Industrial Development and a CBDT circular to determine the intention of the assessee at the time of purchase of shares. The Tribunal emphasized that if the assessee had a clear intention of being an investor and held the shares as an investment, the gains from the sale of shares should be treated as capital gains, whether short term or long term. The Tribunal confirmed the view of the CIT (Appeals) that the shares were held by the assessee as investments, leading to the income being treated as long term capital gains instead of business income. The High Court upheld this decision, stating that the assessee's intention at the time of purchase was paramount in determining the nature of the income.

Issue 2: Deletion of addition on account of unexplained cash credit
The second issue involved the deletion of an addition of ?20 lakhs made by the Assessing Officer under section 68 of the Act. The Tribunal, affirming the view of the CIT (Appeals), held that the Assessing Officer had wrongly presumed that the loan was not reflected in the donor's balance-sheet. The Tribunal found that the assessee had demonstrated the genuineness of the transaction and the creditworthiness of the donor. Therefore, the Tribunal concluded that there was no basis for the addition made by the Assessing Officer. The High Court agreed with this reasoning, stating that since the genuineness of the transaction and the creditworthiness of the donor were established, there was no legal question to be addressed.

In another related case, the Tribunal considered the source of shares purchased by the assessee and whether the nature of income from the sale of shares would change based on the source. The Tribunal held that the mere fact that the shares were purchased from a particular individual did not alter the nature of the income arising from the sale of shares. The central question remained whether the assessee had invested in the shares for earning long term capital gains or for business purposes. The High Court concurred with the Tribunal's view, emphasizing that the source of the shares did not impact the ultimate treatment of the income.

In conclusion, due to the similarity of issues and background in all appeals, the High Court dismissed all tax appeals.