2014 (12) TMI 566 - HC - Income Tax

Entitlement of relief u/s 10(38) Sale of shares Business income or capital gains - Whether the Tribunal was right in holding that the sale of shares does not fall under the head income from business but under the head capital gains , thereby, entitling for relief u/s 10(38) Held that - The Tribunal rightly followed the decision of the same assessee being decided earlier in Assistant Commissioner of Income-tax Versus Stargate Investments (P.) Ltd. 2010 (8) TMI 699 - ITAT, CHENNAI wherein it has been held that the shares held by the assessee was long term investment and there was no basis to treat it as stock in trade of the assessee company - the shares were held as long term investment and, therefore, the same is entitled to long term capital gains and upheld the order of the CIT(A) thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Classification of sale of shares under income from business or capital gains.
2. Determination of whether the sale and purchase of shares constitute an adventure in the nature of trade.

Issue 1 - Classification of Sale of Shares:
The case involved the appellant, the Revenue, challenging the order of the Income Tax Appellate Tribunal regarding the classification of the sale of shares by the respondent assessee. The assessee, engaged in the business of investment in shares and securities, sold shares of India Cements Ltd. and claimed exemption under Section 10(38) of the Income Tax Act for the assessment years 2006-2007 and 2008-2009. The Assessing Officer initially held that the profit on the sale of shares should be taxed as business income, not as long-term capital gains, as it constituted an adventure in the nature of trade.

Issue 2 - Adventure in the Nature of Trade:
Upon appeal, the CIT (Appeals) allowed the assessee's claim, stating that the shares held were capital assets, not stock in trade, and thus, the assessee was entitled to exemption under Section 10(38) of the Act. The Revenue then appealed to the Appellate Tribunal, which referred to an earlier order in the case of the same assessee for the assessment year 2006-2007. In that order, it was determined that the shares were held as long-term investments, not stock in trade, and therefore, the assessee was entitled to long-term capital gains. The Tribunal upheld the CIT (Appeals) order, leading the Revenue to file the present appeal before the High Court.

Court's Decision:
The High Court, after considering the arguments presented, found no reason to differ from the findings of fact recorded by the CIT (Appeals) and the Tribunal. The Court noted that the current case was a continuation of the earlier order for the assessment year 2006-2007, where similar relief was granted to the assessee. The Court dismissed the appellant's plea regarding new material in the Director's report, stating that such arguments should have been raised at earlier stages. Ultimately, the Court concluded that no substantial questions of law arose for consideration in the appeal and found no merit in interfering with the Tribunal's order, thus dismissing the appeal.