2019 (4) TMI 1182 - HC - Income Tax

Taxability of LTCG STCG as business income - assessee had treated the shares as investment, the number of transactions during the year were not large and held the shares for reasonably long period before selling - HELD THAT - We are broadly in agreement with the view of the Tribunal. Most significant aspect as noted above is that out of total gain of ₹ 1,10,35,000/-, only 12,000/- represented short term capital gain. That apart, the CBDT has now issued Circular dated 29.2.2016 which provides that subject to certain conditions, any receipt of listed shares and securities held by an assessee for a period of more than 12 months if the assessee desires to treat the income from transfer of shares as capital gain, the same shall not be put to the dispute by the Assessing Officer. However, the stand of the assessee once taken would not be changed later. Under these circumstances, no question of law arises - Appeals dismissed.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the addition regarding the treatment of business income shown as long term and short term capital gains?
2. Whether the assessee's receipt out of sale of shares should be considered as business income or capital gain?

Analysis:
1. The appeals involved similar issues, with the primary question being whether the Tribunal was justified in deleting the addition regarding the treatment of business income shown as long term and short term capital gains. The Revenue challenged the Tribunal's judgment, arguing that the assessee's receipt from the sale of shares should be considered as business income, not capital gain. The Tribunal had reversed the Assessing Officer and the CITA(A)'s view by considering the shares as investments due to the limited number of transactions and a significant portion of the gain being long term capital gain. The High Court agreed with the Tribunal's view, emphasizing that only a small amount represented short term capital gain, and cited a Circular by the CBDT supporting the treatment of income from transfer of shares held for over 12 months as capital gain under certain conditions.

2. The second issue revolved around whether the assessee's receipt out of the sale of shares should be classified as business income or capital gain. The Assessing Officer and the CITA(A) initially deemed the receipts as business income due to the nature of buying and selling shares. However, the Tribunal disagreed and considered the shares as investments, given the long-term holding period before selling and the majority of the gain being long term capital gain. The High Court upheld the Tribunal's decision, highlighting the Circular issued by the CBDT supporting the treatment of income from transfer of shares held for over 12 months as capital gain, subject to specific conditions.

In conclusion, the High Court dismissed both Income Tax Appeals, affirming the Tribunal's decision to treat the assessee's receipt from the sale of shares as capital gain rather than business income based on the facts and circumstances of the case, including the holding period and the nature of transactions.