TMI Blog2010 (12) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... as trading assets Rule 8D is not retrospective - Rule 8D was not applicable for the assessment year 2005-06 - The assessee’s plea that it had not incurred any expenditure for earning the dividend income has not been considered by the learned CIT(A) - matter restored before AO for denovo consideration. - I.T.A.No. 6556/Mum/2009, I.T.A.No. 181/Mum/2010 - - - Dated:- 3-12-2010 - Shri S.V. Mehrotra and Shri Vijay Pal Rao, JJ. Appellant by : Shri S.C.Tiwari Respondent by : Shri P. Peerya O R D E R PER S.V. MEHROTRA, AM: These cross appeals by the assessee and the revenue are directed against the impugned order dated 21.10.2009, passed by the learned Commissioner of Income-tax (Appeals)-VIII, Mumbai, for the assessment year 2005-06. ITA No.181/Mum/2010 (Revenue s appeal) 2. The grounds taken by the revenue read as under: 1 (i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of VSAT, Leaseline and Transaction charges of Rs. 2,21,755/- u/s.40(a)(ia) without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter-XVII-B of the Act. He examined the nature of services rendered by the Stock Exchange and concluded that they were in the nature of technical services rendered by the Stock Exchange and therefore, tax was deductible under section 194 of the Act. He, therefore, disallowed the assessee s claim of Rs.2,21,755/-. The learned CIT(A) deleted the addition by following the decision of the I.T.A.T Mumbai in ITA No.1955/Mum/2008 for the assessment year 2005-06 in the case of Kotak Securities Pvt. Ltd., vide order dated 26th August, 2008, wherein it has been held that Stock Exchange does not provide managerial services and the fees paid by a member to the Stock Exchange is not for any technical services and therefore, no TDS was deductible from the assessee. 4. Having heard both the parties, we find no reason to interfere with the order of the CIT(A) in view of the decision of the I.T.A.T in the case of Kotak Securities Ltd. v. Addl.CIT(2009) 318 ITR (AT) 2268(Mum) wherein it has been held that transaction fees paid to the stock exchange could not be said to be a fees paid in consideration of stock exchange rendering any technical services to the assessee. The provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s business. The decision of Hon ble Supreme court in the case of CT v. Sutlej Cotton Mills (100 ITR 706) is squarely applicable to the facts of the case wherein the court has held If the transaction is in the ordinary course of assessee s business there can be little difficulty in holding that it is in the nature of trade . (ii) Secondly it is a well settled principle of law that even a single transaction can be in the nature of trad. In our case the assessee has undertaken numerous transactions. In view of the multiplicity of transactions the assessee is treated as a trader. Reliance is placed on the decision of Hon ble apex court in the case of Associated Industrial Development Co.(P) Ltd. (82 ITR 586) (iii) Further the benchmarks of distinction between a trader and a investor as put forth by the royal commission in its report are clearly applicable on the assessee: (A) The assessee deals in commodities or shares which are a subject matter of trading and are very exceptionally a subject matter of investment especially in case where trading in shares is the predominant source of income. (B) As laid down by Royal Commission, usually profits on such a property are reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had maintained separate portfolio of scrips as stock in trade or investments by maintaining separate demat account for both. He also took into consideration the fact that share trading pertaining to stock in trade has been declared by the assessee as business income and the A.O. had accepted the assessee s claim with respect to long term capital gain of Rs. 2,37,29,463/-. 7. The learned Departmental Representative referred to the assessment order and pointed out that h has discussed in detail the guiding principles laid down in various laws for deciding whether the assessee has been doing business of trading in share or was holding the same as investment. He pointed out that assessee had not furnished any evidence before the A.O. to establish that the borrowings made by it were only for business purposes and no borrowed funds were utilized for making the alleged investments in shares. He pointed out that in various case laws it has been laid down that multiplicity of transaction is an important factor for deciding whether the assessee was carrying on business or not. In this regard he referred to the decision of the Supreme Court in the case of Raja Bahadur Visheshwar Sing v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the name of investment was a question of law. This was a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing Officers. 10. CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. With reference to above circular the learned counsel pointed out that the assessee has maintained separate demat account for its trading transactions vis- -vis investment made in shares. He further submitted that the A.O. has accepted long term capital gain which was more than Rs. 2 crores. He submitted that whereas a trader looks at margin of profit, the investor looks in realizing its investment in order to ensure that it does not l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as carrying on the business. No single fact can be said to be decisive factor under such circumstances. No acid test has been laid down in any of the judgments referred to by the A.O. In all cases only certain principles have been laid down having regard to the peculiar facts obtaining in the said cases. Primarily, it is the intention with which an assessee starts its activity which is the most important factor which has to be considered keeping in view the adjoining circumstances. If the assessee purchases the shares from its own funds, with a view to keep the funds in equity shares to earn considerable return on account of enhancement in the value of share over a period then merely because the assessee liquidates its investment within six months or eight months would not lead to the conclusion that the assessee had no intension to keep the funds as invested in equity shares but was actually intended to trade in shares. Mere intention to liquidate the investment at higher value does not imply that the intention was only to trade in security. However, it cannot be held that in all circumstances if assessee has used its own funds for share activity then it would only lead to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had taken the ground that the assessee had not incurred any expenditure to earn the dividend income and therefore, the disallowance to the extent of Rs.4,69,413/- was not warranted as the same was attributable to its brokerage business income only. The learned CIT(A) following the decision of the I.T.A.T. Special Bench in the case of Daga Capital Management Pvt. Ltd. (117 ITD 169), restored the matter to the A.O. for computing the disallowance in accordance with Rule 8D. 14. Having heard both the parties, we find that the Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. DCIT ( 34 DTR 1)(Bom.) has reversed the findings of the Special Bench of the Tribunal in holding that Rule 8D is retrospective. Therefore, Rule 8D was not applicable for the assessment year 2005-06 and, therefore, the directions of the CIT(A) are not sustainable. The assessee s plea that it had not incurred any expenditure for earning the dividend income has not been considered by the learned CIT(A) and, therefore, as agreed by both the parties, we restore this issue to the file of the A.O. for deciding the same denovo after considering the assessee s submissions. 15. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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