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2012 (9) TMI 199 - HC - Income TaxProfit of sale of shares - income from capital gains OR income from business - ingenuine gift deed - Held that - To implement the objects of the company, two of the shareholders gifted 25000 shares of M/s. Infosys Technologies Limited, the said shares being shown as investment, thus merely because the company has earned profits by selling some of the shares, that doesn t mean that the company is engaged in shares trading. There is no bar for gifting the equity shares to its company as the company being a separate entity in law, the Shareholders of the company can gift their shares in favour of the company. For the solitary sale of shares, it cannot be said that the assessee is doing the business in shares. The assessee-company is only an investment company to buy, invest, acquire and hold the shares, stocks and debentures - As decided in CIT, NAGPUR v/s SUTLEJ COTTON MILLS SUPPLY AGENCY LIMITED 1975 (7) TMI 2 - SUPREME COURT in the absence of any evidence of trading activity in cases of purchase and resale of shares, it has to be held that the profit arising from the resale is an accretion to the capital - Thus the solitary sale of shares by the assessee cannot be treated as trade or business in the shares - in favour of assessee.
Issues Involved:
1. Classification of income from the sale of shares as 'income from capital gains' or 'income from business'. 2. Consideration of subsequent sale of shares to determine the nature of business activity. Detailed Analysis: Issue 1: Classification of Income from Sale of Shares The primary issue was whether the profits earned by the assessee on the sale of 5000 shares should be assessed as 'income from capital gains' or 'income from business'. The respondent-assessee, an investment company, reported the profits from the sale of shares as long-term capital gains. The Assessing Authority, however, classified the income as business income, doubting the genuineness of the gift transaction and asserting that the company was engaged in trading shares. The court examined the Memorandum of Association, which stated the main object of the company was to function as an investment company, buying, investing, acquiring, and holding shares, stocks, debentures, and bonds. The court found that the company was not engaged in trading shares but merely sold some shares as part of its investment activities. The court reiterated that the definition of a gift includes the transfer of property made voluntarily and without consideration, and there was no legal bar for shareholders to gift their shares to the company. The court concluded that the solitary sale of shares did not constitute a business activity, and the profits should be assessed as capital gains, not business income. Issue 2: Consideration of Subsequent Sale of Shares The second issue was whether the subsequent sale of 19500 shares in the following assessment year indicated that the assessee was engaged in the business of trading shares. The court held that the current case pertained only to the assessment year 1999-2000 and did not address subsequent years. The court noted that if the company engaged in the selling and purchasing of shares in subsequent years, the authorities could take appropriate action in accordance with the law. However, for the assessment year in question, the solitary sale of shares did not suffice to classify the activity as a business. Conclusion: The court upheld the orders of the CIT (Appeals) and the Income Tax Appellate Tribunal, confirming that the profits from the sale of shares should be assessed as capital gains and not business income. The court dismissed the appeal, holding that the substantial questions of law were against the revenue and that the assessee's activities for the assessment year 1999-2000 did not constitute a business in trading shares.
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