TMI Blog2011 (11) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... st the Revenue. - ITA No. 687/Mum/2008, - - - Dated:- 18-11-2011 - Pramod Kumar, Vijay Pal Rao, JJ. D.S. Sunder Singh for the Appellant A. Janaki Raman for the Respondent ORDER Pramod Kumar 1. By way of this appeal, the Assessing Officer has challenged correctness of CIT(A)'s order dated 18th November, 2007, in the matter of assessment under section 143(3) of the Income tax Act, 1961, for the assessment year 2003-04 on the following ground: "On the fats and in the circumstances of the case, the ld CIT(A) erred in holding the profit on sale of shares of M/s. Bay Container Pvt Ltd., and M/s. Marine Containers Services Pvt Ltd., as income chargeable under the head 'capital gains' as against income chargeable under the head "business and profession". 2. The issue in appeal lies in a narrow compass of material facts. The assessee company has been in the business of buying and selling shares and it had also invested at par 9,600 shares of Rs.10 each in Marine Container Services Pvt.Ltd., and 8,333 shares of Rs.10 each in Bay Containers Terminal Pvt Ltd. The assessee"s holding in these companies was 33.33% and the shares being in private limited com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he three families of Capt V W Katre. Capt S. C. Batra and Capt AC. l3atra got together in 1979. as stated above and started business activities at Mumbai in areas of various services to Shipping industry such as shipping agency. Marine freight ('container leasing, ship management etc. The business activity in Mumbai turned out quite successful and the promoters kind that there was scope to expand the business countrywide. However being first generation entrepreneurs. they were restrained by lack of capital as well as managerial resources. Therefore they were on the look out for business associates in South India. They came across two entrepreneurs in Chennai one Mr. B. Vikram and Capt Hirudayaraj. After negotiations, these two gentlemen invited Capt Katre. Capt A. atra and Capt S. Batra to join with them so as to increase the business of their companies. Thus Capt V W Katre. Capt S C Batra and Capt. A.C. Batra joined with them as shareholders in two of their companies namely Marine Container Services (South) P. Limited and Bay Container Terminal P. Limited. Capt Katre, Capt A. Batra and Capt S. Batra commenced their association with them purely in advisory capacity. However, Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment and not to deal in them. The investments were made with the specific purpose of holding controlling interest viz. 33% of investee companies. All the above facts go to prove that the purpose of the acquiring the said shares was not to trade but to hold the same as investment for maintaining the controlling interest in the investee companies for long term. Further as the investment are in unlisted private companies which have the restrictive clauses in their articles for transfer, the proposition of the Assessing Officer that the Appellant had held the shares for trading and dealing is hard to sustain. 7. As far as the disclosure in the account as stock in trade goes the Appellant has admitted that it ha been a mistake to disclose its stock in trade in the balance sheet and not as investment. Besides that the appellant also submitted that the disclosure in the balance sheet is not conclusive evidence in deciding whether the shares are stock in trade or investment,. The appellant has submitted that it is settled position in law that the nomenclature used in the accounts are not determinative of the nature of the transaction and relies on the following cases: (a) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fact the Supreme Court stated that "consideration of all relevant facts involves appreciation of all the facts in their proper perspective. If that is not done, it cannot be said that there has been consideration of all relevant factors' (d) The issue whether the shares in question was held as investments or stock in trade is a mixed question of law and fact and needs to be ascertained and gathered from the conduct and course of dealings of the Appellant with reference to those shares. In order to ascertain whether the shares in question are held as investments or as stock in trade, the conduct of the appellant is significant. This is based on the question whether a transaction (in this case purchase and sale after 10 years of the shares in question) constitutes a transaction in the nature of investment or trade. The Supreme Court considered this question in G.VENKATASWAMI NAIDU and CO. v. THE COMMISSIONER OF INCOME-TAX reported in 35 ITR 594 and set out the tests for ascertaining the nature of the transaction, which is extracted hereunder: "Some of the indicia for testing whether the transaction was a transaction in the nature" of investment or a,, adventure in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o companies to Batra families. Thus having explained the purpose of investment and purpose of disposal of shares of the private limited companies the Appellant has further submitted that 1. Apart from the purchase of the shares in huge lot in 1993 there have been no further transactions in these shares. 2. Dividend has been the main source of income over the years. 3. The shares are of private limited companies and cannot be held as stockin-trade as they do not have any market. 4. The shares are of companies which are related as they have common directors. 5. With regard to the other shares also the Appellant submits that there are no transactions in those shares subsequent to its acquisition in 1992-93. 8. On going through the submissions of the appellant and the views held by the AO it is observed that the main contention of the AO was related to the shares having been shown as stock-in-trade in the balance sheet and accordingly their treatment should be strictly considered as business income since the issue oh investment was not at all valid. However, the appellant has admitted in his submissions that due to special circumstances and also bonafide err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale of Investments' while the transaction of shares which were listed and were easily tradable i.e. RPG Telecom, ESSAR Gujarat and L.andT etc. in the market should be treated as business income. Therefore Ground No 1 is partly allowed. 3. Aggrieved by the relief granted by the CIT(A), the Assessing Officer is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 5. In our considered view, it is only elementary that the treatment accorded to a transaction in the books of account, by itself, cannot be decisive of it"s true nature. Therefore, nothing conclusive really turns on the fact that the shares in these two private limited companies were held as stock in trade in the books of account of the assessee. The shares were in private limited companies and could not have been, therefore, freely transferable. An asset which is freely transferable cannot be in the nature of stock in trade, unlike, for example, shares in listed companies which can be freely bought and sold in stock exchanges or even in off market transactions. It is also important to no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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