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2015 (8) TMI 618 - ALLAHABAD HIGH COURT

2015 (8) TMI 618 - ALLAHABAD HIGH COURT - TMI - Sale of shares - Capital gain or business income - Whether, the Tribunal has committed itself to perversity while concluding that the income of the appellant is "business income"? - Held that:- The Tribunal has recorded a finding that in the present case, Assessee's main source of income is from share transaction. His income from interest is only ₹ 4158/-. Further during the year of assessment in question, Assessee has sold shares of various .....

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es in agreement with the conclusion drawn by Tribunal that the transactions of shares are "adventure in the nature of trade" and shares sold during the assessment year in question are liable to be considered as "stock entry".

Thus looking to the nature of commodity, i.e., shares and also continuity of transactions in several years, in our view, the Revenue was justified in treating the income as "business income" and not "capital gain". Decided in favour of Revenue. - Income Tax Appea .....

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for the assessment year 1992-93 wherein the Revenue has considered the transaction of shares by appellant as "adventure in the nature of trade" instead of "income from capital gain" and have taxed appellant accordingly. 3. This Court, when admitted appeal, formulated following two substantial questions of law to adjudicate this appeal: "1. Whether the appellant has derived "capital gain" on sale of shares and not "business income" as determined by the .....

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uently net profit was shown as 4,23,614/-. Claiming deduction of ₹ 1,26,212/- under Section 48 (2) of Act, 1961 and some minor deductions under Section 80L, ₹ 3633/-, and under Section 80CCB, i.e., ₹ 10,000/- etc., the appellant disclosed income of ₹ 286798/-. 5. The Assessing Authority did not agree with deduction claimed under Section 48(2). The Assessee was required to justify the same. The Assessing Authority took the view that shares have to be treated as ''s .....

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quot;CIT(A)") who also agreed with the view taken by Assessing Authority and dismissed the appeal. Thereafter, Assessee preferred further appeal before Income Tax Appellate Tribunal, New Delhi (hereinafter referred to as "ITAT") where also he has failed. The appeal was dismissed vide order dated April, 2004. Hence this appeal. 7. Counsel for appellant contended that Assessee has actually invested in shares but the investment having gone some times for change of shares of one compa .....

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than one such transactions have taken place, the same will not partake nature of business, hence the view taken by Revenue is clearly illegal. 8. In the order of Tribunal, total number of transactions in sale and purchase of share commencing from financial year 1990-91 till 1998-99 have been shown as under: Financial Year Assessment Year Number of Transactions made Purchase Sale 1990-91 1991-92 11 5 1991-92 1992-93 4 9 1992-93 1993-94 2 4 1993-94 1994-95 1 - 1994-95 1995-96 3 1 1995-96 1996-97 4 .....

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ctions made from time to time, Assessee has tried to show that shares were in the shape of capital assets. 11. In G. Venkataswami Naidu & Co. vs The CommSsioner Of Income-Tax (1959) 35 ITR 594, Supreme Court said that it is impossible to evolve any formula which can be applied in determining character of isolated transactions which come before the courts in tax proceedings. It would not be expedient to make any attempt to evolve a rule or formula in this regard. Generally, it would not be di .....

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d to eliminate the possibility of investment for personal use, possession or enjoyment. 12. The Court referred to decision in Cayzer, Irvine and Co. Ltd. Vs. Commissioner of Inland Revenue (1942) 24 Tax Cases 491, where the land was purchased and subsequently developed with the object of making it more readily salable and sold at a profit, the intention of Assessee was treated to be not to hold the land as an investment but as a trading asset. It was held that the intention was to hold the land .....

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e or not. The answer to the question must necessarily depend in each case on the total impression and effect of all the relevant factors and circumstances proved therein, which may determine the character of the transaction. 14. Both these cases, however, pertain to land and, therefore, may not be of much help in the case in hand. 15. In Janki Ram Bahadur Ram Vs. CIT (1965) 57 ITR 21 (SC), the Court held, question whether profit in a transaction has arisen out of an adventure in the nature of tr .....

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ture of the commodity, subsequent dealings and the manner of disposal may be such that the transaction may be stamped with the character of a trading venture. 16. A somewhat similar issue came up in Commissioner of Income-Tax, Bombay Vs. H. Holck Larsen (1986) 160 ITR 67 (SC). The Court considered the question "whether in respect to certain transactions between the years 1957 to 1959 the Assessee was a Dealer or an investor and whether income arising from sale and purchase by Assessee is to .....

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where he observed: "The question has been asked in a number of cases: "If this was not trading, what was it?" With all deference to those who have used that argument, I do not think that it is very useful in most cases. Human affairs - and business affairs - are of infinite variety. They do not fit neatly into categories or classes. Innominate contracts and transactions are of frequent occurrence, and I would not expect to find appropriate names to denote new kinds of operations .....

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whether the later stages of whole operation show that the first step - the purchase of the shares - was not taken as, or in the course of, a trading transaction. The Court referred to its earlier decision in Rannarain Sons Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay (1961) 41 ITR 534 (SC) and said that in considering whether the transaction was or was not an adventure in the nature of trade, the problem must be approached in the light of intention of Assessee having regard to legal require .....

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to launch upon an adventure in the nature of trade might readily be inferred. It also referred to the principles laid down in Raja Bahadur Kamakhya Narain Singh Vs. Commissioner of Income Tax (1970) 77 ITR 253 (SC) and said: " ... the question of adventure in the nature of trade was again considered by this Court and it was reiterated that since the expression "adventure in the nature of trade" implied the existence of certain element in the transactions which in law would invest .....

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e distinction between the two types of transactions is not always easy to make. Whether the transaction is of one kind or the other depends on the question whether the excess is an enhancement of the value by realising a security or a gain in an operation of profit-making. The assessee might invest his capital in shares with the intention to resell these if in future their sale bring in a higher price. Such an investment, though motivated by a possibility of enhanced value, did not necessarily r .....

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