|CORAM:||A. T. Varkey (JM), R. S. Syal (AM)|
|SECTION(S):||2(42C), 28, 45, 48|
|CATCH WORDS:||Business profits, short-term capital gains|
|DATE:||March 10, 2015 (Date of pronouncement)|
|DATE:||March 27, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Factors to be considered for classifying gains from sale of listed shares into "short-term capital gains" versus "business profits" explained|
The decision to hold shares as `Investment’ or `Stock-in-trade’ depends on a host of factors. There can be no single criteria to decide the nature of shares purchased. In fact, it is the cumulative effect of all the relevant factors, which is taken into consideration for reaching a conclusion as regards the nature of shares and the resultant income arising from their transfer. There may be some factors indicating the purchase of shares as investment, while others may point towards stock-in-trade. It is the holistic consideration of all such factors which is kept in view while deciding as to whether the shares purchased by the assessee constituted stock-in-trade or investment. On facts, the factors in favour of holding the purchase of shares as investment are:
(i) The argument of the DR that the assessee entered into such shares at a time when they were at the lowest price and hence there could be no possibility of making Investment, cannot be considered as decisive for holding such shares as stock-in-trade. A person may think of making investment in the shares of a company at a price which is quite low and, then, maintain position in it for a period by allowing it to prosper. There is no rule of purchasing shares as investment only when the price of shares of a company is at the peak.
(ii) The assessee firstly purchased all the shares of Satyam Computers over a period of time and, thereafter, started their disposal. There is no frequent in and out of these shares.
(iii) It is manifest that the assessee had the initial intention to hold these shares as `Investment’ which is discernible from the fact that these were entered into the `Investment register’ maintained u/s 372A(5) of the Companies Act, 1956 at the time of their purchase. This is another reason to show the assessee’s intention of holding shares in Satyam Computers as investment ab initio.
(iv) Another factor which is of paramount importance is the assessee’s contention that these shares were purchased out of the assessee’s own funds without making any borrowing.
(v) It is an undisputed fact that the assessee took delivery of such shares after making full payment and it was not a case of settling the transaction of purchase and sale of such shares during the settlement period itself. This is another reason to indicate that the intention of the assessee to hold them as Investment.
(vi) Another factor which needs to be mentioned is that the assessee was consistently holding some other shares as investment over a period of time and was regularly earning income from their sale by declaring profit as ‘Short-term capital gain’ or ‘Long-term capital gain’ depending upon the period of their holding. There is no doubt that shares of Satyam Computers were not purchased or treated as Investment in any of the earlier years, but at least this factor shows that the assessee was also engaged in the purchase of shares as Investment and showing profit from their sale under the head `Capital gains’.
(vii) The assessee has placed on record a copy of the assessment orders for immediately preceding assessment year in which there was ‘Short-term capital gain’ of Rs.17.21 crore which has been accepted by the AO. Similarly, there is an order passed u/s 143(3) for assessment year 2006-07 accepting that the assessee was engaged in the business as well as in investment of shares. It is manifest that there is no alteration in the character of income shown by the assessee. The principle of consistency in terms of the assessee holding shares as stock-in-trade as well as investment, cannot be lost sight of.