TMI Blog2012 (12) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... hares – Business income or capital gain – alleged that assessee company engaged in the business of purchase and sale of shares, showed part of the purchase and sale in its profit and loss account – Held that:- Shares/securities in the nature of capital asset are shown under the head Long Term Investment and accordingly gain/loss thereon is shown under the head capital gain - shares/securities in nature of trading/revenue assets that is held for disposal in the ordinary course of business are classified under the head current investment and accordingly profit and loss thereon is shown under the head income from business and profession - there was no occasion, as such, to conclude that all disposal of shares, whether under stock in trade or as investment, should be assessed only as the business income of the assessee, merely for the fact that the assessee was a trader in shares Disallowance of interest expenditure on account of alleged non-business use of the borrowed funds – alleged that the assessee had borrowed funds and had given interest free loans to its sister concerns – Held that:- no evidence was brought on record by the AO to show any divergence of funds by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - u/s 14A of the Act. The assessee had declared a dividend income of Rs. 82,06,366/- in its return of income, claiming it as exempt. Before the AO, the assessee submitted that the intention of the assessee was not to earn dividend but to hold the securities for earning profit from their sale/purchase; that the dividend was only incidental to the activity derived from the purchase/sale of shares; and that the assessee had not incurred any expenses related either directly or indirectly to, or allocable to the earning of the dividend income. The AO refused to accept the stand taken by the assessee. It was observed that for earning dividend income, there are various administrative expenses involved, like taking decision of investment, expenses related to purchase/sale of the investment like the DMAT fee, collection expenses, telephone expenses, etc. and other administrative expenses as well as personnel cost; that also, keeping the investment too involves interest cost of maintaining the investment portfolio; that therefore, the expenses on earning dividend would include interest and administrative and personnel expenses; and that since the assessee had not made segregation of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he must record his dis-satisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure had been incurred; that therefore, the determination of the amount of expenditure in relation to exempt income under Rule 8D of the Rules would only come into play when the AO rejects the claim of the assessee in this regard. Maxopp Investment Ltd. V. CIT (supra), it is seen, is squarely applicable hereto. The assessment order does not evince any such dis-satisfaction of the AO with regard to the claim of the assessee that no expenditure had been incurred. 8. Therefore, the matter is remitted to the file of the AO to be decided afresh in accordance with law, i.e., the decision in Maxopp Investment Ltd. V. CIT (supra), by recording his dis-satisfaction about the correctness of the claim of the assessee. 9. Ground Nos. 3 4 are consequential to the decision on ground Nos. 1 2 and therefore, these grounds are also remitted to the file of the AO. 10. Consequently, the appeal of the assessee is treated as allowed for statistical purposes. 11. Coming to the Department s appeal, apropos groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding the same; that by showing the part of the share trading in its profit and loss account, the assessee had itself accepted that share trading was its business activity; that it was only an admission on the part of the assessee to camouflage such business income as Short Term Capital Gain; that undeniably, the sales produced the surplus were connected with the assessee s business, so that the surplus was nothing else but the profits and gains of such business of the assessee; and that in view of Karam Chand Thapar Brothers Pvt. Ltd. (supra), in the facts of the case, there was no merit in the assessee s contention that it was the prerogative of the assessee to decide as to which assets were to be shown as investment and which were to be declared as trading assets. As such, the AO held that the entire gains derived by the assessee from purchase and sale of shares, amounting to Rs. 46,27,931/- claimed by the assessee as Short Term Capital Gains, was its business income. 12. Before the ld. CIT(A) the assessee submitted that during the year, it had earned profit/gain of Rs. 1,93,61,380/- on sale of securities, which consisted of Rs. 1,47,33,449/- on trading portfolio, i.e., cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y ignored that since the assessee was trading in shares as business activity, he could not have shown part of the games from trading of shares as Short Term Capital Gains while at the same time showing part thereof in its profit and loss account; that the ld. CIT(A) has also wrongly over-looked the fact that it is quite evident that the assessee had held the shares for a short time only, since Short Term Capital Gain was declared and that the assessee was wrong in contending that the shares from which the Short Term Capital Gains came were its Long Term Investments; that the case laws relied on by the AO are fairly and squarely applicable to the facts of the assessee s case and the ld. CIT(A) has erred in not following them; that the ld. CIT(A) has also missed the fact that there was a frequent purchase and sale of shares and the maximum period of holding was three months, due to which the investment cannot be said to be Long Term Investment; that further, in the computation of income, only Short Term Capital Gain was reflected; that in its reply before the AO, the assessee had submitted its intention not to earn dividend. 15. The learned counsel for the assessee, on the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51), had held that the assessee had been maintaining separate account for investment and in trade since the beginning; and that even the books of account seized and employed for making assessment for that year confirmed the said state of affairs. The Tribunal, vide order dated 25.3.08 (copy at APB 133 to 152), confirmed the CIT(A) s order for assessment year 1996-97 ( copy at APB 54 to 61), for assessment year 2001-02 (copy at APB 62 to 65) and for assessment year 2002-03 (copy at APB 66 to 69), the AO, following the principle of consistency, accepted this position. It was held that a part of shares available with the assessee were in the nature of investment and the profit from sale thereof was assessable only as capital gains. The ld. CIT(A), for the present year, has recognized this position. Pertinently, after passing of the impugned order dated 22.5.09, vide order dated 16.11.09 (supra), the Hon ble High Court, for assessment year 1995-96 has confirmed the order of the ld. CIT(A). It is pertinent to mention here, however, that the Tribunal had quashed the proceedings under sections 147/148 of the Act for the reason that notice for reassessment, serving on the assessee, was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ld. CIT(A), in the block assessment proceedings, had held that the stocks were rightly shown by the assessee as investment in its books of account, which could not be treated as stock in trade and that this categorical finding of the ld. CIT(A) in the block assessment proceedings had attained finality. 19. Be that as it may, as the matter stands, for assessment year 1995-96, the issue stands decided in favour of the assessee and this position has been followed by the AO for assessment years 1996-97, 2001-02 and 2002-03. 20. The factum of the assessee s holding two portfolios is nowhere denied. Rather, it has been accepted for more than a decade. The ld. CIT(A) has rightly relied on CIT (Central) v. Associated Industrial Development Co. Pvt. Ltd. , 82 ITR 586(SC) in holding that where an assessee has two portfolios, it can have income by way of both capital gain and business income. Undeniably, Circular No. 4/2007 dated 15.6.2007, in this regard, is squarely in favour of the assessee, clarifying a tax payer can continue to hold two portfolios, i.e., a portfolio comprising the stock in trade and investment portfolio to be treated as capital asset. In the present case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicle finance charges have been paid to bank/institution in respect of the vehicles financed through them, which vehicles had been used only for the business purposes of the assessee company and which fact had not been disputed by the AO; that the AO had allowed depreciation on those very vehicles; that further, no funds had been borrowed and the assessee company had not got any funds from bank and given them as interest free advances to its sister concern; that the amount had been paid directly by the bank to the company from whom the vehicles had been purchased; that this was also true that the interest paid to Fortis Finance Services Ltd. and the said interest had been paid in respect of the shares purchased on credit, which was known as Margin Financing . 25. While deciding the matter in favour of the assessee, the ld. CIT(A) observed that in Schedule 10 of the Accounts, there had been shown no interest by way of corporate loans; that as regards interest on the vehicle loans, these had been provided to City Corporate Finance and to ABN Amro Bank and there was nothing brought on record by the AO to show that the vehicle loans had been diverted by the assessee as interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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