Law: Income Tax Act, 1961

Section: 28(i)

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1947-48 - Assessee held by way of investment a large number of shares - Those shares were later converted into stock-in-trade and thereafter same was sold - Question arose whether assessee's assessable profit on sale of shares was difference between sale price and cost price or difference between sale price and market price prevailing on 1-4-1945 - High Court held that assessee's assessable profit on sale of shares was difference between sale price and market price prevailing on 1-4-1945 - Whether High Court was correct in holding so - Held, yes FACTS The assessee held by way of investment a large number of shares of different companies. These shares were purchased before the end of and after 1939-40 at a cost price which was much less than their market value on 1-4-1945. Her dividend income was assessed to income-tax for several years prior to 1-4-1945; but in the assessment year 1946-47 the ITO found that the assessee had converted her shares into her stock-in-trade and carried on a trading activity, viz., a business in shares. Her income for the assessment year 1946-47 was, therefore, computed on the basis of the profits which she made by the sale of her shares as a trading activity, the profits being calculated on the difference between the ruling market price at the beginning of the account year and the sale proceeds. For the assessment year 1947-48, it was found by the ITO that the sale proceeds of the shares which the assessee had sold amounted to Rs. 5,49,487. The ITO calculated the profits by deducting cost, calculated on basis of market price of shares at the beginning of the account year, and forward business loss from sale proceeds. On appeal, the AAC enhanced the income of the assessee by a sum of Rs. 2,91,307 including a capital gains of Rs. 37,590. The AAC proceeded on the footing that the profit earned by the assessee on the sale of the shares was the difference between the original cost price of the shares and the sale proceeds. He further held that some of the shares which were sold…

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