2019 (1) TMI 546 - HC - Income Tax

High Court affirms shares sale not business income. Section 54F exemption for two flats upheld.

The High Court of Bombay dismissed the Income Tax appeals, upholding the decisions of the CIT(A) and the Tribunal. The court affirmed that the income from ... Gain on sale of shares - capital gain or busniss income - Revenue argued that the income arising out of the sale of shares should be taxed as business income - Held that:- Whether the activity of the assessee in dealing with the shares is by way of investment or business is principally a question of facts to be adjudicated on the basis of the documents on record and well established legal principles through series of judgments. In the present case, the CIT(A) and the Tribunal have concurrently held that the assessee is not in the business of buying and selling shares. This conclusion was principally on the basis of above noted factors inter-alia establishing that the assessee was occupied in the activity of manufacturing of optical equipments, that the assessee had showed the acquisition of shares as investment, that all purchases were upon delivery of shares. Exemption u/s 54F denied - purchasing two flats of residential complex - Revenue contends that both the flats are independent units and the assessee, therefore, cannot get exemption with respect to investments made in purchase of both of the - Held that:- CIT(A) and the Tribunal concurrently held that the two flats were combined into one residential unit. There was a common electricity connection and common bill. There was only one telephone connection. The LPG connection was also single. There was common kitchen for the entire unit. We notice that a Division bench of this Court in largely similar set of circumstances in CIT Vs. Devdas Naik (2014 (7) TMI 173 - BOMBAY HIGH COURT) had dismissed the Revenue's appeal. Issues Involved:1. Taxation of capital gain from sale of shares as business income.2. Claim of exemption under Section 54F of the Income Tax Act for purchase of two flats.Issue 1: Taxation of Capital Gain from Sale of Shares as Business Income:The appeals involved the same assessee for the assessment years 2006-07 & 2007-08. The Revenue contended that the income from the sale of shares should be taxed as business income. However, both the CIT(A) and the Tribunal concluded that the assessee was not engaged in the business of buying and selling shares. The assessee's principal source of income was manufacturing optical equipment, and the shares were shown as investments. The Tribunal's decision was based on established legal principles and factual evidence, leading to the dismissal of the Revenue's argument. The Court found no legal question requiring intervention, upholding the Tribunal's decision.Issue 2: Claim of Exemption under Section 54F of the Income Tax Act for Purchase of Two Flats:The additional question raised in one of the appeals concerned the assessee's claim of exemption under Section 54F by purchasing two flats in a residential complex. The Revenue argued that since the flats were independent units, the assessee could not claim exemption for both. In contrast, the assessee contended that the flats were combined into one unit for residential purposes. Both the CIT(A) and the Tribunal found that the two flats were indeed combined into a single residential unit, supported by evidence like a common electricity connection, bill, telephone connection, LPG connection, and a common kitchen. The Court referred to a similar case and upheld the decision, emphasizing that as long as there is a single residential unit, the benefit or deduction cannot be denied. The Court found no substantial legal question in the appeal and dismissed it.In conclusion, the High Court of Bombay dismissed the Income Tax appeals, upholding the decisions of the CIT(A) and the Tribunal regarding the taxation of capital gains from the sale of shares and the claim of exemption under Section 54F for the purchase of two flats.