Income Tax: Investment do not lose their ‘Capital’ Nature merely because Purchase was made with an Intention to Resell, rules Calcutta HC

In a recent ruling, the Calcutta High Court has held that the capital investment and resale do not lose their capital nature merely because the said investment/purchase of property was made with an intention to resell.

The assessee, M/S. Gyan Traders Limited, was aggrieved with the orders of the lower authorities. the assessee invested in shares with a view to hold them and earn income by way of dividend and receive bonus shares. The investments in shares are out of the own funds of the assessee. The shares which are held as investments are valued at cost and those held as stock-in-trade are valued at cost or market value. Owing to vagaries in the stock market the assessee varies its investment after a relatively short period of holding in order to avoid losing its capital or because of the sudden rise in the share prices making it imprudent to hold on to the shares in the expectation that long term holding may result in better appreciation.

The department held that the income from the above transaction shall be treated as the business income of the assessee.

Justice T.S. Sivagnanam and Justice Supratim Bhattacharya relied on a catena of decisions and observed that “a transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. Further it was pointed out where the purchase of any article or of any capital investment, for instance shares is made without the intention to resell it at a profit, the resale under such changed circumstances would only be realization of capital and would not stamp the transaction with a business character. If the above legal principles are applied to the facts of the case on hand, the only irresistible conclusion is to approve the view of the CIT(A) who had considered all the relevant materials and details which were placed by the assessee. The learned tribunal had failed to note that the assessee had maintained a separate account for investment, which fact was very material to consider the nature of transactions effected by the assessee during the relevant period.”

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