TMI Blog1998 (10) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... l unit before joining Delhi Stock Exchange (DSE). In the year 1990, the appellant became a Member of Delhi Stock Exchange Association and started the business of purchase and sale of shares on behalf of his clients under the trade name of M/s. Arjun Kapur Co. Under the same banner, the assessee carried on his own business of purchase and sale of shares. Besides the aforesaid business, the appellant was also purchasing and selling shares in his individual name and investment in such shares were shown by him as 'investment'. The assessee maintained separate books of account in relation to his trading transactions carried out under the name and style of M/s. Arjun Kapur Co. and in respect of investment in shares made by him which were held as 'investment' the shares which were held by the assessee as "investment", were got registered in his name in the records of the respective companies and income by way of dividend thereon were shown as dividend income and were assessed as such by the Assessing Officer in assessment year 1992-93 to assessment year 1993-94. The dealings in shares made by the assessee on behalf of his clients as well as the trading of shares done by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. The Assessing Officer in view of the elaborate reasons given in the assessment order held that the income arising from sale of following shares excluding shares of Hindustan Liver Ltd. and shares of Kesoram Inds. which were acquired prior to 1990, has to be assessed as income from business :- Saleconsideration of Essar Shipping 69,550 Less: Cost of acquisition 28,965 40,585 ------- Saleconsideration of Malwa Cotton 89,300 Less: Cost price 79,000 ------ 10,300 Saleamount of JCT Ltd. 77,520 Less: Cost of acquisition 60,000 ------ 17,520 Saleconsideration of India Glycol 24,400 Less: Cost 42,000 ------ (-) 17,600 Saleof TVS Suzuki 1,00,800 Less:Cost 9,400 ----- 91,400 Saleof Indian Hotels 80,01,000 Less: Consideration 10,09,220 --------- 69,81,780 Saleof Reliance Inds. 5,10,000 Less: Cost of Purchase 3,73,000 --------- 1,37,000 -------- 72,60,985 -------- 3.2 The Assessing Officer further observed that even if it is accepted that the income from sale of shares as above, has to be assessed under the head 'Capital Gains', the assessee will not be entitled for deduction under section 54F in view of the following reasons:- 3.3 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards detailed written submissions dated26th September, 1997submitted before the CIT(A). In the said written submissions, the facts explaining the urgent necessity of purchasing a residential house have been explained. It has been further pointed out that the shares held by the assessee as 'investment' had to be disposed of in order to meet the sources for purchase of the residential house property at Defence Colony. The major gain had occurred on account of sale of shares of Indian Hotels Ltd. The date of acquisition of shares of this company were furnished in the said letter. The details of sale of 8,200 shares of the said company sold for total sale price of Rs. 80.01 lakhs was also submitted. It was pointed out that 6,600 shares of the said company were purchased on12-11-1991. Out of that, 600 shares were sold in February, 1992. The profit derived on sale thereof was assessed as Capital Gains in assessment year 1992-93. The appellant continued to hold 6,000 shares as on31-3-1992. M/s. Indian Hotels issued the Right shares to the existing shareholders on23-7-1992. The appellant applied for 3,000 rights shares on17-8-1992. However, Indian Hotels allotted 2,287 rights shares. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the said separate personal set of books including transactions of shares held as 'investment' have been accepted in the assessments of the appellant till assessment year 1992-93. The various judgments were also referred and relied upon in the said written submissions. 3.7 The ld. counsel then invited our attention towards a chart placed at pages 26 to 29 of the compilation which gives the complete details of the shares of various companies held by the assessee as 'investments' since 1-4-1989 to 31-3-1994. This chart was submitted with a view to show that there are few transactions of sale of shares held as 'investment' in the accounting years commencing from1-4-1989till31-3-1993. In the accounting year ended on31-3-1994, more number of shares had to be sold for meeting the necessity of funds required for purchase of residential property at Defence Colony. The ld. counsel also invited our attention particularly towards the shares of all the 7 companies which were sold during the year under consideration and the income derived therefrom have been treated by the Assessing Officer as Business Income as against the income from capital gains declared by the assessee. The ld. co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical and professional persons as their Members. At that time the assessee was looking for a place for his office and was able to locate the flat at First Floor at Khan Market. The flat was purchased for business purposes. The office of the assessee's business is located at the said premises. He further pointed out that various other business concerns are using the flats at first and second floor at Khan Market for their business purposes in similar manner. A list of such business offices located in other flats of the same building at Khan Market has been submitted at page 127 of the paper book. The ld. counsel further pointed out that flat at Khan Market purchased and used by the assessee for its own business cannot be considered as owning one more residential for the purposes of section 54F. It was pointed out that the proviso to section 54F clearly provides that the assessee should not own or purchase within the prescribed period any residential house, the income from which is chargeable under the head 'Income from house property'. He drew our attention to section 22 of Income-tax Act, 1961 which specifically excludes the building or portion of such property as the assessee may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e elaborate reasons mentioned in the assessment order. The ld. D.R. further submitted that the shops at Khan Market are registered as residential flats.The nature of the property has to be determined on the basis of the fact whether the flat is capable of being used as a residence or not. The assessee can use the same flat for residence. The mere fact that the residential flat is being used for business purposes would not alter the nature of the property. He strongly relied upon the reasons mentioned in the assessment order as well as in the order of the CIT(A). 3.13 We have carefully considered the submissions made by the ld. representatives of the parties and have gone through the orders of the Ld. Departmental Authorities, various documents submitted in the compilation to which our attention was drawn during the course of hearing and also the various judgments relied upon by the ld. representatives of both sides. 3.14 The assessee has submitted a chart at page 1 of the Paper Book, the contents of which are reproduced hereunder. Statement of long-term capital gains considered as business income by Assessing Officer (DCIT) Name of the scrip Date Sold Qty. Amount Date Bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993. Out of that the assessee sold 8,200 shares in the accounting year under consideration. The assessee did not purchase any shares of this company in the year under consideration. The assessee also did not purchase any shares of this company from the market in the preceding year also. The assessee only acquired Right Shares, which were offered by the company to its existing shareholders. It is an undisputed fact that investment made in the aforesaid shares was reflected as 'investments' in the personal set of books of account separately maintained by the assessee and these shares were not incorporated in the books of account of the business concern which carried on the business of dealer and brokers of shares under the name and style of M/s. Arjun Kapur Co. The assessee has also explained the reasons which necessitated the sale of such shares held as 'investment'. The aforesaid shares held as 'investment' were sold by the assessee for purchase of a residential house property at Defence Colony,New Delhi. There appears to be no justification in holding that the gain of Rs. 69,92,480 derived by the assessee on the sale of 8,200 shares of Indian Hotels is assessable as business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not show as to whether the 700 shares sold in this year were out of shares purchased in the year under consideration or out of purchase of shares made in the earlier years. It is true that the deduction in respect of the cost of shares claimed by the assessee and allowed by the Assessing Officer indicates that the 700 shares claimed as sold were acquired on17-9-1990and1-2-1991. The 1600 shares purchased in the year ended on31st March, 1991clearly appear to have been purchased with a view to make investment in the shares of that company. This is proved by the fact that no share was sold in financial year 1990-91 and the investment made was shown as investment in the personal set of books. There is no evidence on record to show that 1600 shares originally purchased in financial year 1990-91 and held as 'investment' were converted as stock-in-trade at a latter point of time. If the 700 shares sold during the year under consideration are part of those very shares which were acquired on17-9-1990and1-2-1991as claimed by the assessee, the same would be assessable as long-term capital gains. However, if these 700 shares sold during the year under consideration, are out of the shares pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Assessing Officer should examine the relevant documents of sale as well as corresponding purchase of shares, which have been sold in this year. This matter is also restored back to the Assessing Officer for deciding the nature of profit of Rs. 1,37,000 afresh after ascertaining the true and correct facts including the distinctive numbers, the date of purchase and sale of the shares in question sold in the year under consideration. 4. As regards the profit derived by the assessee on the sale of shares of remaining companies in question,we have gone through the relevant details furnished in the charts at page 26 to 29 of the Paper Book and find that the assessee did not purchase any shares of Malwa Cotton, JCT Ltd., India Glycol and T.V.S. Suzuki in the year under consideration. The shares sold during the year under consideration were purchased in prior years which were held as 'investment'. There is no material on record to justify the view taken by the Assessing Officer for holding the amount of gain derived on the sale of shares of these other companies as assessable under the head 'Income from Business'. The profit/loss derived by the assessee on the sale of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased and sold shares; (ii) the shortness of the interval between the purchase and the sale of several cases; (iii) the largeness of the amount of money being reserved by the assessee for this activity; and (iv) the borrowing by the assessee of nearly 5 lakhs of rupees for purchase of shares, and held that the assessee was a dealer in shares in that year : Held that the Tribunal had before it fresh material for coming to the conclusion that the assessee was a dealer in shares." 4.3 The Hon'blePatnaHigh Court had also considered the question whether gold was sold by the assessee only for the pressing necessities or for the purpose of deriving profit therefrom, is a question of fact. The findings in relation to that point are not reproduced as it does not have any significant bearing to the point in issue. 4.4 The Hon'ble Supreme Court in the judgment in Raja Bahadur Kamakhya Narain Singh 's case (supra), reversed the aforesaid judgment of Hon'ble Patna High Court. It may be worthwhile to reproduce the findings given by the Hon'ble Supreme Court at page 262 of the said judgment:- "It is fairly clear that where a person in selling his investment realises an enhanced price th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade of his business. 4.6 The ld. counsel for the assessee had placed reliance on the following judgments to support his contention that a trader of shares may also acquire shares for his own purposes and hold the same as 'investment' apart from the stock-in-trade of his business of dealer in shares :- (i) CIT v. Madan Gopal 73 ITR 652 "Held, (i) that, at the relevant time, under the Income-tax Act, 1922, issue of bonus shares by capitalisation of the accumulated profits was not treated as distribution of dividend; and it was well-settled that bonus shares given by a company in proportion to the holding of equity capital by a shareholder were, in the absence of any express provision to the contrary, liable to be treated as capital and not income. The bonus shares, by the mere fact that they were received by the assessee in respect of their stock-in-trade and as accretion thereto, did not became part of their stock-in-trade; the bonus shares were received as capital and they could be converted by the assessees into their stock-in-trade or retained as their capital asset. A trader may acquire a commodity in which he is dealing for his own purposes, and hold it apart from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law, then the conclusion arrived at by the Tribunal cannot be interfered with because the inference is a question of law, if such an inference was a possible one, subject, however, that all the relevant factors have been duly weighed and considered by the Tribunal, the inference reached by the Tribunal should not be interfered with." 4.7. In view of the aforesaid judgments, it is clear that in order to determine whether an assessee held the shares as "investment' or a stock-in-trade, facts and circumstances of each case will have to be examined and totality of the facts will have to be borne in mind and the correct legal principles will have to be applied to those facts. 4.8 In the present case, it is undisputed fact that the assessee has shown such shares as "investment" in a separate personal set of books of account. The shares purchased by the assessee in the course of his business as dealer of shares have been accounted for in the separate books of account maintained under the name and style of M/s. Arjun Kapur Co. It is true that entries in the books of account or the treatment given by the assessee in his balance-sheet is not conclusive, but it is a relevant evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopened under section 147 nor subjected to revision under section 263. 4.9. Considering the totality of the facts and circumstances of the present case, in the light of the legal principles enunciated in the aforesaid judgments, we have held herein before that the capital gain derived by the assessee on the sale of shares of the following companies should be treated as assessable as long-term capital gains and not as business income :- Sr. No. Name of the Company No. of shares 1. Malwa Cotton 10,300 2. JCT Ltd. 17,520 3. TVS Suzuki 91,400 4. Indian Hotels 69,81,780 71,01,000 Less : Long-term capital loss on shares of IndiaGlycol (-) 17,600 Long-term capital gains 70,83,400 4.10 We have further held that the matter relating to determination of nature of profit on sale of shares of Essar Shipping Co. Rs. 40,585 and on sale of shares of Reliance Inds. Rs. 1,37,000 should be restored back to the Assessing Officer for passing a fresh order after ascertaining the relevant facts and distinctive numbers of the shares sold etc. 5. We will now consider the assessee's claim for grant of deduction under section 54F. 5.1 It will be worthwhile to reproduce the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should not be held that the assessee has purchased or owned other residential property other than the residential house purchased at Defence Colony. This contention cannot be accepted. The ld. CIT(A) has given a finding of fact that the assessee had entered into an agreement for purchase of flat No. 73, Khan Market, New Delhi vide Agreement dated 11-5-1992 and it also received the possession of the said property on 11-5-1992. The definition of Section 2(47) of Income-tax Act, 1961 is very wide and includes such a transaction within its ambit. The provisions of Section 2(47) are clearly applicable in relation of interpretation of all the provisions relating to determination of capital gain liable to tax. Therefore, the CIT (A) has rightly held that the assessee became owner of the flat No. 73, Khan Market, New Delhi on 11 -5-1992 in view of the clear provisions of Section 2(47). 5.4 However, the other argument made by the ld. counsel for the assessee that the flat at Khan Market cannot be treated as a property, the income of which is chargeable under the head "Income from House Property" deserves acceptance, as the said flat at Khan Market was used as assessee's business offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal found that the house property had been used by the assessee as a part of the business and treated as business, the finding of the Tribunal that the income from the property could not be assessed separately as income from house property and included in the assessee's total income was correct." 5.7 A plain reading of the proviso to section 54F and section 22 of Income-tax Act, 1961 clearly indicates that the benefit allowable under section 54F can be denied only in a case where the assessee owns one more residential house property other than the new residential house property purchased out of capital gains derived by the assessee for which deduction under section 54F has been claimed. The other residential house which can disentitle the assessee from getting the benefit of deduction under section 54F should be such a house, the income from which is chargeable under the head "Income from House Property". In the present case, the flat at Khan Market has undisputedly been used for office premises of the business carried on by the assessee. The annual value of such a flat used for assessee's own business cannot be charged to tax as income from house property in view of the clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
