Share sale profit deemed long-term capital gain under Income Tax Act

The Tribunal dismissed the Revenue's appeal and upheld the Commissioner's decision to treat the profit from share sale as long-term capital gain, allowing exemption under section 10(38) of the Income Tax Act. The Tribunal found the shares were held as investments, supported by past treatment and balance sheet details, rejecting the Revenue's argument of treating it as business income due to alleged price rigging. The judgment emphasized distinguishing between business income and long-term capital gain based on asset use and portfolio management, resulting in the dismissal of the Revenue's appeal.

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Issues:
Challenge to impugned order dated 17/09/2020 under section 250 of the Income Tax Act, 1961 for assessment year 2009-10.

Analysis:
1. The Revenue raised grounds questioning the Commissioner's decision to restrict the addition of a substantial amount as Long-Term Capital Gain exempted under section 10(38) of the Act. The Revenue argued that the income should be treated as Business Income due to alleged price rigging in shares of a specific company.

2. The facts revealed the assessee's engagement in trading securities, declaring a loss but also claiming exemption for long-term capital gain. The Assessing Officer (AO) alleged the assessee manipulated share prices, leading to an investigation by SEBI. The AO concluded the long-term capital gain should be taxed as business income due to various factors, including lack of dividend income and frequent share transactions.

3. The Commissioner, however, considered the nature of the asset use and the assessee's dual portfolios, treating the profit from the share sale as long-term capital gain. The Commissioner restricted the addition to the amount deemed unlawful gain by SEBI, holding it as income from unlawful activity, while allowing the remaining profit as exempt under section 10(38) of the Act.

4. The Tribunal upheld the Commissioner's decision, noting that the AO did not challenge the genuineness of the long-term capital gain but focused on treating it as business income. The Tribunal found no fault in the Commissioner's conclusion that the shares were held as an investment, supported by past treatment and balance sheet details. The Tribunal dismissed the Revenue's appeal, affirming the treatment of profit as long-term capital gain.

5. The Tribunal's decision resulted in the appeal by the Revenue being dismissed, rendering the cross-objection filed by the assessee irrelevant and also dismissed. The judgment upheld the Commissioner's order, emphasizing the distinction between business income and long-term capital gain based on the nature of asset use and portfolio management.

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