2018 (5) TMI 1438 - 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. Interpretation of CBDT circular No. 6 of 2016 regarding the treatment of income generated through the sale of shares.

Analysis:
1. The High Court considered the appeal against the Income Tax Appellate Tribunal's judgment on whether the income from the sale of shares should be treated as capital gain or business income. The Revenue authorities argued that the assessee attempted to manipulate share prices to generate inflated income. However, the Tribunal referred to the CBDT circular No. 6 of 2016, which provides directives on such disputes. The Tribunal overruled the Revenue authorities' orders and emphasized the importance of the circular in determining the treatment of income from share sales.

2. The Court highlighted the directives of the CBDT circular, which allow the assessee to declare their intention regarding the treatment of shares as stock-in-trade or capital gain. The circular specifies that once a stand is taken by the assessee, it must remain consistent in subsequent assessment years. The circular aims to reduce disputes and uncertainties in such cases. However, an exclusion clause in the circular states that it does not apply to transactions where the genuineness is questionable, such as bogus claims of capital gain or sham transactions. The Court noted that this exclusion clause would not apply in the present case as there was no evidence of sham transactions, and suspicions raised by the Revenue authorities were not sufficient to establish wrongdoing.

In conclusion, the Court dismissed the Tax Appeal, upholding the Tribunal's decision to treat the income from the sale of shares as capital gain rather than business income based on the interpretation of the CBDT circular and the absence of evidence supporting the Revenue authorities' suspicions.