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2019 (5) TMI 1605 - HC - Income TaxGain on sale of shares - correct head of income - capital gains or income from business - buy back of shares by the borrowers - AO held that the basic intention of holding equity shares by the assessee was to earn interest on the loans advanced and therefore held that the transaction could not be classified as capital gain and further held that it was in the ordinary course of business of the assessee and related to its primary object of financing and was therefore clearly business profit of the assessee. HELD THAT:- On identical issue, it was held by this Court in CIT vs. Punjab Agro Industries Corporation Limited [2014 (1) TMI 490 - PUNJAB & HARYANA HIGH COURT] that the Tribunal rightly considered the facts that investment made in the shares of companies which were jointly promoted by the assessee alongwith the private entrepreneurs, was with the basic object of promoting agro/horticulture based industry in the State of Punjab and not as a dealer in shares with the object of trading. Infact, the object of trading in shares was lacking in as much as the financial collaboration agreement itself prescribed that the shares shall be bought back by the private promoter after a specified period at a defined consideration. Therefore, realization from such investments was liable to be taxed under the head “Capital gains” and not as business activity. Disallowance on account exempt income - dividend claimed exempt by holding the activity of the assessee as investment and not trading in shares - HELD THAT:- Tribunal after examining the matter recorded that the Finance Act, 2003 inserted clause (34) to section 10 which deals with income which is exempt from taxation and does not form part of the total income at all excluding the income by way of dividend from the purview of taxation. At the same time, Section 115-O was inserted in the Act making the companies distributing dividend to pay tax at a specified rate thereon. Thus, taxation of dividend changed hands from the recipient to the payer of dividend by virtue of this amendment brought about in the Act. The case of Brook Bond India Limited [1986 (9) TMI 2 - SUPREME COURT] did not apply to the present case since it related to the assessment years 1955-56 when the position of law vis a vis taxation of dividend was governed by the Income Tax Act, 1922 which taxed dividend in the hands of the recipient. It was further recorded that since the dividend income was exempt from tax, the provisions of Section 14A of the Act disallowing expenses incurred for earning the same were attracted. For that limited purpose, the issue was restored back to the AO to decide the same in accordance with law after giving due opportunity of hearing to the assessee. The findings recorded by the Tribunal on all the issues are findings of facts which have not been shown to be illegal or perverse by the learned counsel for the appellant-revenue, warranting interference by this Court. Thus, no substantial question of law arises.
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