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TMI Blog2012 (8) TMI 542X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 relating to the assessment year 1993-94 is concerned, apart from two questions referred to above, there is yet another question which reads as follows : "3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the entire discounted interest on the IDBI bonds received should be assessed in the assessment year 1993-94 ?" Learned counsel for the assessee fairly submitted that the issue raised in the third substantial question of law is covered by the decision in the case of E.I.D. Parry (I.) Ltd. v. CIT reported in [2002] 258 ITR 404 (Mad) and in the case of CIT v. A. R. Santhanakrishnan reported in [2002] 256 ITR 187 (Mad). Accordingly, the third substantial question of law is answered in favour of the Revenue and as against the assessee. Thus, the questions that survive for consideration in the abovesaid two tax case appeals is as regards the character of the receipt on the sale of shares. The assessee herein is a private limited company. The business of the company is stated to be of financing of hire purchase and act as an investment company. A reading of the documents filed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as long-term capital gains. The sale of these shares could not be held as giving rise to business income. The Commissioner of Income-tax (Appeals) accepted the said plea. It was held that going by the nature of the transaction, the purpose of the transaction, the assessee could not be held as engaged in the business of dealing in shares and, hence, he considered the investments and the sale as giving rise to long-term capital gains. The Commissioner of Income-tax (Appeals), thus, upheld the same reasoning for the assessment year 1993-94, thereby, allowed the appeals. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the Revenue filed appeals before the Tribunal with regard to the abovesaid assessment years. The Income-tax Appellate Tribunal, on considering the extent of investment, purpose of investing in shares, held that it was purely a business venture. The Tribunal held that the facts of the case were not such that the assessee apart from trading in shares also had certain assets as investment to deal with them in case of certain necessities. The Tribunal pointed out that the assessee had not let in any evidence that it had to sell off the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above would squarely apply to the case that the profit made on the sale of shares could only be treated to capital gains arising on the sale of the capital asset. He further pointed out that the view of the Tribunal that the assessee was dealing in shares and the gain to be assessed as business income is a perverse finding and unsupported by any materials. The question as to whether the assessee is in carrying stock-in-trade is a mixed question of law. That the assessee is only making as an investment on shares is thus made clear by reason of the fact that for more than one year, the Revenue has accepted the claim of the asses- see that the profit made on the sale of shares as assessable as capital gains. He submitted that this court has every jurisdiction to reject the view of the Tribunal and to hold that the profit earned was not in the course of business and, hence, not to be assessed as a business income. Countering the said submissions learned standing counsel appearing for the Revenue pointed out that the profit and loss account showed that in respect of the assessment year 1992-93 in the computation of the total income the assessee had shown only the profit on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the question as to whether the buying and selling of shares had an element of trading has to be seen from the first step of investment made, viz., purchase of the shares. When there is evidence to show that the purchase of the shares was not in the course of the trade/business, then the sale of the shares could not be held as one in the nature of business. Hence, given the fact that the purchase itself was only by way of an investment, gain on the sale of shares, must receive the same treatment by extending the principle, which govern the investment at the purchase point. The Supreme Court further pointed out that the question as to whether the transaction of sale and purchase of shares were trading transactions or were in the nature of investment was a mixed question of law and fact. In so holding, the Supreme Court held that when the findings are not based on necessary legal principles or where there was an misapplication of law on the facts therein, it is open to the court to interfere with such a finding. The apex court pointed out therein that if a transaction was related to the business, which was normally carried on by the assessee, though not directly part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l end to treat it as an asset yielding to capital gains. However, when investment itself is for the purpose of making it as a business then the income earned on dealing with such shares is to be treated as business income only. In the background of the decisions of the apex court, when we analyse the facts herein in this case, it is seen that the assessee had declared on the dividend income received as well as on the profit of sale of shares apart from profits that the assessee had on the finance business. The fact remains that right from the beginning of the incorporation of the company, it had held shares only as an investment and 90 per cent. of its investment were only in the group companies. The assessee never intended to keep them as stock-in- trade and the Revenue also accepted the contention of the assessee for the preceding years and in the two following assessment years too. In respect of the assessment year 1992-93, the assessee claimed exemption under section 54E in respect of long-term capital gains arising on the sale of the shares held in Bank of Madura on the ground that it had invested the gains in three years IDBI bonds. The claim was rejected originally u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale in the course of business. Learned counsel for the Revenue pointed out that the memorandum of association clearly provided for the assessee carrying on its business on shares too. As held in the decision reported in Bengal and Assam Investors Ltd. v. CIT reported in [1966] 59 ITR 547 (SC), the memorandum of association by itself, would not be a conclusive material for holding that the sale of shares was of the shares held as stock-in-trade. Thus, when the investment originally made in the group concern and holding of shares therein are not by way of stock-in-trade, the result following therein, cannot be held as business to result in business income. The Tribunal's observation that the investment in share was clearly business venture was totally unsupported by any material, so too, the observation that the assessee had not shown the necessity for sale is also not supported by any documents. It is seen from the materials produced by the assessee before this court that the sale during the year was of the shares of the Bank of Madura and was only on account of reorganising the business. Thus, going by the facts thus seen, we have no hesitation in accepting the plea of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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