2019 (4) TMI 1122 - HC - Income Tax

Sale of shares as Long Term Capital Gain - Period of holding - assessee showing investment in shares in his personal Balance sheet and purchased out of his own surplus fund - HELD THAT - The assessee had received such amounts upon sale of three scripts and in particular one of M/s Pyramid Saimira. The assessee had purchased such shares and held them for over 12 months. Against the locking period of one year, the assessee had held shares for 17 months before sale. The assessee had not utilized any borrowed funds for such purchase and that in the earlier years, the Assessing Officer had accepted the sale of shares giving rise to capital gain. We do not find that the Tribunal has committed any error. Assessee also relied on the CBDT Circular dated 29/02/2016, which also supports Tribunal s decision. In the circular the CBDT had clarified that in relation to shares held for more than 12 months, which are listed shares, if the assessee wishes to treat them as investments giving rise to capital gain upon sale, the department would not dispute the same as long as the assessee follows the same pattern subsequently. Income Tax Appeal is dismissed.

Summary

Issues:
- Determination of gain on sale of shares as Long Term Capital Gain.

Analysis:
The case involved an appeal by the Revenue against the judgment of the Income Tax Appellate Tribunal regarding the treatment of a gain of ?13.04 Crores from the sale of shares as Long Term Capital Gain. The Assessing Officer initially treated the gain as business income, which was upheld by the Appellate authority. However, the Tribunal allowed the appeal, considering various factors. The Tribunal noted that the shares were held for a significant period, purchased through IPO, and not traded frequently. The Tribunal also highlighted that the assessee had a history of showing investments in shares in personal balance sheets, indicating a pattern of long-term investment. The Tribunal concluded that the shares were held as investments and not as stock-in-trade, leading to the gain being treated as capital gain.

The Tribunal's decision was based on a thorough examination of the facts, including the locking period of the shares, absence of borrowed funds for purchase, and past treatment of similar transactions as capital gains. The Tribunal found no error in its decision, emphasizing the intention of the assessee to hold the shares for investment purposes. Additionally, the Tribunal's decision was supported by a CBDT Circular dated 29/02/2016, which clarified the treatment of listed shares held for more than 12 months as investments giving rise to capital gains upon sale.

Ultimately, the High Court upheld the Tribunal's decision and dismissed the Income Tax Appeal. The judgment reaffirmed the Tribunal's findings that the gain from the sale of shares should be treated as Long Term Capital Gain based on the assessee's investment pattern, holding period, and absence of trading activities, in line with both the facts of the case and relevant legal provisions and circulars.