ASSISTANT COMMISSIONER OF Income Tax vs KETHAN KUMAR A. SHAH

Usha, J.

Appeal at the instance of the revenue is against the order passed by the Tribunal, Cochin Bench, in IT Appeal 793 (Coch.) of 1994. The relevant assessment year is 1991-92. The question that arises for consideration is whether profit earned by the assessee on sale of certain shares held by the assessee is assessable as capital gains or as business income. The Tribunal took the view that in the facts of this case, the profit has to be assessed as capital gains. Aggrieved by the above, the revenue has come up in appeal.

The assessee is a share-broker. He contended that the profit on sale of certain shares held by him as personal investment is assessable as capital gains and not as business income. The assessing authority took the view that since the assessee is a dealer in shares, all the shares held by him should be treated as stock-in-trade and, therefore, the profit received by sale of the same should be assessed as business income. The assessing officer therefore, denied the assessee''s claim for relief u/s 54F of the Income Tax Act, 1961 also. On appeal by the assessee, the Commissioner (Appeals) held that there was nothing to show that the assessee converted all the shares into stock-in-trade and so the profit in respect of sale of shares was assessable only as capital gains. The assessing officer was directed to allow appropriate deduction u/s 54F and section 48. Aggrieved by the above, the revenue filed appeal before the Tribunal. The Tribunal confirmed the view taken by the first appellate authority.

It is contended before us by the learned senior standing counsel appearing for the Income Tax department that the assessee being a regular dealer in shares, all the shares held by him should have been considered as stock-in-trade. The learned counsel submitted that what is relevant is the nature of the original acquisition of the shares. If they were acquired in the course of business, it is irrelevant whether, subsequently, he had treated it as personal investment. In support of the above contention, he placed reliance on a decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. H. Holck Larsen, where, it was observed as follows:

"The real question as Lord Reid said was not whether the transaction of buying and selling the shares lacks the element of trading, but whether the later stages of the whole operation show that the first step - the purchase of the shares - was not taken as, or in the course of, a trading transaction . . . ."(p. 75)

To apply the principle, it has to be examined whether the shares in question were originally acquired by the assessee in the course of his trade or business. No material had been placed before the Tribunal to show that it was so acquired.

On the other hand, it is seen that the assessee had been showing these shares in the wealth-tax return from the assessment years 1988-89 as personal investment. These shares were never transfer-red or converted as stock-in-trade and no entry was made in assessee''s books of account. The Tribunal took note of the fact that the assessee had been showing in the wealth-tax return the personal investment in the shares and it was those shares which were sold by the assessee. It was on this basis that Tribunal assumed that the shares were personal assets.

So long as there is no material to show that the shares which the assessee claimed as personal assets and included in the wealth-tax returns from 1988-89 onwards, were acquired in the course of the assessee''s business, we find no reason to take a different view from that of the Tribunal, even applying the principle laid down in H. Holck Larsen''s case (supra). The Tribunal was fully justified in granting the assessee relief u/s 54F.

In the result, the appeal fails and it stands dismissed.