SUBHASH S SHAH HUF V. INCOME TAX OFFICER, WARD-11(2)

TAXAP/1101/2008

AI Insights

The case involves Subhash S Shah HUF, the appellant, contesting the classification of income from the sale of shares by the Income Tax Officer, Ward-11(2), the respondent. The primary legal question was whether the income from the sale of shares should be treated as 'Business Income' or 'Income from Long-term Capital Gains'. The Assessing Officer initially classified the income as business income, which was upheld by the Tribunal. The High Court, referencing a CBDT circular, allowed the appeal in part, treating the income from shares held for more than 12 months as capital gains, while leaving the classification of other shares sold within a year untouched due to their minimal financial impact.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 758292 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 13-06-2018
• Assessment Year: misc
• Laws Referred To: CBDT circular dated 29.2.2016
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: SWATI SOPARKAR
• Keywords: Business income; Capital Gains; Income Tax; Long Term Capital Gains; Short Term Capital Gains
• Section: 143(3)

Judgement Text

"C/TAXAP/1101/2008 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1101 of 2008 ========================================================== SUBHASH S SHAH HUF Versus INCOME TAX OFFICER, WARD-11(2) ========================================================== Appearance: MRS SWATI SOPARKAR(870) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 13/06/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) The appeal is filed by the assessee. Following question of law has been framed : “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in treating the income from sale of shares as “Business Income” and not as “Income from Long­term Capital Gains”?” For the assessment year 1995­1996, during the course of assessment, the Assessing Officer examined the assessee's investments in shares. He referred to the sales and purchases of various shares of the assessee made during the year under consideration. He disallowed the assessee's claim for long term and short term capital gains arising out of sale of shares. He instead taxed the same as business income. Issue reached the Tribunal. Tribunal by the impugned judgment confirmed the view of the Assessing Officer. The Tribunal noted that the assessee had sold shares on 22 different occasions which shares Page 1 of 3 C/TAXAP/1101/2008 ORDER were held for more than one year on which the assessee had claimed long term capital gains. The Tribunal also noted that there were 12 instances of sale of shares where shares were held for short duration leading to assessee's claim of short term capital gains. Issue in the present tax appeal is whether Tribunal was right in holding that assessee was trading in shares and therefore, surplus was assessee's business income. At the outset, learned counsel for the appellant drew our attention to the CBDT circular dated 29.2.2016 in the context of this on­going controversy. CBDT had sought to simplify the procedure by providing as under : “3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following­ (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock­in­trade, the income arising from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary Page 2 of 3 C/TAXAP/1101/2008 ORDER stand in this regard in subsequent years; (c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.” In terms of clause (b) of para.3 of the said circular, thus in respect of listed shares and securities held for a period of more than 12 months preceding the date of transfer, if the assessee desires to treat the income as capital gain, Revenue would not dispute the same. However assessee would not be allowed to change the position from time to time. In the present case, as noted there were as many as 22 instances where shares were listed and sold after holding them for more than one year resulting in total gain of Rs.18.64 lacs (rounded off). In view of CBDT circular, we permit the assessee's claim treating the same as capital gain. Rest of the shares which were held for less than one year, assessee's gain was much smaller to the extent of Rs. 1,77,645/­. These instances would in any case be out of the purview of CBDT's clarification. The total amount being not very large and possible tax implication between short term capital gain and business income also being not significant, we leave such issue untouched. With these partial modifications, question stands answered. Tax Appeal partially allowed and disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) raghu Page 3 of 3 "