TMI Blog2012 (11) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal as against the order of the Income Tax Appellate Tribunal relating to the assessment year 2001-02. This Court, at the time of admission, admitted this Tax Case on the following substantial question of law: "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee, who is not in the business of buying and selling of stocks and shares is entitled to claim loss arising on redemption of units as business loss?" 2. The assessee is engaged in various business, such as, film production, film distribution, exploitation, export of films, real estate development, dealing in properties etc. It is seen from the facts narrated herein that on 08.03.2001, the assessee purchased Blue Chip Fund Units for Rs.7.00 crores from M/s. Kothari Pioneer Mutual Fund and sold the same for a sum of Rs.5,62,276,853/- to the same party on 12.3.2001. The source of investment in the shares came from the assessee's contribution of Rs.52.50 lakhs and the balance was arranged by M/s.Kotak Mahindra Finance Limited, Bombay. The units allotted to the assessee was given as a security for the above loan. Dividend of a sum of Rs.1,09,60,334/- was reinvested towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on appeal before the Commissioner of Income Tax (Appeals). 6. After considering the facts, the Commissioner of Income Tax (Appeals) pointed out to the decision reported in (1959) 35 ITR 594 (G.Venkataswami Naidu Co. V. CIT) and came to the conclusion that the intention of the assessee for carrying the transaction was not of a business interest nor of an investment; but, the sole purpose was to avoid and reduce his tax liability. The assessee had followed the same modus operandi in the subsequent year resulting in a capital loss and the assessee had also claimed deduction under Section 80 M of the Income Tax Act on the dividend income. Pointing out to these aspects, the Commissioner of Income Tax (Appeals) followed the decision reported in (1985) 154 ITR 148 (Mc Dowell Co. Ltd. V. CIT) holding that it was a colourable device adopted by the assessee. The Commissioner of Income Tax (Appeals) viewed that the transaction of purchasing the units, taking loan from Kotak Mahindra Finance Ltd., reinvestment of the dividend and redemption and ultimately the sale of the units was a structured pre-planned, pre-mediated transaction. Thus, the loss suffered by the assessee had a direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying on business in multi-various fields. He pointed out that there are absolutely no material to hold that the transaction was a colourable one. The entire reasoning of the Department rested on the sole fact that the assessee had incurred the loss on the sale of the shares cannot lead one to a conclusion that the loss incurred was only for the purpose of setting of the same as against the income earned from other fields of activity. 10. Learned Counsel further pointed out that if the assessee intended to make investments, he would have retained it as investments. However, when the assessee carried on business in multi-various fields and that it had held the shares just for six days itself would be an indication of a fact that it was a business income available for adjustments in the event of a loss suffered as against other income. Hence, no exception could be taken to the course of conduct adopted by the assessee. Thus, placing reliance on the decision, in particular, the decision reported in (1965) 58 ITR 328 (Griffiths (Inspector of Taxes V. J.P.Harrison (Watford) Ltd.), learned counsel submitted that the fact that the assessee had been carrying on business is a strong poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the fact that the company intended to make a fiscal advantage out of the transaction, negatives trading. 13. In the decision reported in (1959) 35 ITR 594 (G.Venkataswami Naidu Co. V. Commissioner of Income-Tax), the Apex Court pointed out that the question as to whether the transaction was an adventure in the nature of trade is a mixed question of law and fact, it held that when Section 2(4) of the 1922 Act referred to an adventure in the nature of trade, it clearly suggested that the transaction in question cannot properly be regarded as trade or business. It was allied to transactions that constituted trade or business, but may not be trade or business itself. In other words, it is characterized by some of the essential features that make up trade or business but not only by all of them. Thus, even an isolated transaction can satisfy the description of an adventure in the nature of trade, provided, at least some of the essential features of trade are present in the isolated or single transaction. The Supreme Court pointed out that ultimately, it is the intention with which the person deals in the particular transaction, would be the decisive factor. The Supreme Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the decision reported in (1959) 35 ITR 594 (G.Venkataswami Naidu Co. V. Commissioner of Income-Tax) as well as to (1970) 77 ITR 253 (Raja Bahadur Kamakhya Narain Singh V. Commissioner of Income-tax) and held that the distinction between the two types of transactions is not always easy to make. If the transaction is in the ordinary line of assessee's business, there would hardly be any difficulty in concluding that it is a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade. In so holding, the Calcutta High Court also referred to the decision reported in (1951) 20 ITR 176 Radha Debi Jalan V. Commissioner of Income-tax), which is a case of an individual purchasing shares and then selling it. In answering the question, the Calcutta High Court considered the effect of an isolated transaction and to what extent such transaction could be held to be in the nature of business or trade. The Calcutta High Court held that when the person concerned in an isolated transaction from which he makes a profit is a man carrying on business in certain other lines, the task of deciding whether the transaction is or is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly with reference to the intention of the party herein and the surrounding circumstances, in the absence of any such finding of the Tribunal, we feel, the proper course herein is to set aside the order of the Tribunal and remit the matter back for de novo consideration to find out whether the investments in mutual funds were in the course of the business or as adventure in the nature of trade or an investment simpliciter, to arrive at a finding as to whether the loss, in fact, could be treated as a business loss or not. 18. It may be pointed out herein that in the instruction issued by the CBDT in F.No.178/32/2033 ITA-1 dated 23.2.2004, the disallowance of the claim on the ground that the transactions were for tax avoidance or evasion, could be considered only after the in-depth investigation and proper recording and marshalling of all relevant facts, so as to establish the motive of tax avoidance. 19. The said instruction was extracted in the Tribunal's decision reported in (2005) 96 ITD 1 (Wallfort Shares Stock Brokers Ltd. V. Income Tax Officer, Ward 4(2)(1)). The decision of the Tribunal was a subject matter of consideration by the High Court, Mumbai and ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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