Share-sale gains: investment portfolio vs trading intent; treated as capital gains, and s.263 revision cancelled for no fresh evidence

Revision under s.263 was held unsustainable because the Commissioner failed to bring any fresh facts or evidence warranting departure from the consistent treatment adopted since AY 1985-86, and did not show that earlier assessments were arbitrary or perverse; accordingly, the revisional order was cancelled. On characterization of gains from sale of shares, applying the dominant-intention test (intention at acquisition) recognized by the SC and HC, and noting that the shares were recorded in a separate investment portfolio account evidencing investment intent, the shares were treated as capital assets under s.2(14) and the resultant surplus was assessable as capital gains (including deduction under s.48(2)), not business income; the appeal was allowed.

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Issues involved:
The issue involves the correctness of the order passed by the Commissioner of Income-tax, Patiala u/s 263 of the Income-tax Act, 1961 for assessment year 1991-92, specifically regarding the treatment of income on the sale of shares as capital gains or business income.

Summary:

Issue 1: Assessment under section 263
The Commissioner issued a show-cause notice to the assessee challenging the treatment of income on the sale of shares as long-term capital gains. The assessee contended that it maintained separate accounts for investments and trading activities. The Commissioner set aside the assessment for a de novo consideration. The assessee appealed against this order.

Issue 2: Nature of asset - Capital asset or stock-in-trade
The assessee argued that it maintained a separate investment portfolio and had consistently treated gains from the sale of investment shares as capital gains in previous assessment years. The Departmental Representative (D.R.) contended that the shares were purchased with the intention to make a profit, thus should be assessed as business income. The Tribunal noted that various factors need to be considered to determine the nature of the asset. After analyzing the facts, the Tribunal held that the income from the sale of shares should be assessed as capital gains, not business income.

Conclusion:
The Tribunal found that the assessee's intention while purchasing the shares for investment purposes was clear, as evidenced by separate recording in the investment portfolio account. Relying on legal precedents, the Tribunal concluded that the income from the sale of shares should be treated as capital gains. Consequently, the Tribunal canceled the Commissioner's order u/s 263, allowing the assessee's appeal.

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