2011 (5) TMI 1035 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT(A) was justified in holding that short-term capital gain of Rs. 49,19,877/- and long-term capital gain of Rs. 98,31,915/- on sale of shares was assessable as business income and not as capital gains?
2. Alternative ground: Whether the long-term capital gain on sale of shares ought to have been treated as exempt u/s 10(38)?

Summary:

Issue 1: Assessment of Gains as Business Income or Capital Gains

The assessee, a company in the hotel business, claimed capital gains from the sale of shares, which were reflected in the Balance Sheet under the head 'investment' and not as 'stock-in-trade'. The assessee argued that the shares were held as investments, supported by the Balance Sheet and historical treatment by the department. The AO, however, treated the gains as business income, a decision upheld by the CIT(A).

The Tribunal considered the intention of the assessee at the time of purchase, the treatment of shares in the books, and the historical acceptance by the department. It was noted that the shares were held for a long period, and the investments were made from surplus funds. The Tribunal referred to several judicial precedents, including CIT v. H. Holck Larsen, which emphasized the intention at the time of purchase. The Tribunal concluded that the shares were investments, not stock-in-trade, and the gains should be treated as capital gains, not business income.

Issue 2: Alternative Ground

Given the favorable decision on the main issue, the alternative ground regarding the exemption u/s 10(38) did not require adjudication.

Conclusion:

The Tribunal set aside the matter to the AO to verify the claimed short-term and long-term capital gains, affirming that the transactions were capital gains. The appeal was allowed for statistical purposes.

Order Pronounced:

The order was pronounced in the open Court on May 31, 2011.