TMI Blog2010 (10) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... na for the Assessee K. Madhu Sudan for the Department ORDER G. D. Agarwal, Vice-President:- This is the assessee's appeal against the order of the Commissioner of Income-tax (Appeals)-I, Surat dated August 21, 2008 arising out of the order of the Assessing Officer passed under section 143(3) of the Income-tax Act, 1961. In this appeal, the following grounds are raised:- "1. For that the order of the learned Commissioner of Income-tax (Appeals) is arbitrary, illegal and bad in law. 2. For that the learned Commissioner of Income-tax (Appeals) erred in confirming the action of the Assessing Officer in treating the long-term capital gain and short-term capital gain as business income when the appellant-company was established with the main object of putting up of an industrial undertaking, surplus fund available during the intervening period were invested not as a trader but as an investor duly accepted by the Department and the shares were held as investments. 3. For that on the facts and circumstances of the case the learned Commissioner of Income-tax (Appeals) should have accepted the case of the assessee that the long-term and short-term gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that the assessee-company was formed with the main object of the business of processing, dyeing, printing, bleaching, texturising, etc. of yarn and fabrics. For this purpose, the assessee was to set up its own dyeing and printing mill. That as on March 31, 2001, the capital of the assessee was Rs. 55 lakhs and another sum of Rs. 40,36,000 was received as share application money. The assessee had started construction of the building. However, the investment in the construction of the building was only Rs. 3,94,000. Thus, there was surplus fund with the assessee which was invested in shares. He referred to the balance-sheet of the company for the year ending March 31, 2001 and pointed out that the investment by the assessee in the shares of twenty-two different companies was amounting to Rs. 47,80,149. The entire investment was from the assessee's own sources and no loan was taken. On the above investment in shares, dividend of Rs. 81,706 was received. Similar was the position in the assessment year 2002-03 and the investment in shares was Rs. 47,18,149. There was no loan in the balance-sheet of the assessee. Shares were shown as investment and dividend of Rs. 3,60,592 was received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. He clarified that profit from intra-day trading is disclosed by the assessee as business income and only profit from investment is offered as capital gain. He therefore submitted that the surplus from the sale of investment should be assessed as capital gain tax and not as business profit. In support of its contention, he relied upon the following decisions:- (i) CIT v. Gopal Purohit [2010] 228 CTR (Bom) 582; (ii) ITO v. Rohit Anand [2010] 127 TTJ (Delhi) 122; (iii) CIT v. Rewashanker A. Kothari [2006] 283 ITR 338 (Guj); (iv) Crr v. Supriya Investments P. Ltd., dated September 4, 2007; (v) CIT v. Gulmohar Finance Ltd. [2008] 170 Taxman 483 (Delhi); (vi) CIT v. R. K. Dhawan [2009] 208 Taxation 393 (Delhi); (vii) Vinod M. Shah v. Asst. CIT [2010] 38 SOT 503 (Mumbai), I. T. Appeal No. 2731 (Mum) of 2009, ITAT Mumbai Bench "F"; (viii) CIT v. H. B. Stock Holdings Ltd. (No. 2) [2010] 325 ITR 320 (Delhi), I. T. A. No. 65 of 2009 dated November 16, 2009 (High Court of Delhi); (ix) Bombay Gymkhana Ltd. v. ITO [2008] 115 TTJ (Mumbai) 639; (x) Coloma Commercial Co. Ltd. v. Asst. CIT, I. T. A. No. 585/Kol/2009 dated May 14, 2010; (xi) Joint C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. Whether profit from sale of shares is a long-term capital gain or business income would depend upon the facts of each case. The hon'ble apex court as well as the hon'ble jurisdictional High Court have laid down certain guidelines which is to be taken into account while appreciating the facts of the case. In the case of Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685 the hon'ble apex court has laid down the following guidelines which are to be considered while adjudicating whether transaction of sale of shares is the realisation of investment or trading activity. At page 691 of 41 ITR, their Lordships held as under:- "It is not necessary to discuss these cases because the principle applicable to such transactions is that when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than he originally acquired it at, the enhanced price is not a profit assessable to income-tax but where, as in the present case, what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on' of a business the amount recovered as appreciation will be assessable. In July, 1940, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the fourth test is how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation; (e) the fifth test, normally applied in cases of firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorises such an activity; (f) the most important test is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and Continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, an inference can readily be drawn that the activity is in the nature of business." Coming to the facts of the assessee's case, we found that the assessee-company was formed with the object of dyeing and printing etc. of yam and fabrics. In the year 2001, the assessee-company started the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 2004-05 was accepted as long-term capital gains. Even in subsequent years, i.e., the assessment year 2007-08, the Assessing Officer has accepted the profit from sale of shares as long-term capital gain. The Assessing Officer has recorded the finding that the assessee-company has borrowed funds which were utilised for dealing in shares. However, we find that this observation of the Assessing Officer is factually incorrect. There was no borrowing by the assessee till March 31, 2003, while the major investment in shares were made in 2001. Borrowings were made for the first time by the assessee during the accounting year 2003-04 for which it was explained by learned counsel that it was for giving advances for the plant and machinery. The assessee kept the investment in shares for a substantially long period and realised the investment when money was required for the purpose of the assessee's business. The learned Assessing Officer had also relied upon the note given by the auditors that the assessee-company is trading in shares. However, we find that the auditors have explained their note vide letter dated September 12, 2005 in which it is clarified that because the assessee entered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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