PCIT Vs Smt. Sarah Faizal Hawa (Bombay High Court)
The appeal before the Bombay High Court arose under Section 260A of the Income Tax Act, 1961, concerning Assessment Year 2007–08. The core issue was whether the assessee should be treated as an investor in shares or as a trader, thereby determining whether income from sale of shares should be taxed as capital gains or business income.
The Assessing Officer held that the assessee was a trader, citing factors such as alleged borrowing of ₹2.35 crore, significant volume of share transactions, and absence of other business activities. Accordingly, gains were treated as business income. However, the Commissioner of Income Tax (Appeals) reversed this finding, noting that the assessee had consistently disclosed shares as investments in earlier years, and such treatment had been accepted by the Revenue. The CIT(A) also found that transactions were delivery-based, there was no running account with brokers, and substantial dividend income supported the investor status. Importantly, it was found that no funds were borrowed; instead, amounts were receivable by the assessee.
The Income Tax Appellate Tribunal upheld these findings, additionally observing that investments were made from surplus funds. On further appeal, the High Court noted that both the CIT(A) and the Tribunal had recorded concurrent findings of fact that the assessee was an investor and had not borrowed funds. The Court held that the Revenue’s challenge was limited to factual findings, which were neither perverse nor unsupported by evidence. It also observed that the assessee had consistently been treated as an investor in earlier and subsequent years, reinforcing the conclusion.
