2004 (2) TMI 312 - AT - Income Tax

Shares profit taxed as capital gain, not business income. Assessee's investment intent confirmed. Appeal dismissed.

The Tribunal upheld the CIT(A)'s decision that the profit from the sale of shares should be taxed as capital gain, not business income. The assessee's ... Capital gains Issues Involved:1. Whether the profit on the sale of shares should be taxed as capital gain or business income.Detailed Analysis:Issue 1: Taxation of Profit on Sale of SharesThe primary issue in this appeal is whether the profit on the sale of shares should be taxed as capital gain or business income. The Department contends that the CIT(A) erred in directing the Assessing Officer (AO) to tax the profit on the sale of shares as capital gain instead of business income, despite material and reasons on record to the contrary.The assessee declared a long-term capital gain from the shares amounting to Rs. 2,00,484. However, the AO considered the profit from the shares as income from business and calculated the profit at Rs. 4,39,293. The AO's calculation was based on detailed transactions of various shares, including Equity Shares and Preference Shares, with significant profits noted in some instances, such as Ranbaxy Laboratory and Maharaja Shree Umaid Mills.Before the CIT(A), the assessee argued that the AO was unjustified in treating the profit as business income. The assessee explained that the shares were purchased 20-30 years ago with the intention of earning dividend income, not for trading purposes. The shares were shown as investments in the balance sheet, not as stock-in-trade. The assessee's main source of income was salary and income from other sources, not trading in shares. The assessee also highlighted that similar transactions in previous years were accepted by the AO as capital gains.The CIT(A) considered these submissions and observed that the AO had not established that the assessee's intention was to sell the shares for profit. The shares were held for a long period, and the transactions were not frequent, indicating that the shares were investments, not business assets. The CIT(A) relied on the judgments of the Hon'ble Supreme Court in Karamchand Thapar & Bros. (P) Ltd. vs. CIT and the Hon'ble Calcutta High Court in CIT vs. Karamchand Thapar & Sons Ltd., which supported the assessee's claim. Consequently, the CIT(A) directed the AO to tax the profit from the sale of shares as capital gain.The Department appealed against this decision, reiterating the AO's observations and arguing that the assessee was engaged in the business of trading shares. However, the assessee's counsel countered that the main source of income was not from trading shares and that the shares were shown as investments in the balance sheet, which was accepted by the Department in previous years. The counsel further argued that the AO failed to prove that the assessee's intention was to carry on a business in shares.Upon considering the rival submissions and the material on record, the Tribunal found that the main source of the assessee's income was salary and other sources, not trading in shares. The shares were purchased long ago, and there was no evidence that the assessee intended to trade them for profit. The Tribunal also noted that similar profits in previous years were taxed as capital gains, and there was no change in the facts for the year under consideration.In conclusion, the Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. The appeal by the Department was dismissed, affirming that the profit from the sale of shares should be taxed as capital gain, not business income.