2019 (4) TMI 1318 - HC - Income Tax

Nature of income - profit earn on sale of shares - STCG or Business Income - HELD THAT - It is undisputed position that similar issue came up for our consideration in 2019 (4) TMI 1193 - BOMBAY HIGH COURT . The Revenue s Appeal was dismissed by making observations that in the earlier assessment years the assessee had consistently shown the receipts of sale of share as capital gain which the revenue had also accepted. The tribunal had noted that in the earlier years the assessee had suffered loss. Therefore in the current year if the income was to be treated as business income, capital loss of the earlier year would not be assessable against such income. It appears that the Assessing Officer desired to tax income as business income in the current year, in view of the change in tax rates, between short term capital gain and business income, which in the earlier years was same. In the result, no question of law arises. Income Tax Appeals are dismissed.

Summary

Issues:
1. Disallowance of STCG as Business Income for assessment year 2008-2009.

Analysis:
The High Court of Bombay heard and disposed of Appeals challenging the judgment of the Income Tax Appellate Tribunal regarding the disallowance of Short Term Capital Gain (STCG) amounting to ?11,16,91,229 as Business Income for the assessment year 2008-2009. The primary question before the Court was whether the ITAT erred in deleting the disallowance made by the Assessing Officer (AO) in this regard. The Court noted that a similar issue had been considered in a previous case, where the Assessee, an individual, had offered the gain from the sale of shares as short term capital gain, but the AO treated it as business income. However, the CIT (Appeal) and the tribunal ruled in favor of the assessee based on the consistent treatment of such receipts as capital gains in earlier assessment years, which had been accepted by the revenue. The tribunal also highlighted that in the earlier years, the assessee had suffered losses, and therefore, in the current year, treating the income as business income would not allow the set-off of capital losses from previous years against such income. The Court agreed with the tribunal's reasoning and observations, emphasizing that the AO's attempt to tax the income as business income in the current year was influenced by the change in tax rates between short term capital gains and business income, which had been the same in earlier years. Consequently, the Court found no error in the tribunal's decision and dismissed the Revenue's Appeal, stating that no question of law arose.

In conclusion, the High Court upheld the decision of the tribunal and dismissed the Income Tax Appeals, emphasizing the importance of consistent treatment of income and losses over different assessment years and the impact of changing tax rates on the classification of income as either short term capital gains or business income.