2015 (2) TMI 851 - HC - Income Tax

Profit earned from sale of shares - income from adventure in the nature of trade or as short-term capital gain - Held that - As find from the totality of facts and circumstances of the case that this income cannot be treated as the assessee's business income from adventure in the nature of trade because this is an investment in shares and sale of some of the shares in order to repay the loan in the condition when the price of shares has quickly risen. Any income derived from the sale of shares has to be treated either long-term capital gain or short-term capital gain subject to holding of the shares. In this case, this income has to be treated as short-term capital gain and not as a business income. Revenue was unable to show that the activity undertaken by the assessee was an adventure in the nature of trade. - Decided in favour of assessee.

Summary

Issues:
1. Whether income from adventure in the nature of trade should be treated as short-term capital gain.

Analysis:
The judgment involves an appeal by the Revenue against the order of the Income-tax Appellate Tribunal, Chandigarh Bench, regarding the treatment of income from an adventure in the nature of trade as short-term capital gain. The primary issue is to determine whether the profit earned from the sale of shares should be classified as income from an adventure in the nature of trade or as short-term capital gain.

The court emphasized that there is no fixed formula to decide whether a transaction falls under "profits derived from an adventure in the nature of trade." Each case's facts and circumstances play a crucial role in determining the nature of the receipt. The key consideration is to analyze the transaction's nature, distinguishing between capital accretion and income from an adventure in the nature of trade based on the intention behind the investment and resale.

In this case, the assessee purchased shares with the intention of holding them for capital appreciation, not for resale. The Tribunal accepted the assessee's argument, concluding that the income derived from selling shares to repay a loan due to a sudden rise in share prices should be treated as short-term capital gain. The Tribunal highlighted various reasons, including the assessee's lack of experience in share trading, the specific nature of shares purchased, and the intention behind selling only a part of the shares to repay the loan promptly.

The court found no evidence to support the Revenue's claim that the activity constituted an adventure in the nature of trade. It upheld the Tribunal's decision, stating that no error was found in the Tribunal's findings that would justify the court's intervention. As a result, the court dismissed the appeal, ruling that no substantial question of law arose in the case.

In conclusion, the judgment clarifies the distinction between income from an adventure in the nature of trade and short-term capital gain based on the intention behind the investment and resale of shares. The court's decision underscores the importance of analyzing the specific facts and circumstances of each case to determine the nature of the income generated from such transactions.