TaxTMI 
TaxTMI 
2015 (1) TMI 1154
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....ried the matter in appeal. As regards the disallowance of expenditure incurred under Rule 14'A', the First Appellate Authority upheld the order of the AO. 3. Aggrieved the assessee is before us on the following grounds. "1. That the impugned order dated 26.10.2012 passed by the Ld.CIT(A)-XIII, New Delhi is bad in law and wrong on facts. 2. That on the facts and circumstances of the case, the Ld.CIT(A)-XIII, New Delhi has erred in law in confirming the disallowance u/s 14A of the Act r.w.Rule 8D of ITAT Rules, 1962 amounting to Rs. 4,68,99,665/- by upholding that the investment in shares and securities have been made out of borrowed funds, therefore, the provisions of s.14A are applicable. 3. That the appellant craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing." 4. On the issue of treating income earned from purchase and sale of shares as income from capital gains and not income from business by t....
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....on for interpretation of statute is called for. Looking at the varying interpretation offered by various courts and benches of tribunal in relation to sec. 14A, it is quite arduous to precisely decide the issue. In given facts and circumstances without going into all the issues, in our view it is appropriate to take guidance from Chandigarh bench judgment in the case of Punjab state coopt mft. Fed.(supra) holding that the disallowance of expenditure in any case cannot exceed the income earned. In our view this judgment takes a holistic view that disallowance in terms of sec. 14A can be maximum to the extent of exempt income, there is no dispute that in this case which is at Rs. 68,37,583/-. This judgment implies that reasonable expenditure less than the exempt income can be disallowed. In our considered opinion, in the interest of justice, it will be reasonable to estimate and disallow, 50% of exempt income (Rs.68,37,583/-) as relatable to exempt income u/s 14A r/w rule' 80. We do not go into various plea taken by both sides offering diverse views based on judicial citations. This ground of the assessee is partly allowed." 7.3. The Jurisdictional High Court in the case of M/....
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....ial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- - made by the Assessing Officer was in order.". 15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee, is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend mayor may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When de....
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....me shares, after holding the same for a short period, the same cannot be treated as business transaction. (ix) The assessee has invested in 21 listed companies and in 11 companies the shares are not tradable. (x) The assessee had made investments in subsidiary companies of the group. (xi) Investments in mutual funds was Rs. 50.50 crores. (xii) The quantum of sale and purchase of shares is very nominal and was limited to few companies. (xiii) The facts and circumstances of the case clearly suggest that the assessee has purchased shares only for investment purposes and not for trading purposes. (xiv) The assessee has not entered into any transaction of F&O or day trading during the entire year. 10.1. The above factual findings could not be controverted by the Ld.D.R. before us. 11. We now discuss the case laws on the subject. * In the case of G.Venkateswami Naidu and Co. Vs. CIT : 35 ITR 594 (SC), the Supreme Court held as under: &....
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....nsidering all the facts and circumstances in the case, the court may, despite the said -initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade"." (emphasis supplied) The apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd: 100 ITR 706 (SC) observed as follows: ..... Where the purchase of any article or of any capital investment, for instance, shares, is made without the intention to resell at a profit, a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character. Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale. A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment. In Commissioner of Inland Revenue v. Fraser: [1942] 24 TC 4....
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....rdinary line of the assessee's business, there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly asssessed to discover whether it was in the nature of trade. The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention of resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in a higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business ..... " * In the c....
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....ale and purchase of shares. A commercial motive is an essential ingredient of trade. (v) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realisable value (whichever is less), it will indicate that items in question are treated as stock in trade. (vi) How the company is authorised in MOA/AOA? Whether for trade or for investment? If authorised only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity and vice versa. (vii) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock in trade) then onus would shift to the revenue to prove that apparent is not real. (viii) The mere fact of credit of sale proceeds of shares(or for that matter any other item in question) in a particular acco....
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....lved rather than the actual intention and the way of carrying on share transaction. There is no doubt that even a single transaction can be in the nature of trade but the assessee has demonstrated that his. intention was never to trade in shares. The intention is manifested by treatment given to such investment that the investment is out of own fund and not borrowed that the investment is not rotated frequently, that the total number of transactions are very few, that all the shares purchased are not sold and rather held for quite number of days. It is to be noted the Income Tax Act itself has provided that when the shares are held for a period of one year or more will be treated as long term capital asset contrary to other assets where the holding period to treat such asset a long term is more than 36 months. Thus even after holding the shares for more than 12 months and showing such intention from the conduct, the Assessing Officer cannot replace his opinion for that of the assessee in holding that the shares are held as stock in trade and profit from which is to be assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct a....