2008 (1) TMI 580 - HC - Income Tax

Capital gain- The assessee-company sold certain shares of Suhrid Geigy Ltd. which had been acquired on January 1 1974 to Koshalya P. Ltd. which was a wholly owned subsidiary company of the assessee. Similarly the assessee had also sold certain shares of Wadi Chemicals P. Ltd. which had been acquired on July 1 1977 to another wholly owned subsidiary company. The assessee worked out capital gains and claimed the said capital gains to be wholly exempt from tax under section 47(iv) of the Act. The claim of the assessee was negatived by the Officer on the ground that the assessee had been carrying on the business of purchasing and selling shares. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who dismissed the appeal. Tribunal deleted the addition on the ground as in the earlier assessment year profit and loss were treated as capital gain. Held that- since on similar issue concluded in favour of the assessee and there was nothing on record to suggest that the order in that case had been challenged further. Thus the Tribunal was justified.

Summary

Issues:
1. Whether the addition of Rs. 1,85,93,546 as capital gains exempt under section 47(iv) of the Income-tax Act was rightly deleted by the Appellate Tribunal?

Analysis:
The case involved the deletion of an addition of Rs. 1,85,93,546 claimed as exempt capital gains under section 47(iv) of the Income-tax Act. The assessee had sold shares of two companies to its wholly owned subsidiary companies and claimed the capital gains to be tax-exempt. The Revenue negatived the claim, asserting that the assessee was engaged in the business of purchasing and selling shares. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal accepted the assessee's stand based on several grounds.

The Tribunal's decision was influenced by various factors: Firstly, in the assessment for the previous year, the profit on the sale of investments was treated as capital gains, not business profit. Secondly, the Assessing Officer had rejected the claim of the assessee that the investments were stock in trade. Thirdly, in prior assessments, profits or losses on shares were treated as capital gains or losses, not business income. Lastly, the shares in question were categorized as investments in the company's balance sheet.

Moreover, the Tribunal referred to its own order in a similar case with identical facts, where the issue was decided in favor of the assessee. The Tribunal also noted that the Revenue could not selectively challenge judgments without just cause, citing a Supreme Court decision. Since the issue was settled in favor of the assessee in a previous case, and no distinguishing features were presented, the Tribunal upheld the assessee's position. Consequently, the question was answered in the affirmative, in favor of the assessee and against the Revenue.

In conclusion, the Tribunal's decision to delete the addition of capital gains as exempt under section 47(iv) of the Income-tax Act was upheld based on the consistent treatment of such transactions as capital gains, the nature of the investments, and the precedent set in a similar case. The reference was disposed of with no order as to costs.