Profit from Sale of Unlisted Shares of ICICI Bank Held for 6 Years Taxable as LTCG, Not Business Income: Calcutta HC [Read Order]

In a recent ruling, the Calcutta High Court held that profit arising from the sale of unlisted preference shares of ICICI Bank Ltd., which were held for nearly six years, is taxable as Long-Term Capital Gain and not as business income.

The case relates to Russel Credit Limited for AY 2018-19. The assessee had purchased 34 unlisted preference shares of ICICI Bank Ltd. in June 2012 and sold them in March 2018. The gain of about ₹12.97 crores was shown as LTCG and set off against brought forward losses. The Assessing Officer completed assessment under Section 143(3) and accepted the claim.

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Later, the Principal Commissioner invoked Section 263 stating that the order was erroneous and prejudicial to the interest of revenue. The department argued that the shares were stock-in-trade and the profit should be treated as business income. The revision order was passed setting aside the assessment.

The ITAT allowed the assessee’s appeal and restored the assessment. The revenue then filed an appeal before the High Court.

The Division Bench comprising Justice Rajarshi Bharadwaj and Justice Uday Kumar observed that for Section 263 to apply, the order must be both erroneous and prejudicial to revenue. The court explained that both conditions must exist together. It observed that the Assessing Officer had issued notice under Section 142(1) examined documents like Board resolution, purchase and sale papers and computation of capital gains before accepting the claim.

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Mere lack of detailed discussion does not mean no inquiry was made. The court observed that neither the AO nor the Principal Commissioner recorded any finding of conversion of stock-in-trade into capital. A new case cannot be made at appellate stage.

The court further observed that the shares were acquired as investment, held for almost six years and the transaction was single and isolated. The conduct showed investment intention and not trading activity. The CBDT Instruction dated 02 May 2016 applicable to unlisted shares also supports treating such gains as capital gains.

The court dismissed the appeal and answered all substantial questions of law in favour of the assessee and against the revenue.

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