Delhi H.C : Where shares had been acquired with an intention of holding them as investment profit arising from sale of these shares was to be assessed as capital gains and not as business income

High Court Of Delhi

CIT vs. Consolidated Finvest and Holding Ltd.

Assessment Year : 2005-06

Section : 45

A.K. Sikri And M.L. Mehta, JJ.

IT Appeal No. 6 Of 2011

May 10, 2011

JUDGMENT

M.L. Mehta, J. – This appeal is directed against the impugned order dated October 30, 2009, of the Income-tax Appellate Tribunal (hereinafter referred to as “the Tribunal) whereby the appeal of the Revenue against the order of the Commissioner of Income-tax (Appeals) was dismissed.

2. The assessee filed its return for the assessment year 2005-06 declaring income as Rs. 5.29 crores. Besides others, it also declared short-term capital gains on sale of 206828 shares of ONGC to the tune of Rs. 2,91,38,876. During the assessment proceedings, the Assessing Officer noticed that the assessee had purchased 177047 shares of ONGC on March 29, 2004, and 31781 shares of ONGC on May 17, 2004. The entire holding of shares of ONGC except 2,000 were sold by the assessee within a short span of 7 to 10 months. The assessee had treated the surplus of Rs. 2,91,38,876 as short-term capital gains. The Assessing Officer observed the transactions to be of the nature of business transactions as the assessee itself had stated that it was having the business of investments and dealing in shares and also most of the shares were immediately sold after their purchase. Accordingly, the Assessing Officer treated the said profit as business income. The assessee challenged the order of the Assessing Officer before the Commissioner of Income-tax (Appeals) who held the profit to be capital gain and not business income. In appeal, the Tribunal maintained the order of the Commissioner of Income-tax (Appeals). It is against this impugned order that the Revenue is in appeal.

3. We have heard the learned counsel for the Revenue and also the assessee and perused the records. There is no dispute that the shares which were acquired were sold within a short span of 7 to 10 months by the assessee. There is also no dispute that the assessee had also asserted to be non-banking financial company having business of investments and dealing in shares. However, the facts which were noted by the Commissioner of Income-tax (Appeals) and also the Tribunal are worth considering. The assessee was, in fact, engaged in manufacture of photographic goods having manufacturing units at different places prior to the demerger of the photographic goods business into separate company with effect from April 1, 2004, on the scheme of demerger of the company approved by the High Court of Uttaranchal. Though the demerger took place w.e.f. 1st April, 2004, the assessee continued to carry on the photographic goods manufacturing until the date of the order of the High Court of Uttaranchal approving the scheme of the demerger on November 1, 2004. The assessee also held long-term investments in various other shares. The aforesaid shares of ONGC were purchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of account as investment and were booked under the head “non-trade” and not “trading” investment. The intention to acquire those shares as investment can be reflected from the fact that it was holding most of the shares of other companies since long period of time and was not entering into frequent business of sale and purchase of shares. From the facts, the Commissioner of Income-tax (Appeals) and the Tribunal arrived at a finding of fact that the acquisition of such shares in public issue with the intent of holding them for a long period of time to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by the Commissioner of Income-tax (Appeals) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was to be treated under the head “Capital gains” and not “profit or gain of business and profession”.

4. No question of law arises, the appeal is hereby dismissed.

[Citation : 337 ITR 264]

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