2016 (5) TMI 336 - HC - Income Tax

Short-term capital gain v/s income from business - sale & purchase of shares - Assessing Officer treated the company as a trading company - Held that - The assessee has declared purchases/holding of shares as investment for the past several years and surplus has been claimed as capital gains before the assessing authority and said facts are evident from the reply of the assessee dated November 21, 2008 and the appellate authority also has mentioned about the claim of the assessee with reference to purchases/holding of shares being shown as investment in past, valuation being done at cost and the assessee has never treated such holdings in the past as stock-in-trade. It is also stated in the order that the claim of the Revenue that the assessee is doing stock-in-trade is without any basis and no material was brought on record to show that the assessee had been valuing the holding of shares as at the end of each year on first- in, first-out (FIFO) method and the assessee had valued investment at cost and declared the same as investment as per the balance-sheet as on March 31, 2006. It is also stated in the order that the shares have been held for more than 30 number of days which is evident from the holding period shown by the assessee in more than 92 per cent. of the transactions and the assessee retained the shares for appreciation in value and not with an intension of commercial motive. The assessee is not registered with any authority or body such as the Security Exchange Board of India (SEBI), etc., to do trading in shares. The entire investment has been made out of own funds and not out of borrowed funds and no contra material has been placed on record by the Revenue to come to a different conclusion. Thus, a factual finding has been given by the Tribunal stating that the Department cannot change the stand in subsequent years without any changing material. The said factual finding having been recorded based on appreciation of documents, which were not considered by the assessing authority as well as the appellate authority, the contention of the Revenue that the assessee is doing stock-in-trade and not investments cannot be accepted and no substantial question of law arises for determination in these Income-tax appeals. - Decided against revenue

Summary

Issues:
Challenging orders of the Income-tax Appellate Tribunal regarding short-term capital gain treatment and tax levy at 30% instead of 10%.

Analysis:
1. The Tribunal allowed the respondent's appeals against the Income-tax Commissioner's orders, contending that the short-term capital gain was wrongly treated as business income. The respondent argued that there was no evidence of trading in shares, and previous assessments had accepted share transactions as investments, not for trading purposes.

2. The respondent maintained that their transactions were delivery-based, with full payment and receipt for each transaction, unlike traders. The Tribunal, following Circular No. 4 of 2007 and Supreme Court precedents, found in favor of the respondent. The Tribunal noted the consistent treatment of shares as investments, the holding period exceeding 30 days, and the absence of commercial intent in holding shares for appreciation.

3. The Tribunal emphasized that the Revenue failed to provide material supporting a change in the assessment approach. The Tribunal's factual findings were based on a thorough review of documents and rejected the Revenue's claim of trading activity without sufficient evidence.

4. The Revenue argued that the Tribunal's findings lacked a basis and evidence for interference. However, the Tribunal's detailed reasoning and examination of the presented materials supported its factual conclusions, dismissing the Revenue's contentions.

5. Referring to judgments from various High Courts, including Bombay, Delhi, Punjab, and Haryana, the Tribunal highlighted consistent decisions supporting the treatment of shares as investments when held for a considerable period without challenge from the Department. The Tribunal found no substantial legal question warranting consideration based on the existing facts and legal precedents.

6. Considering the precedents and the Tribunal's comprehensive assessment of the case, the High Court upheld the dismissal of the appeals, concluding that no substantial legal issues merited further review. The appeals were consequently dismissed without costs.