2018 (12) TMI 41 - HC - Income Tax

High Court rules gains from share sale as short-term capital gains, allows deduction for foreign travel expenses

The Bombay High Court, through the judgment delivered by the bench of AKIL KURESHI & M.S. SANKLECHA, JJ., determined that the gains from the sale of ... Income from Sale of shares - business income or short term capital gain - Held that:- There were no instances of repetitive purchase and sale of shares. From the balance sheet, it could be gathered that the Assessee had used its own funds or interest free funds, borrowed from the Directors of the Company in order to purchase the shares. Assessee had taken physical delivery of the shares and in the books of account, treated the same as an investment. Inter alia, on said grounds, Tribunal had ruled in favour of the Assessee. Whether the purchase and sale of shares is in the nature of investment or business venture, would depend on facts and circumstances of each case. There are judicially laid down guidelines and parameters to judge whether in a case, the sale of shares would give rise to business income or capital gain. Nevertheless, essentially such question is a mixed question of law and facts. Tribunal has applied the correct parameters to the admitted the facts, emerging from the record. We do not find any error in such consideration. No question, therefore, arises for our consideration. Disallowance of Foreign Travel expenses - revenue expenditure OR capital expenditure - Held that:- Tribunal came to the conclusion that the Foreign Travel expenditure was incurred to increase the Assessee's customer base in different countries and also to open new avenues in the existing business of providing financial consultancy service. In nutshell, therefore, the Tribunal from the facts on record, held that the expenditure was for expansion of extending business and not for setting up a new business. No question of law arises Issues:1. Determination of whether the transaction in shares of a company constitutes short-term capital gains or business income.2. Assessment of foreign travel expenses as revenue or capital expenditure.Analysis:Issue 1:The primary dispute in this case revolved around whether the sale of shares of a particular company by the Assessee should be classified as business income or short-term capital gain. The Assessing Officer initially considered the sale as part of the Assessee's business venture, a view upheld by the Commissioner of Income Tax (Appeals). However, the Tribunal, in its judgment, analyzed the details of the transaction and concluded that the Assessee had maintained separate portfolios for investment and trading assets. The Tribunal highlighted that the Assessee had held the shares for an average of 60 days, used own and interest-free funds for investments, and treated the shares as investments in its books. Citing relevant legal precedents and circulars, the Tribunal determined that the gains from the sale of shares should be assessed as short-term capital gains, overturning the lower authorities' decisions. The Tribunal's decision was based on a thorough examination of the facts and legal principles, leading to the dismissal of the Revenue's appeal.Issue 2:The second issue pertained to the treatment of foreign travel expenses claimed by the Assessee as revenue expenditure. The Assessing Officer contended that the expenses were capital in nature as they were incurred for exploring new business opportunities. However, the Tribunal disagreed, emphasizing that the Assessee's travel was aimed at expanding existing business activities and increasing the customer base in different countries. The Tribunal noted that expenditure for expanding current business operations is revenue in nature and need not yield immediate revenue. By considering the purpose and nature of the foreign travel expenses, the Tribunal concluded that they were not capital or preoperative in nature but rather aimed at extending the Assessee's business reach. Consequently, the Tribunal directed the Assessing Officer to allow the deduction for foreign travel expenses. The Tribunal's decision was grounded in a detailed analysis of the purpose and impact of the expenses, aligning with established legal principles regarding revenue and capital expenditures.In conclusion, the Bombay High Court, through the judgment delivered by the bench of AKIL KURESHI & M.S. SANKLECHA, JJ., addressed the complex issues of categorizing share transactions and travel expenses with a meticulous examination of facts, legal provisions, and precedents. The detailed analysis and application of relevant principles led to a comprehensive resolution of the disputes, ultimately resulting in the dismissal of the appeal.