CIT vs. PNB Finance & Industries (Delhi High Court)

DATE: (Date of pronouncement)
DATE: December 14, 2010 (Date of publication)

Click here to download the judgement (pnb_shares_capital_gains.pdf)

Though main object is to do business in shares, shares can be held as a capital asset & not stock-in-trade

The assessee, engaged in the business of sale and purchase of shares, offered long-term capital gains of Rs. 2.08 crores on sale of shares. The AO took the view that as the main object of the assessee was to engage in the business of purchase & sale of shares, the LTCG was assessable as business profits. This was reversed by the CIT (A) on the ground that (a) the assessee had discontinued trading in shares, (b) the shares were held for a long time, (c) the shares were shown as investment in the books, (d) the shares were not acquired from borrowings. The CIT (A) was upheld by the Tribunal. On appeal by the department, HELD dismissing the appeal:

(i) There is no presumption that every acquisition by a dealer in a particular commodity is acquisition for the purpose of his business. A dealer may acquire a commodity as a capital asset. In each case the question is one of intention to be gathered from the evidence of conduct and dealings by the acquirer with the commodity (Madan Gopal Radhey Lal 73 ITR 652 (SC) & Vijaya Bank 187 ITR 541 (SC) followed);

(ii) If shares are shown as a capital asset in the balance sheet from the date of purchase and no objection was taken by the AO in the earlier years, he cannot hold it to be stock-in-trade without there being any change in facts (Gulmohar Finance Ltd 170 Taxman 483 (Del) followed);

(iii) In Circular dated 15th June, 2007, the CBDT has emphasized that it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio and a trading portfolio and income under the head capital gains as well as business income;

(iv) Though the main object is that of buying and selling shares, the nature of activity, intention and conduct has significance and play a pivotal role in the entire gamut of transaction;

(v) On facts, as the shares were held for a long period and there was no evidence to show regular dealings in shares, the gains had to be assessed as LTCG.

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