Gyan Traders Limited Vs CIT, Kolkata-II
Date-30th September, 2022
Sub-What is the criteria for determining whether the profit on sale of shares is business income or capital gains?

The issue regarding the profit on sale of shares being business income or capital gains is an issue which has never been settled. The fight continues depending upon whichever way is beneficial for the assessee or department. In one such case, the petitioner in this case challenged the ITAT order where the gain was held to be business income solely on the basis of period of holding of shares. The assessee’s counsel argued on various grounds including the facts that the Government itself encouraged investment in shares by reducing the period of holding in shares to be eligible for long term to 1 year and also relied on CBDT Circular No 4 of 2007 dated 15.06.2007. The department on other hand argued that most of shares were purchased and sold during the year and were acquired from secondary market.
The Division bench while appreciating that an assessee can have both investment and business portfolio, observed that period of holding cannot be sole determinative criteria which can be as little as one day. It was noted that no single formula can be laid down and facts of each case have to be seen while holding one way or other. On the basis of the facts including that the assessee had seperately maintained business and investment portfolio, made investment out of own funds held that the tribunal feel in error while holding the capital gains to be business income.

This decision being latest in this regard, will be helpful in dealing with similar situations including the latest decision of Calcutta High Court in JetAge Securities which was also referred to in this case.

Ramesh Patodia
03-10-2022