long term capital gain from shares

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RAMESH SHARMA JANGID (Querist)

02 December 2010 an assessee hold share of company as an investment for last 10 yrs.( shown bal sht as an investment an on that date). during the year the assessee sold the shares and earn LTCG OF RS. 2.5 Crore but ITO said that this is business income and liable for tax but assessee want to prove as a LTCG. please provide me relevent cash laws to fight before ITO.

thanks in advanced.
ramesh

Aditya Maheshwari

Aditya Maheshwari (Expert)

02 December 2010 When shares held are 'capital asset' ( not stock-in-trade) the income on transfer will fall u/h 'capital gains'. Furthermore when transactions are few and not voluminous, and in past admittedly activity is considered as investment activity, and gains on transfer are assessed as capital gains, then there is no question of treating income on transfer of shares, held as investment, as business income.

You may refer to judgment of Bombay HC in case of Gopal Purohit, Calcutta HC in case of Bhagawati Pd. Agarwal, and a recent judgment of Gujrat HC in which it has been held that even if investment is made out of borrowed funds, gains will be capital gains when shares transferred are capital asset of assessee.

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