COMMISSIONER OF INCOME TAX (CENTRAL) vs. SONIA UPPAL

This appeal has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 11.4.2013, Annexure A.4 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' (in short, “the Tribunal”) in ITA No.175/Chd./2013, claiming following substantial question of law:- “Whether, on the facts and the circumstances of the case and in law, the Hon'ble ITAT was correct in treating the income from adventure in the nature of trade as short term capital gain?”

A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee disclosed short term capital gains at ` 67,41,488/- in her return of income which was treated by the Assessing Officer as income from adventure in the nature of Singh Gurbax 2014.03.20 13:39 integrity of this document High Court Chandigarh trade as the income was treated as business income. The Assessing Officer drew support from the CBDT's instruction No.1827 dated 31.8.1989 and circular No.4 of 2007 dated 15.6.2007. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.12.2012, Annexure A.3, the appeal was partly allowed, deleting the addition of ` 1 lac. Not satisfied, the assessee filed appeal before the Tribunal. Vide order dated 11.4.2013, Annexure A.4, the appeal was allowed. Hence the instant appeal by the revenue.

We have heard learned counsel for the appellant and perused the record.

The point for consideration in this appeal is whether the profit which was earned by the assessee from sale of shares was to be treated as income from adventure in the nature of trade or as short term capital gain. According to the assessee, the same has resulted in short term capital gain whereas the stand of the revenue is that it was income from adventure in the nature of trade.

There is no strait-jacket formula for concluding whether the transaction would fall within the domain of 'profits derived from an adventure in the nature of trade' or outside its ambit. The facts and circumstances of each case would be determinative of the character of the receipt. The primary consideration in such cases relates to examining the nature of the transaction. Where a person invests money in an asset with intention to hold it, enjoys its usufruct for some time and then sells it at enhanced price, it would be a case of capital accretion outside the scope of profits resulting from an adventure in the nature of trade. On the other hand, where income accrues on realisation of investments consisting of purchase and resale, income accruing could be treated as adventure in the Singh Gurbax 2014.03.20 13:39 integrity of this document High Court Chandigarh nature of trade. The cardinal question which would require to be answered would be whether purchaser was a trader and had purchased the commodity with the clear understanding that it was his usual trade or business or incidental to it.

Adverting to the factual matrix in the present case, it may be noticed that the assessee purchased some shares. When the rates of the said shares had risen, the assessee decided to sell part of the shares with a view to repay the loan already taken. According to the assessee, the investment in shares was made for capital only and not for resale thereof. Further, the Tribunal vide order dated 11.4.2013, Annexure A.4 while accepting the plea of the assessee had recorded as under:- “4. We have heard rival submissions and have carefully perused the entire record. We have considered various reasons which have been given by learned AR, even given before learned CIT(Appeals) and which are enumerated at page No.3 of his order and the existence of which would prove that the impugned income cannot be treated as business income. We find from the totality of facts and circumstances of the case that this income cannot be treated as assessee's business income from adventure in the nature of trade, because this is an investment in shares and sale of some of the shares in order to repay the loan in the condition when the price of shares has quickly risen. Any income derived from the sale of shares has to be treated either long term capital gain or short term capital gain subject to holding of the shares. In this case, this income has to be treated as short term capital gain and not as a business income. The following reasons which we are extracting from page No.3 of CIT(Appeals)'s order are also relevant for this consideration. We extract these reasons verbatim hereinafter as under:- I. that the assessee is not a business person and she hardly ever indulged in any purchase or sale of shares in the past. Singh Gurbax 2014.03.20 13:39 integrity of this document High Court Chandigarh She has no knowledge of the share market or equities that are traded in it. II. The majority of the shares purchased were of the group companies only, indicating the lack of intention to deal in the shares. III.Out of the total shares purchased, only a part were sold because of an unexpected spurt in prices and the remaining were retained. IV.Part shares were sold to try and repay the loan at the earliest as the appellant was a person of limited means and did not wish to carry a liability for long. V. Buying bulk shares for increasing stake in group companies by raising soft loans does not indicate intent to deal in shares. VI.The shares were held for a sufficiently long period of time for them to qualify as investments. VII.The shares purchased were only of one company which was predominantly family owned. VIII.The profit earned on sale of part shares was only incidental. IX.Engaging a broker for purchase and sale of the shares cannot be vital for determining the nature of the receipt as for making the investments, the services of brokers are always availed. X.Conduct of the assessee and her intention si also one of the relevant factors though not the sale test.'

Keeping in view all the above reasons and the others, which we have mentioned in the former part of this order, we can safely conclude that this is not an income from adventure in the nature of trade but it is only a short term capital gain derived by the assessee. Accordingly, we allow the appeal of the assessee and order to delete the impugned addition.”

Learned counsel for the revenue was unable to show that the activity undertaken by the assessee was an adventure in the nature of trade. No error could be pointed out in the findings recorded by the Tribunal Singh Gurbax 2014.03.20 13:39 integrity of this document High Court Chandigarh warranting interference by this Court.

No question of law much less substantial question of law arises in the appeal and the same is, consequently, dismissed. (Ajay Kumar Mittal) Judge February 21, 2014 (Anita Chaudhry) 'gs' Judge Singh Gurbax 2014.03.20 13:39 integrity of this document High Court Chandigarh