2016 (6) TMI 1396 - AT - Income Tax

Gain on sale of Land - LTCG or business income - whether hares held as investments in the books of the appellants and was never converted into stock-in-trade - HELD THAT - As per Tribunal s order for the assessment year 2005-06 2010 (10) TMI 1205 - ITAT BANGALORE all the shares which were held by the assessee as stock-in-trade up to that year were converted into investments and nothing has been brought on record by the revenue to establish that after this assessment year any purchase of shares by the assessee was for the purpose of dealing in shares. Under these facts hold that the shares were held by the assessee as investments and therefore the gain arising to the assessee in the present two years on sale of shares is liable to tax as capital gains and not as business income but whether such capital gain is short term capital gains or long term capital gains it depends upon the holding period of shares and for that it is required to examine the date of purchase and date of sale of the shares. Since this aspect was never examined by the lower authorities and facts are not available before me on this aspect, feel it fit and proper to restore back this factual aspect to the file of the AO and accordingly restore this matter back to the file of the AO for the limited purpose of examining the date of acquisition of shares and date of sale of shares to decide as to whether the gain arising on sale of such shares is short term capital gains or long terms capital gains - Appeals of the assessee are allowed for statistical purposes

Summary

Issues:
- Treatment of long term capital gains as business income
- Conversion of stock-in-trade into investments
- Determination of short/long term capital gains
- Justification of interest levied

Analysis:

Issue 1: Treatment of long term capital gains as business income
In the assessment years 2008-09 and 2009-10, the assessee contested the treatment of long term capital gains arising from the sale of shares as business income. The assessee argued that the shares were held as investments since inception and not for trading purposes. The Tribunal acknowledged the conversion of stock-in-trade into investments by the assessee from the assessment year 2005-06. The Tribunal emphasized that any gain from the sale of shares held as investments should be taxed as capital gains, not as business income. The decision was based on the lack of evidence to prove that the shares were acquired for trading post-conversion. The Tribunal directed a factual examination by the Assessing Officer to determine the nature of capital gains based on the holding period of shares.

Issue 2: Conversion of stock-in-trade into investments
The assessee maintained that all shares were converted into investments post the assessment year 2005-06. The Tribunal noted that no evidence was presented by the revenue to suggest that shares purchased after the conversion were intended for trading. Consequently, the Tribunal upheld that shares held by the assessee were investments, leading to the taxation of gains as capital gains rather than business income.

Issue 3: Determination of short/long term capital gains
The Tribunal stressed the importance of examining the holding period of shares to ascertain whether the gains were short term or long term capital gains. As the lower authorities had not investigated this aspect and facts were unavailable during the appeal, the Tribunal remanded the matter to the Assessing Officer for a detailed assessment of the acquisition and sale dates of shares. The burden of proof regarding these dates was placed on the assessee.

Issue 4: Justification of interest levied
The assessee contested the imposition of interest under sections 234B and 234D, arguing that the addition to total income was not sustainable. However, the Tribunal did not delve into this issue explicitly, allowing the appeals for statistical purposes based on the primary issues discussed above.

In conclusion, the Tribunal allowed the appeals of the assessee for statistical purposes, emphasizing the need for a detailed factual examination by the Assessing Officer regarding the nature of capital gains and the holding period of shares to determine the appropriate tax treatment.