The Delhi High Court, following a-five broad tests to decide the nature of income, ruled that the receipt out of sale of shares is Capital Gain if the Company treated the same as investment.
In the instant case, the Assessee was engaged in the business of investment and securities and had a distinct portfolio in respect of stock in trade and investment.
For the year under consideration, the Assessee acquired the share of certain companies which underwent amalgamation and he shifted some of the shares to its investment account and later sold them during the Assessment Year.
However AO brought to tax substantial amount for the concerned Assessment Year rejecting the assessee’s claim of capital gains and held the same as stock-in-trade and treated the profit earned as business income. The CIT (A) upon re-appraisal of the facts and consideration of the authorities held that the action of the AO treating the entire income as business income is not justified; hence addition made by him on this account is deleted.
When this matter carried to the Tribunal, the Tribunal concluded the matter in favour of the assessee.
On further appeal before the High Court, Justices Ravindra Bhatt and A K Chawla observed that in order to ascertain whether a particular income constitute business income or capital gain, the following five tests have to be followed;
By following this test Tribunal noticed that AO’s approach in singular fixing scrutiny to the shifting and regulations of some shares to treat as business income, was erroneous.
Accordingly, the bench decided that the disputed amount amounted to capital gain, and not business income.
