2018 (5) TMI 1438 - HC - Income Tax

High Court Confirms Sale of Shares as Capital Gain, Stresses Consistency in Tax Declarations

The High Court upheld the Tribunal's decision to treat income from the sale of shares as capital gain, following the CBDT circular guidelines. The Court ... Treatment of income as capital gain or business income - declaration of intention in classifying listed shares as stock-in-trade or investment - applicability of CBDT circular No. 6 of 2016 - exclusion for transactions where genuineness is questionable (sham or bogus transactions) - binding effect of an assessee's once taken stand in subsequent assessment yearsTreatment of income as capital gain or business income - applicability of CBDT circular No. 6 of 2016 - exclusion for transactions where genuineness is questionable (sham or bogus transactions) - Income arising to the assessee on sale of shares of Vishal Exports Overseas Ltd. is to be treated as capital gain and not as business income. - HELD THAT: - The Tribunal's conclusion that the income should be treated as capital gain was sustained. The Tribunal relied on the directives in CBDT circular No. 6 of 2016 which accept an assessee's declaration of intention regarding treatment of listed shares and provide that where listed shares have been held for more than 12 months the assessee may treat the transfer as giving rise to capital gain and that such stand, once taken, is binding in subsequent years. The exclusion in para 4 of the circular-which preserves the department's right to disregard the circular in cases where the genuineness of the transaction itself is questionable, such as bogus claims or sham transactions-was not attracted. The Assessing Officer's and CIT(A)'s observations about possible rigging amounted to suspicion and did not establish that the transactions were sham; the Revenue did not demonstrate that the genuineness of the transactions was vitiated. In those circumstances the Tribunal was right to apply the CBDT directive and to treat the receipts as capital gains rather than business income. [Paras 4, 5, 6, 7, 8]The Tribunal's finding that the receipt is capital gain is upheld and the Revenue's appeal is dismissed.Final Conclusion: The High Court dismissed the Revenue's appeal, upholding the Tribunal's treatment of the receipts from sale of VEOL shares as capital gains and holding that the CBDT circular applied; the circular's exclusion for sham transactions was not attracted on the materials before the authorities. Issues:1. Whether the income from the sale of shares should be treated as capital gain or business incomeRs.2. Interpretation of CBDT circular No. 6 of 2016 regarding the treatment of income generated through the sale of shares.Analysis:1. The High Court considered the appeal against the Income Tax Appellate Tribunal's judgment on whether the income from the sale of shares should be treated as capital gain or business income. The Revenue authorities argued that the assessee attempted to manipulate share prices to generate inflated income. However, the Tribunal referred to the CBDT circular No. 6 of 2016, which provides directives on such disputes. The Tribunal overruled the Revenue authorities' orders and emphasized the importance of the circular in determining the treatment of income from share sales.2. The Court highlighted the directives of the CBDT circular, which allow the assessee to declare their intention regarding the treatment of shares as stock-in-trade or capital gain. The circular specifies that once a stand is taken by the assessee, it must remain consistent in subsequent assessment years. The circular aims to reduce disputes and uncertainties in such cases. However, an exclusion clause in the circular states that it does not apply to transactions where the genuineness is questionable, such as bogus claims of capital gain or sham transactions. The Court noted that this exclusion clause would not apply in the present case as there was no evidence of sham transactions, and suspicions raised by the Revenue authorities were not sufficient to establish wrongdoing.In conclusion, the Court dismissed the Tax Appeal, upholding the Tribunal's decision to treat the income from the sale of shares as capital gain rather than business income based on the interpretation of the CBDT circular and the absence of evidence supporting the Revenue authorities' suspicions.