2015 (4) TMI 264 - HC - Income Tax

Revision u/s 263 - amount claimed on share transaction as Capital Gain to be treated as income from business - Tribunal holding that the assessee has sold the shares in a solitary transaction and the same was not treated as stock in trade, the income arising from sale of shares has to be assessed under the head 'Capital Gains' - Held that - The material on record clearly establishes that the share which is sold by the assessee was held by the assessee a decade back which has been reflected in the audited account as investment. It was never considered as part of stock-in-trade. It was a solitary transaction. In the light of this undisputed facts, when a possible view is taken by the Assessing Authority and accepted the case of the assessee that it has resulted in capital gains, as rightly held by the Tribunal, the Commissioner was in error in treating it as a business income. In fact, he was not able to make up his mind and he has remanded the matter back to the Assessing Authority to find out whether it constitutes capital gain or business income. Thus Commissioner had no justification to invoke Section 263 of the Income Tax Act to initiate proceedings - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of capital gain from sale of shares for assessment year 2003-04.
2. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act.
3. Assessment of income from sale of shares under the head 'Capital Gains' or 'Business Income'.
4. Validity of the order passed by the Assessing Authority and the Commissioner.

Analysis:

1. The case involves the interpretation of capital gain earned by an Assessee Company from the sale of shares during the assessment year 2003-04. The company set off the gain against long term capital loss brought forward from an earlier assessment year. However, discrepancies were found in the calculation as part of the loss had already been set off in previous years, leading to a reduced claim for the current assessment year.

2. The Commissioner of Income Tax invoked jurisdiction under Section 263 of the Income Tax Act to review the order passed by the Assessing Authority. The Commissioner issued a notice questioning the treatment of the capital gain as income from business, leading to objections from the assessee. Despite objections, the Commissioner held the Assessing Officer's order as erroneous and directed a fresh assessment, prompting the assessee to appeal to the Tribunal.

3. The Tribunal considered whether the shares sold by the assessee constituted a business activity or capital gain. The Assessing Authority's decision was deemed valid as it was a possible interpretation of the facts, and the Commissioner's order was set aside on the grounds that the Assessing Authority's decision was not erroneous. The Tribunal held that the shares were held as investments, not as stock-in-trade, and the income from the sale should be assessed under 'Capital Gains.'

4. The High Court upheld the Tribunal's decision, emphasizing that the shares were held as investments for a significant period, constituting a solitary transaction. As the Assessing Authority's decision was based on a possible view of the facts and deemed legally sustainable, the Commissioner's intervention under Section 263 was deemed unjustified. The Court dismissed the appeal, ruling in favor of the assessee and against the Revenue, concluding that the order passed by the Tribunal was just and legally sound, requiring no interference.