income arising from transactions are to be treated as Capital gains or busines

[pawansingla]

2011-TIOL-369-HC-DEL-IT

IN THE HIGH COURT OF DELHI

ITA No.6/2011

COMMISSIONER OF INCOME TAX, DELHI-I

Vs

CONSOLIDATED FINVEST & HOLDING LTD

A K Sikri and M L Mehta, JJ

Dated: May 10, 2011

Appellant Rep by : Ms. Prem Lata Bansal, Sr. Adv, with Mr. Deepak Anand, Adv
Respondent Rep by : Mr. Ajay Vohra, Ms. Kavita Jha & Mr. Somnath Shukla, Adv

Income tax - Whether when assessee acquires shares with the intention of holding them for a longer period but sells them in short span of time due to steep and unanticipated rise in stock market, the income arising from such transactions are to be treated as Capital gains or business income.

The assessee declared short-term capital gain on sale of 206828 shares of ONGC to the tune of Rs. 2,91,38,876.00. During the assessment proceedings, the Assessing Officer noticed that assessee had purchased 1,77,047 shares of ONGC on 29th March, 2004 and 31781 shares of ONGC on 17th May, 2004. The entire holding of shares of ONGC except 2,000 were sold by the assessee within a short span of 7 to 10 months. The assessee treated the surplus of Rs 2,91,38,876 as short-term capital gain. The Assessing Officer held the transactions to be of the nature of business transactions as assessee itself had stated that he was having the business of investments and dealing in shares and also most of shares were immediately sold after their purchase. Accordingly, the Assessing Officer treated the said profit as business income. The assessee challenged the order of the Assessing Officer before CIT(A) which held the profit to be capital gain and not business income. In appeal, the Tribunal maintained the order of CIT(A).

On appeal, the High Court held that,

+ the aforesaid shares of ONGC were purchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of accounts as investment and were booked under the head "non-trade" and not "trading" investment. The intention to acquire those shares as investment can be reflected from the fact that it was holding most of the shares of other companies since long period of time and was not entering into frequent business of sale and purchase of shares;

+ from the facts, the CIT(A) and the Tribunal arrived at a finding of fact that the acquisition of such shares in public issue with the intent of holding them for a long period of time to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by CIT(A) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was to be treated under the head 'capital gain' and not 'profit or gain of business and profession'.

Revenue's appeal dismissed

JUDGEMENT

Per: M L Mehta:

1. This appeal is directed against the impugned order dated 30th October, 2009 of the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal) whereby the appeal of the Revenue against the order of the CIT(A) was dismissed.

2. The assessee filed its return of the assessment year 2005-06 declaring income as Rs. 5.29 crore. Besides others, he also declared short-term capital gain on sale of 206828 shares of ONGC to the tune of Rs. 2,91,38,876.00. During the assessment proceedings, the Assessing Officer noticed that assessee had purchased 1,77,047 shares of ONGC on 29th March, 2004 and 31781 shares of ONGC on 17th May, 2004. The entire holding of shares of ONGC except 2,000 were sold by the assessee within a short span of 7 to 10 months. The assessee had treated the surplus of Rs. 2,91,38,876 as short-term capital gain. The Assessing Officer observed the transactions to be of the nature of business transactions as assessee itself had stated that he was having the business of investments and dealing in shares and also most of shares were immediately sold after their purchase. Accordingly, the Assessing Officer treated the said profit as business income. The assessee challenged the order of the Assessing Officer before CIT(A) which held the profit to be capital gain and not business income. In appeal, the Tribunal maintained the order of CIT(A). It is against this impugned order that the Revenue is in appeal.

3. We have heard the learned counsel for the Revenue and also the assessee and perused the records. There is no dispute that the shares which were acquired were sold within a short span of 7 to 10 months by the assessee. There is also no dispute that the assessee had also asserted to be non-banking financial company having business of investments and dealing in shares. However, the facts which were noted by the CIT(A) and also the Tribunal are worth considering. The assessee was, in fact, engaged in manufacture of photographic goods having manufacturing units at different places prior to the de-merger of the photographic goods business into separate company w.e.f. 1st April, 2004 on the scheme of de-merger of the company approved by the High Court of Uttaranchal. Though the de-merger took place w.e.f. 1st April, 2004, the assessee continued to carry on the photographic goods manufacturing until the date of the order of the High Court of Uttaranchal approving scheme of the de-merger on 1st November, 2004. The assessee also held long-term investments in various other shares. The aforesaid shares of ONGC were purchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of accounts as investment and were booked under the head "non-trade" and not "trading" investment. The intention to acquire those shares as investment can be reflected from the fact that it was holding most of the shares of other companies since long period of time and was not entering into frequent business of sale and purchase of shares. From the facts, the CIT(A) and the Tribunal arrived at a finding of fact that the acquisition of such shares in public issue with the intent of holding them for a long period of time to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by CIT(A) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was to be treated under the head 'capital gain' and not 'profit or gain of business and profession'.

4. No question of law arises, the appeal is hereby dismissed.