2018 (5) TMI 1437 - HC - Income Tax

Whether the income generated through sale of shares should be taxed as capital gain or business income of the assessee - Held that - the declaration made by an assessee with respect to its intention in buying and selling shares would be accepted - where the assessee itself, irrespective of the period of holding the listed shares opts to treat them as stock-in-trade - the income arising from transfer of such shares would be treated as its business income - in case of listed shares held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain - then it shall be treated as capital gain - the assessee is not allowed to change his position from time to time - decided in favor of assessee

Summary

Issues:
1. Whether the income from the sale of shares should be treated as capital gain or business income.
2. Application of CBDT circular No. 6 of 2016 in determining the nature of income generated through the sale of shares.

Analysis:
1. The High Court considered the appeal against the judgment of the Income Tax Appellate Tribunal regarding the treatment of income from the sale of shares as capital gain or business income. The Tribunal overruled the Revenue authorities' orders and relied on CBDT circular No. 6 of 2016. The Revenue authorities alleged that the assessee inflated income by rigging share prices, but the Tribunal disagreed, emphasizing the directives in the circular.

2. The Court examined the materials on record, which indicated that the shares in question belonged to a limited company. The assessee argued against the possibility of price rigging through small trading, but the Revenue authorities rejected this argument based on price fluctuations and the assessee's trading patterns. The CBDT circular aimed to limit disputes on share transactions and recognized the assessee's declaration of intention in buying and selling shares, with restrictions on changing positions.

3. The CBDT circular provided directives for treating income from share transfers as business income or capital gain based on holding period and assessee's declaration. The circular excluded transactions with questionable genuineness, such as sham transactions or bogus claims of capital gains or losses. The Court noted that the Revenue did not prove the transactions were sham, and suspicions raised by the Revenue authorities were insufficient to support their conclusions.

4. The Court dismissed the Tax Appeal, affirming the Tribunal's decision to treat the income from the sale of shares as capital gain instead of business income. The judgment highlighted the importance of considering the CBDT circular and the assessee's declaration in determining the nature of income generated through share transactions, emphasizing the need for genuine transactions and adherence to the circular's directives to reduce disputes and uncertainties in tax matters.