By TIOL News Service

BANGALORE, JULY 21, 2016: THE issue before the Bench is - Whether receipts from sale of shares can be treated as 'business income', when the investment was made from the fund of the Company and the investment made was shown as investment at the cost value from the very inception. NO is the answer.

Facts of the case

The Revenue had preferred the present appeal challenging the order, whereby the Tribunal held that the AO was not right in treating profit derived of Rs.10,66,425/- on sale of shares under the head 'business income' and not under the head 'capital gains', when the AO had rightly treated the same as business income considering the intention of assessee for making profit by making investments in shares and materials on record which disclosed that assessee was a trader in stocks.

Having heard the parties, the High Court held that,

++ it appears that the matter was remanded earlier by the Tribunal. The AO further considered the matter and found that merely because the purchase of the shares were shown as investment in the balance sheet, it is no ground to conclude that it was not the stock-in-trade and ultimately, found that it is profit of business and not a capital gain;

++ on appeal, the CIT(A) found that as the investment was made from the fund of the Company and the investment made was shown as investment at the cost value from the inception, it could not be termed as stock-in-trade and therefore, it should be treated as long term capital gain. The Tribunal found that the view taken by the CIT(A) is right, as the investment and the value of the cost was consistently shown from its inception and as the said aspect was not rebutted by the AO, the Tribunal did not interfere with the view taken by the CIT. It is seen that more or less, similar questions arose for consideration before this Court in ITA No.567/2015 and the very decision of the Apex Court in the case of Chennai Properties & Investments Ltd was considered by this Court and it was observed that the question of giving treatment to the income of the property of the assessee as that from the investment or as a business income was also required to be considered in light of the factual aspects that what treatment was given to the income earned from the property whether it was that of the business income or the income from the house property. In the present case, the peculiar facts are that the investment made was shown as investment and the cost was reflected throughout in the balance sheet and it was never treated as stock-in-trade. Further, if it was to be treated as stock-in-trade and the market value plus cost would have been considered, but such was not treated accordingly by the assessee in the books of accounts. There was also lock-in period for holding of the shares. Under these circumstances, the view taken by CIT(A) and confirmed by the Tribunal, would not call for interference.

(See 2016-TIOL-1452-HC-KAR-IT)