641 total views
Share profit- Capital Gains vs. Business Profits
CIT vs. Viksit
Engineering Ltd (Bombay High Court)
COURT: Bombay High Court
CORAM: Akil Kureshi J, M. S. Sanklecha J
SECTION(S): 28, 45, 48
DATE: November 26, 2018 (Date of pronouncement)
DATE: January 5, 2019 (Date of publication)
Capital Gains vs.
Business Profits: Merely holding shares for a short period will not convert
capital gain into business income. This would be contrary to be legislative
mandate which itself provides that investment held for less than 12 months is
to be termed as short term capital gain. If the assessee has two portfolios, one
for “Investment” and other for “Trading” and if the
investments are out of own funds and not borrowed funds, the gains have to be
assessed as STCG
IN THE HIGH COURT OF
JUDICATURE AT BOMBAY
INCOME TAX APPEAL
NO.485 OF 2016
Income-Tax-II … Appellant
M/s Viksit Engineering
Ltd. … Respondent
Mr.Ashok Kotangle for
CORAM : AKIL KURESHI
DATE : NOVEMBER 26,
1. This appeal under
Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated
8 th July, 2015 passed by the Income Tax Appellate Tribunal. This appeal
relates to the Assessment Year 2008-09.
learned counsel to the Revenue urges the following brief question of law:-
“Whether in the facts
and circumstances of the case and in law was the Tribunal justified in holding
that the gain made on sale of shares is Priya Soparkar 2 14 itxa 485-16-o to be
classified as short term capital gain and not as business income?”
3. In the subject
assessment year the Respondent in its return of income claimed short term
capital gain of Rs.9.42 crores. During the assessment proceedings the
Respondent was called upon to show cause as to why the income shown as short
term capital gain should not be treated as business income. The Respondent
pointed out that its regular business is to trade in engineering goods, metal
and other commodities. It has also made investments in shares over the last 10
to 15 years out of its own funds i.e. without any borrowings and loans.
However, the Assessing Officer did not accept the same on the ground that all
the scrips in respect of which the short term capital was gained was held for a
very short period i.e. purchased and sold during the year.
4. Being aggrieved the
Respondent carried the issue in appeal to the Commissioner of Income Tax
(Appeal)(CIT (A)) but without success.
5. On further appeal
to the Tribunal by the impugned order dated 8th July, 2015, the appeal was
allowed. This after examining the facts and finding that in its Balance-sheet
and profit and loss account the respondent had separately shown trading in
shares, long term capital gains and profits from business.
It further records the
fact that in this case the gains on account of short term capital gain i.e. the
investments held for a period of less than 12 months arises on account of the
fact that a prudent investor keep a watch on the market and liquidates its
investment as and when necessary.
It records the fact
that the law itself provides that such gain may be brought to tax under the
head short term capital gain when the shares are held for a period of less than
12 months. It also records that fact that for earlier years, the Assessing
Officer had accepted the claim made under the head short term capital gain in
respect of purchase and sale of shares.
learned counsel for the Revenue submits that the appeal ought to be admitted as
the amounts involved are large. Besides the profit claimed under the head short
term capital gain are all on account of purchase and sale of shares during the
7. We note the fact,
that the issue of classification of income on sale of shares as business income
or as short term capital gains is to be decided the facts of each case. The
tests to be applied for such determination is provided in CBDT Circular No.4 of
We note that the
Tribunal kept in mind the tests as provided in the above Circular in the
context of the facts and found is that these investments were out of its own
funds and not borrowed funds, further it maintained a distinction between
trading in shares and investments.
Thus two port-folios
one for “Investment” and other for “Trading”. Besides for the earlier years the
Revenue accepted the claim of short term capital gain. Thus the income has to
be taxed as short term capital gain. We are of the view that respondent holding
the shares for a short period, will not convert the capital gain into business
income. This would be contrary to be legislative mandate which itself provides
that when the investment is held for less than 12 months, it is to be termed as
short term capital gain. Moreover, the impugned order of the Tribunal also in
the present facts correctly placed reliance upon the decision of this Court in
the case of CIT Vs. Gopal Purohit1.
8. In the above facts,
the view taken by the Tribunal on the facts is a possible view. Thus, the
question as proposed does not give rise to any substantial question of law.
Thus not entertained.
9. Accordingly, appeal
dismissed. No order as to costs.