2015 (8) TMI 618 - HC - Income Tax

Appellant's Share Transactions Ruled as Business Activities, Not Investments

M/s. Kiran Somani Versus Asstt. Commissioner of Income Tax

The High Court upheld the Tribunal's decision, affirming that the appellant's share transactions constituted business activities rather than mere ... Sale of shares - Capital gain or business income - Whether, the Tribunal has committed itself to perversity while concluding that the income of the appellant is 'business income'? - Held that:- The Tribunal has recorded a finding that in the present case, Assessee's main source of income is from share transaction. His income from interest is only ₹ 4158/-. Further during the year of assessment in question, Assessee has sold shares of various Companies, i.e. Flex Industries Limited, Rathi Ispat Limited, Maharashtra Fabrics Limited, U.P. Petro Ltd. and has also purchased shares of various Companies of substantial amount. The sale and purchase of shares on the part of Assessee is continuous, periodical and with an intention to earn profit. Profit earned from share transactions have been invested in loan given to Smt. Pushpa Somani, M/s Somani and Co. M/s Jay Dee Investment. There are some further reasons and as a whole, we find ourselves in agreement with the conclusion drawn by Tribunal that the transactions of shares are 'adventure in the nature of trade' and shares sold during the assessment year in question are liable to be considered as 'stock entry'. Thus looking to the nature of commodity, i.e., shares and also continuity of transactions in several years, in our view, the Revenue was justified in treating the income as 'business income' and not 'capital gain'. Decided in favour of Revenue. Issues Involved:1. Whether the appellant has derived 'capital gain' on sale of shares and not 'business income' as determined by the Tribunal.2. Whether the Tribunal has committed itself to perversity while concluding that the income of the appellant is 'business income'.Issue-wise Detailed Analysis:1. Determination of Income Nature: Capital Gain vs. Business IncomeThe appellant contended that the transactions in shares were investments and not business activities. The appellant declared an income of Rs. 2,86,798/- for the assessment year 1992-93, including profits from share transactions, and claimed deductions under Section 48(2) of the Income Tax Act, 1961. The Assessing Authority, however, treated the shares as 'stock in trade' under Section 2(14) of the Act, rejecting the claim of 'income from capital gain' and instead taxed it as 'business income,' computing a chargeable income of Rs. 4,09,980/-.The Tribunal reviewed the appellant's transactions from financial years 1990-91 to 1998-99, noting the number and nature of transactions, and concluded that these were indicative of business activities. The Tribunal's findings were based on the continuity, periodicity, and intention behind the transactions, which suggested a profit motive rather than mere investment.2. Tribunal's Conclusion and Legal PrecedentsThe Tribunal's decision was challenged on the grounds of perversity. The Tribunal's findings were supported by several legal precedents, including:- G. Venkataswami Naidu & Co. vs. Commissioner of Income-Tax (1959) 35 ITR 594: The Supreme Court emphasized that determining the nature of transactions requires considering various factors, such as the nature and quantity of the commodity traded.- Cayzer, Irvine and Co. Ltd. vs. Commissioner of Inland Revenue (1942) 24 Tax Cases 491: The intention behind purchasing and selling property (land in this case) was crucial in determining whether it was an investment or a trading asset.- Mohammed Meerakhan (P.M.) vs. Commissioner of Income-tax (1969) 73 ITR 735: The Supreme Court reiterated that no single legal test could determine whether a transaction was an adventure in the nature of trade; it depended on the total impression of all relevant factors.- Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC): The Court held that the nature of the transaction, including the magnitude and subsequent dealings, could indicate a trading venture.- Commissioner of Income-Tax, Bombay vs. H. Holck Larsen (1986) 160 ITR 67 (SC): The Court highlighted the importance of the intention behind transactions in shares, whether they were for trading or investment purposes.The Tribunal found that the appellant's main source of income was from share transactions, with continuous and periodic buying and selling of shares, indicating a business motive. The income from interest was minimal compared to the profits from share transactions. The Tribunal concluded that the transactions were 'adventure in the nature of trade' and treated the shares as 'stock entry.'Conclusion:The High Court upheld the Tribunal's judgment, agreeing that the transactions in shares were indicative of business activities rather than mere investments. The Court found that the Revenue was justified in treating the income as 'business income' and not 'capital gain.' Consequently, both questions were answered in favor of the Revenue, and the appeal was dismissed without any order as to costs.