1998 (10) TMI 90 - AT - Income Tax

Summary

Issues Involved:
1. Classification of profits from the sale of shares as either long-term capital gains or business income.
2. Eligibility for exemption u/s 54F of the Income-tax Act, 1961.

Issue-wise Summary:

1. Classification of Profits from Sale of Shares:
The primary issue was whether the profits of Rs. 72,60,985 from the sale of shares should be classified as long-term capital gains or as income from business. The assessee, a member of the Delhi Stock Exchange, maintained separate books for his trading activities and investments. The Assessing Officer (AO) argued that shares acquired post-1990 should be treated as stock-in-trade, thus classifying the profits as business income. However, the Tribunal noted that shares held as 'investment' were registered in the assessee's name and dividends were declared as income. The Tribunal concluded that gains from shares held as investments should be treated as long-term capital gains, except for certain shares like Essar Shipping and Reliance Industries, where the matter was remanded to the AO for verification of distinctive numbers and dates of purchase.

2. Eligibility for Exemption u/s 54F:
The second issue was whether the assessee was entitled to exemption u/s 54F of the Income-tax Act, 1961, for the capital gains if they were classified as long-term. The AO denied the exemption on the grounds that the assessee owned another residential property at Khan Market, New Delhi. The Tribunal, however, noted that the Khan Market property was used for business purposes and thus, under section 22, its income was not chargeable under the head 'Income from house property'. Consequently, the Tribunal held that the assessee was entitled to the exemption u/s 54F, as the property used for business purposes did not disqualify the claim.

Conclusion:
The Tribunal directed that the profits from the sale of shares held as investments should be treated as long-term capital gains, except for shares of Essar Shipping and Reliance Industries, which required further verification. Additionally, the assessee was entitled to exemption u/s 54F for the long-term capital gains as the other property was used for business purposes. The appeal was partly allowed for statistical purposes.