Investment done with plan to resell does not lose capital: Calcutta High Court

Investment done with plan to resell does not lose capital: Calcutta High Court

The revenue department held that income from transactions would be treated as business income of the assessee

The Calcutta High Court has held that capital investment and resale do not lose their capital nature merely because the property was purchased with the intention to resell.

The assessee, Gyan Traders Limited, was aggrieved with the orders of the Income Tax department and under the Income Tax Act, 1961, appealed before the Commissioner of Income Tax (Appeals), who ruled in favor of the assessee.

Aggrieved by the order of CIT(A), the revenue department appealed before the Income Tax Appellate Tribunal (ITAT).

The case pertained to the assessee investing in shares out of its own funds with the purpose of holding them and earning an income by way of dividends and receiving bonus shares.

The shares held as investments were valued at cost and those held as stock-in-trade were assessed at cost or market value. Due to the inconsistent stock market trend, the assessee varied its investment after a short period of holding. This was done to avoid losing its capital and the sudden rise in the share prices making it imprudent to hold on to the stocks expecting that long-term holding might result in better appreciation.

The revenue department held that the income from the transaction would be treated as the business income of the assessee.

The high court bench comprising Justice T.S. Sivagnanam and Justice Supratim Bhattacharya relied on a catena of decisions.

The court ruled, "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 that where the purchase of any article or of any capital investment, for instance, shares bought without the intention to resell at a profit, the resale under such changed circumstances would only be a realization of capital and would not stamp the transaction with a business character."

"If the legal principles are applied to the facts of the case, the only irresistible conclusion is to approve the view of the Commissioner of Income Tax (Appeals), who considered all relevant materials and details which were placed by the assessee. The tribunal failed to note that the assessee had maintained a separate account for investments. This fact was important to consider the nature of transactions effected by the assessee during the relevant period," the bench stated.