STATE OF GUJARAT Vs. MAHERAJBHAI DEVJIBHAI BHUBHAIYA

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Ahmedabad Bench-C, has referred the following question at the instance of Revenue under section 256(2) of the Income Tax Act, 1961 (for short 'the Act'):

(2.) The assessment year is 1979-80 and the relevant accounting period is financial year ended 31.3.1979. The assessee company sold certain shares of Suhrid Geigy Ltd., which had been acquired on 1.1.1974 to Koshalya P. Ltd. Which was a wholly owned subsidiary company of the assessee. Similarly, the assessee had also sold certain shares of Wadi Chemicals P. Ltd. Which had been acquired on 1.8.1977 to another wholly owned subsidiary company. The assessee worked out capital gains and claimed the said capital gains to be wholly exempt from tax under section 47(iv) of the Act. The claim of the assessee was negatived by the Assessing Officer on the ground that the assessee had been carrying on the business of purchasing and selling shares. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) who dismissed the appeal on this count.

(3.) In the second appeal, the Tribunal accepted the stand of the assessee on the basis: (i) in assessment order for Assessment Year 1978-79 the Assessing Officer had taxed the profit on sale of investment as capital gains and not as business profit; (ii) the Assessing Officer rejected the claim of the assessee regarding investment being stock in trade; (iii) in earlier assessment year the profit or loss were treated as capital gains or capital loss and had never been treated as business income or business loss; (iv) the shares in question were reflected under the head of Investments in the balance sheet of the company.