TMI Blog2011 (1) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowing 1% of the dividend income as expenses incurred for earning such dividend. Therefore, the disallowance comes to Rs. 1435/-. This ground of the assessee is, therefore, partly allowed. - I.T.A No. 1622/Kol/2010 - - - Dated:- 13-1-2011 - Before Sri D. K. Tyagi, JM Sri C. D. Rao, JJ. For the Appellant: Sri S. C. Jain For the Respondent: Sri D. K. Kothari ORDER Per D. K. Tyagi. JM This appeal filed by the revenue and the Cross Objection filed by the assessee are directed against the order passed by the Ld. CIT(A), Kolkata dated 29.06.20 10 for assessment year 2006-07. Both the appeal and the cross objection are disposed of together by this consolidated order for the sake of convenience. 2. The revenue has agitated against the action of the Ld. CIT (A) in directing the A.O. to treat the income of Rs.12,86,081/- under the Income from Capital Gain instead of treating this income from business. Briefly stated facts of the case are that the assessee is a company engaged in activities of NBFC and doing financing, money lending, investment and sometimes trading activities. The Assessing Officer while treating the entire profit on sale of investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment for short term. In the computation of total income the assesee also claimed such net profit as short term capital gain and availed the benefit of Sec. 111A of the I. T. Act for taxation purpose at a special lower rate, though the actual activity is trading activity. Now question arises whether such voluminous and frequent purchase and sale of shares should be treated as investment activity or business activity, in spite of treating by the assesee such transactions as investment activity and booking the result under the head investment activity. To decide the issue of nature of transaction, the findings of Hon ble Supreme Court in the case of Raja Bahadur Visheshwara Singh vs. CIT 41 ITR 685, may be referred to. Though the findings of theApex Courtare very old, but the essence of findings of theApex Courtis also applicable here. In that case, the Hon ble Supreme Court dismissed and concluded that purchase and sale of shares for substantial amounts at frequent intervals cannot be treated as change in investment, but have to treated as dealing in shares. The authority for advance rulings after considering various Hon ble Supreme Court s judgments, has determined some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een that the purchase and redemption activity were carried on within the same month Further, such transaction in mutual funds are not related to equity linked mutual funds. These were floating rate income fund and no STT was suffered. Therefore, the profit earned on redemption of mutual funds cannot enjoy the benefit of Sec. 111A of the Act, though the assessee claimed such benefit in the computation of total income. In view of the above discussions, the entire profit on sale of investments amounting to Rs. 12,86,081/- is treated as business profit of the assessee. In appeal, the Ld. CIT (A) directed the Assessing Officer to compute the income arising from purchase and sale of shares to be income arising from investment chargeable to tax as income from capital gains. The Assessing Officer was also directed to treat the income on purchase and redemption activity of Mutual Funds also as income from capital gains and apply rate of tax as per section 111A. Aggrieved by the said order, now the revenue is in appeal before us. 3. At the time of hearing before us, theLd. DRrelied on the order of the Assessing Officer and submitted that the Ld. CTT (A) was unjustified in directing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. The A.O. observed that the appellant regularly carried on purchase and sale of shares in different scripts and the net of the profit/loss was booked in the accounts under the head profit on sale of investments. The A.O. relying on the findings of Raja Bahadur Visheshwara Sing vs. CIT 41 ITR 685 and the ruling of the authority for advance rulings reported in 288 ITR 641 rejected the assessee s plea of such transactions as investment activity and treated the entire profit earned by such share transactions as profit from trading activity. Similarly, the profit earned from Mutual fund transactions were also treated as business profit of the assessee. The presentation in the books of accounts is the most crucial source of gathering intention of the assessee as regards the nature of transactions and, in law, it is also such presentation reflects prima facie, a view of the assessee on a particular subject. On verification of record it is clear that the appellant was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business. Many Judicial deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment activity. The details of such short term activity is enclosed to this order as Annexure-A which forms part parcel of this order. The Ld. A. R. submitted that there was no annexure-An attached to the assessment order. I verified the file of the A.O. and could not find any annexure-A attached to the assessment order. (2) Whether assessee borrowed money to purchase and paid interest there on? Normally, money is borrowed to purchase goads for the purchase of trade and not for investing in an asset for retaining. As seen from the order of A.O. there is no interest payment and borrowal of funds for investment activity. The Ld. A.R. submitted that the purchase of shares in investment account was only from own funds. The A. R. argued that this fact makes it clear that the appellant was using the funds owned by him for investment purpose only. (3) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that pdrticular item is indicative of intention of trade. Similarly, ratio between the purchase and sales and the holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the items has been taken in the balance sheet? If the items. in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or not realizable value (which ever is less), it will indicate that item in question are treated as stock in trade. As seen from the balance sheet of appellant, investments are valued at cost and the stock in trade is valued at the cost or market price whichever is less. The investment transactions clearly show the intention of the appellant. (6) How the company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for investment? The Ld. A.R. submitted that the company is authorized both for trade and investment. The Board of Directors also passed resolution to carry out investment in scrip, in the appellant s case; there is no material to show that these shares in the investment port folio were also traded in The same manner as those which were in stock-in-trade port folio. All the sales made out of investment port folio are identifiable to purchases made in this portfolio. The appellant clearly showed that it is maintaining separate accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from capital gains and apply rate of tax as per Section 111A. The grounds of appeal are allowed In the absence of any contrary material being brought on record by the revenue to rebut the above finding of the Ld. CIT (A), we do not find any infirmity in the order passed by the Ld. CIT (A) and the same is hereby upheld. The appeal of the revenue is, therefore, dismissed. 6. The assessee in its cross objection has raised the following grounds: 1. For that learned CIT(A) has rightly held that the gains on sale of capital assets being shares held as investment are to be considered under the head capital gains and not as business income and therefore the order of Ld CIT(A) deserves to be confirmed on this issue. To seek further relief: 2. For that Ld CIT (A) was wrong in confirming disallowance of Rs.42,237/- u/s. 14A. 3. The Hon ble Tribunal may kindly grant costs of appeal u/s. 254(2B) in favour of the assesee/respondent. 7. Ground No. 1 is in support of the order of the Ld. CIT (A), therefore, the same need not he adjudicated and is hereby dismissed. 8. Ground no. 2 in respect of confirming the disallowance of Rs.42,237/- u/s. 14A of the I. T. Act. Briefly sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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