TMI Blog2012 (8) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT Mrs. Chitra Venkataraman J.- The above two tax case appeals are filed by the assessee against the common order of the Tribunal relating to the assessment years 1992-93 and 1993-94. The substantial questions of law raised in T. C. No. 120 of 2005 relating to the assessment year 1992-93 read as under : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that the assessee was a dealer in shares and that the profits of Rs. 8,18,460 arising on the sale of Bank of Madura shares should be assessed as business income ? 2. Is the decision of the Income-tax Appellate Tribunal that the appellant was regularly dealing in shares and the sale of shares in question was in the nature of business adventure sustainable in law or supported by materials or evidence on record ?" As far as T. C. No. 121 of 2005 relating to the assessment year 1993-94 is concerned, apart from two questions referred to above, there is yet another question which reads as follows : "3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res revealed that the activity of the assessee was akin to that of a dealer in shares. Hence, the question of treating the income earned on the sale of shares as capital did not arise. The facts for the assessment year 1993-94 is not different. In the appeal preferred by the assessee before the Commissioner of Income-tax (Appeals) the assessee reiterated its contention as taken before the Assessing Officer on the sale of shares. It pointed out that the assessee had sold the shares of Bank of Madura to the associate concerns for the purpose of business regrouping. Thus, the assessee contended that the sales were made for reasons other than to make the profit therein. Going by the magnitude of the transactions in the purchase and sales of shares in the last 15 years, indicative of investment pattern, the assessee contended that the profits arising therein should be considered as long-term capital gains. The sale of these shares could not be held as giving rise to business income. The Commissioner of Income-tax (Appeals) accepted the said plea. It was held that going by the nature of the transaction, the purpose of the transaction, the assessee could not be held as engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income as business income. In so holding, learned counsel for the assessee placed reliance on the deci- sions in the case of Bengal and Assam Investors Ltd. v. CIT reported in [1966] 59 ITR 547 (SC), in the case of CIT v. Distributors (Baroda) P. Ltd reported in [1972] 83 ITR 377 (SC), in the case of CIT v. Amalgamations (P.) Ltd. reported in [1977] 108 ITR 895 (Mad), in the case of CIT v. H. Holck Larsen reported in [1986] 160 ITR 67 (SC), in the case of CIT v. N. S. S. Investments P. Ltd. reported in [2005] 277 ITR 149 (Mad), in the case of CIT v. Trishul Investments Ltd. reported in [2008] 305 ITR 434 (Mad). He pointed out that given the fact that investment in shares were made by the assessee only as in the ordinary course of business to hold it as asset and the company never intended to deal as stock-in-trade, the decisions referred to above would squarely apply to the case that the profit made on the sale of shares could only be treated to capital gains arising on the sale of the capital asset. He further pointed out that the view of the Tribunal that the assessee was dealing in shares and the gain to be assessed as business income is a perverse finding and unsup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness" would not include a mere holding of investments where the company like an individual purchases shares and holds them as an investment, the treatment could not be in any manner different from that of an individual, who invests his monies in shares for the purpose of getting dividends. Thus, on the facts, the apex court pointed out that a mere investment in shares per se would not bring company into the ambit of the term "business" for the purpose of treating the income earned therein as a business income. The said principle was once again considered in the decision in the case of CIT v. H. Holck Larsen reported in [1986] 160 ITR 67 (SC). Referring to the decision of the House of Lords in the case of J. P. Harrison (Watford) Ltd. v. Griffiths (H. M. Inspector of Taxes) reported in [1962] 40 TC 281 (HL), the Supreme Court pointed out that the question as to whether the buying and selling of shares had an element of trading has to be seen from the first step of investment made, viz., purchase of the shares. When there is evidence to show that the purchase of the shares was not in the course of the trade/business, then the sale of the shares could not be held as one in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity and one of its activities is more substantial than the others, unless that activity is the primary activity of the company, it cannot be said that that company is engaged in 'wholly or mainly' in any one of its business activities." The apex court held section 23A of the Indian Income-tax Act, 1922, would apply only to cases where the primary activity of the company is in the dealing in or holding of investments. The judgments thus referred to above point out the principle that the question as to whether the assessee is engaged in dealing in shares as a course of business activity or not, rests on appreciation of materials, the starting point being the purchase of shares as an investment or stock-in- trade. If the purchase is a mere investment, then the result on the sale must necessarily be taken to the logical end to treat it as an asset yielding to capital gains. However, when investment itself is for the purpose of making it as a business then the income earned on dealing with such shares is to be treated as business income only. In the background of the decisions of the apex court, when we analyse the facts herein in this case, it is seen that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same period is Rs. 20,36,946.50. The total sales thus works out to less than 6.07 per cent. of the purchases. Considering the fact that the investments were made only in the group concern, that the asses- see never considered these investments as stock-in-trade for the purpose of business and applying the decision of the apex court referred to above, we have no hesitation in holding that the Tribunal committed serious error in treating the income from shares as business income. Leaving aside the regularity of carrying on business in shares, when the materials on record, as accepted by the Assessing Officer, show that the assessee never had the intention of investing in shares as stock-in-trade to carry on business as a main business activity, the sale of shares by the assessee-company could not be treated as sale in the course of business. Learned counsel for the Revenue pointed out that the memorandum of association clearly provided for the assessee carrying on its business on shares too. As held in the decision reported in Bengal and Assam Investors Ltd. v. CIT reported in [1966] 59 ITR 547 (SC), the memorandum of association by itself, would not be a conclusive material for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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