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DCIT, Circle 18 (1) , New Delhi And Others Versus M/s Utkal Investments Ltd And Others

2015 (5) TMI 928 - ITAT DELHI

Transaction in shares - treated as stock in trade treating it as a business income or investment so as to treat it as capital gain - Held that:- It is a fact that assessee is showing these shares in its investment portfolio in the books of accounts. Shares sold were shown in the balance sheet for the previous year relevant to assessment year 2005- 06 as investment and the same has been carried forward as investment in the beginning of the financial year relevant to assessment year 2006-07. In th .....

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₹ 3,51,49,900/-.

The CIT (A) has given the relief to the assessee relying on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Rohit Anand [2010 (8) TMI 232 - Delhi High Court] wherein held that although even a single transaction can be in the nature of trade, however, where the assessee has demonstrated that his intention was never to trade in shares. Then, revenue cannot change the position otherwise. The investments have been made by the assessee out of his own .....

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ents.The assessee is holding the shares by taking the delivery by making full payment on such investments. All these circumstances suggest that realization of these investments shall give a rise to the capital gains and it cannot be termed as trading of shares. - Decided in favour of assesse.

LTCG or STCG - Held that:- Since we have approved the CIT (A)'s view that investments declared in the books of accounts shall not be treated as trading in the shares as business, therefore, the s .....

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BFC. There is no clear cut finding regarding this aspect in the order of the authorities below. CIT (A) has rather based his order on the fact that assessee is claiming capital gain on sale of shares, hence, no business income. This reliance is not justified as assessee is a NBFC and doing business of granting loan. Hence, we allow this ground of assessee's cross objection. - ITA No. 2558/Del./2011, ITA No. 2894/Del./2011, ITA No. 2662/Del./2012, CO No. 209/Del./2011, CO No. 210/Del./2011, CO .....

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of the CIT (Appeals)-XXI, New Delhi dated 29.03.2012. Since, in all these appeals and cross objections, some of the grounds of appeals are similar, therefore, all these three appeals and three cross objections are being disposed off by this common order. ITA No.2558/Del/2011 & CO No.209/Del/2011 2. The assessee is a registered Non Banking Financial Company in which public is substantially interested. The assessee company carries out the activities of investment in shares, securities, units o .....

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the previous year relevant to assessment year 2005-06. These investments were also reflected as investment at the beginning of previous year relevant to assessment year 2006-07. These investments have been reflected as investments in the books of accounts. It was also claimed that earlier Assessing Officer has accepted this position of investments in the books of accounts. Shares and securities held as investments were valued at cost subject to provision for diminution in their value. The shares .....

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bmitted complete details towards each investment realized during the year under consideration. The Assessing Officer did not accept the contention of the assessee. The Assessing Officer held these transactions of purchase and sale of shares as business income and not as capital gain. Aggrieved by this order, the assessee filed an appeal before the CIT (A). The CIT (A) has granted the relief to the assessee by holding as under :- "4.4 I have gone through the submission of the assessee, findi .....

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;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 Ta .....

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e assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct and other relevant factors as considered by the learned Commissioner of Income Tax (Appeals). It is also seen that the shares were treated as investment in earlier year and which fact has been accepted by the Assessing Officer. The assessee has also earned huge dividend income from such shares. The Assessing Officer merely because of the total volume of transaction is substantial, .....

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ing the shares by taking delivery and making full payment for such investment. In such circumstances, the transactions are to be treated as giving rise to the capital gain and cannot be branded as trading of making investment so as to determine whether the transaction was for dealing in shares or making investment for earning dividend and appreciation from such investment." As per Hon'ble Delhi High Court four basic elements to decide the issue are as under.- 1. Volume of transaction 2. .....

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ansaction can be in the nature of trade. Taking into consideration the ratio of the above said judgment of the Hon'ble Delhi High Court, I had got the occasion to go through the judgment of the Hon'ble ITAT, Mumbai in the case of Management Structure & Systems Pvt. Ltd. Vs. ITO, Ward 6(3)(2), Mumbai, reported at - 2010-TIOL-254-ITAT-MUM, wherein, Hon'ble ITA T vide order dated 30-4-2010 has decided the issue vide para 15 of the order as under:- "We have given our serious con .....

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account the assessee has treated the entire investment in the shares as an investment only and not as a stock in trade. Another important aspect to be considered here is the assessee is not a share broker nor he is having a registration with any Stock Exchange. Moreover, some scripts are held for more than five years and it is not a case of the AO that there were any derivative transactions by the assessee nor is it a case of the AO that there were transactions without any delivery. In the pres .....

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folios. In the case of the assessee, in the preceding years, the assessee is consistently declaring the gain/profit on the sale of the shares under the head 'Capital Gain' either Long Term and Short Term and the same has been accepted by the AO. It is true that the rule of res judicata is not applicable to the Income Tax Proceedings, but at the same time, it is also well settled principles that if there is no change in the facts, then, there should be consistency in the approach of the R .....

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in in para 6 of the order Hon'ble Tribunal has held as under:- "We have heard the rival contentions in light of the material produced and decision relied upon. We note that the assessee is a broker as well as investor. It has maintained the investment portfolio separately income for which was liable to be taxed as capital gains, as the intention in respect of this was to hold the investment as investment only and were shown as such in the books of accounts and income therefore was shown .....

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istinctly maintained investment account and trading account." 4.7 After analyzing the issue and considering the various case laws as relied upon by the ld. AR, I find that holding period is the most appropriate factor to decide the issue, whether it should be treated as stock in trade treating it as a business .income or investment so as to treat it as capital gain. My view gets strength from the order of Hon'ble Ahmedabad Tribunal in the case of Shri Shugam Chand C. Shah Vs. ACIT, ITA .....

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uency of transaction in several cases is so large and holding period in many cases is so small - from 0 to a week or so that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period - indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under the busi .....

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treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business." The criteria laid down by the Hon'ble Tribunal is very much appropriate so as to decide the issue in this regard. Accordingly, it is held that shares which were held for less than thirty days will be treated as trading income and remaining shares will automatically come under the category of investment to .....

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669/- Total gain. 19,30,207/- Thus, the gain on shares held up to 30 days comes to ₹ 19,30,207/-, which will be treated as "Business Income". All the other gains which have been held by the AO in the Own shares (Others) PMS Shares body of order as "Business Income" is allowed as capital gain whether long term or short term. AO is directed to verify the claim of assessee with regard to holding period less than 30 days and gain out of it after proper verification and to a .....

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38,53,47,813/- would comprise capital gains. 5. Assessee has also filed cross objection by taking the following ground on this issue :- "That the learned CIT (Appeals) has erred in holding that interest earned by the assessee company is income from other sources and not income from business." 6. While pleading on behalf of the revenue the ld. DR relied on the order of the Assessing Officer and submitted that whether a particular holding of shares is by way of investment or part of the .....

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transfer of shares from investment to trading account. It was also pleaded that there was high volume of purchase and sales of shares. 7. On the other hand, ld. AR relied on the order of the CIT (A). Ld. AR has placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Associated Industrial Development Company Pvt. Ltd. - 82 ITR 586 . He has also placed reliance on the decision of Hon'ble Supreme Court in the case of Raja Bahadur Visheshwar Singh vs. CIT - 41 ITR 68 .....

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ed by the assessee company and in the light of ratio laid down by Hon'ble Supreme Court in the cases of CIT vs. Associated Industrial Development Company Pvt. Ltd. - 82 ITR 586 andRaja Bahadur Visheshwar Singh vs. CIT - 41 ITR 685 , the investments were realized during the assessment year and the assessee has rightly considered the surplus as a long term capital gain. The ld. AR also pleaded that CIT (A) was even not justified for treating the short term capital gain arising from the shares .....

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stock-in-trade which are to be treated as trading asset. The assessee was having two portfolios and has income under both the heads, i.e., capital gains as well as business income. The ld. AR also submitted that Hon'ble Supreme Court in the case of Dalhausie Investment Trust Company Ltd. vs. CIT - 68 ITR 486 has held that principal consideration in determining whether income from sale of shares is revenue income or capital gain is to find out what was the purpose of purchase of these shares .....

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purchases were held as investment in the previous year as well as during the year and in the subsequent years. Secondly, these purchases were not made from the borrowed funds on which interest was to be payable. Normally, when the purchases are made from borrowed funds then such purchases are not for investment as nobody will invest by taking borrowed funds and pay interest. In assessee's case, the funds were not borrowed for making the investment. The third issue is the period of retention .....

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stment or stock-in-trade. The ld. AR also submitted that CBDT has already clarified in its circular that assessee can have two portfolios of shares, one is trading and another is investment. It was also pleaded that none of the factor alone are sufficient to come on a definite conclusion but it is the cumulative effect of these factors which will determine the character of the holding of the shares. 8. We have heard both the sides on the issue and also considered the material available on record .....

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t is in the books of accounts of the assessee. It is also a fact that most of the investments realized during the year were held as investment for more than a year even, in some of the cases, these investments were held for more than 2 to 4 years. The assessee submitted details of these transactions before the Assessing Officer. It is also a fact that during the year, the assessee has earned substantial dividend income of ₹ 3,51,49,900/-. The CIT (A) has given the relief to the assessee re .....

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riod. The Income-tax Act itself provides that when the shares are held for a period of more than a year or more will be treated as long term capital asset, contrary to the fact that other assets to be called as long term asset have to be held for more than 36 months. These shares were being treated as investment in earlier years and this fact has been accepted by the Assessing Officer. Substantial dividend income was being earned on these investments. All these facts show that facts of the asses .....

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le of res judicata is not applicable to the income-tax proceedings, however, at the same time, it is also well settled principle that if there is no change in the facts, then, there should be consistency in the approach of Income-tax authorities while deciding the tax liabilities of the assessee. In this case, the assessee was consistently declaring gain on sale of investments of shares under the head long term capital gain or short term capital gain and this position was being accepted. The CIT .....

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rder of the CIT (A) on this issue. 8.1 Since we have approved the CIT (A)'s view that investments declared in the books of accounts shall not be treated as trading in the shares as business, therefore, the shares held as investment at the beginning of the year, even if these are sold within a period of 30 days, then also capital gain arises in respect of trading profit, this amount shall be treated as short term capital gain. 9. The revenue has also taken a ground with regard to the holding .....

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ich it has been contended as under.- It is submitted that Explanation to section 73 does not apply to the assessee as the assessee falls in the exception in as much as it is a company, the principal business of which was granting of loans or advances as evident from Balance Sheet and as per pleading made vide PB 116 which has not been rebutted by ld. AO. Second exception also applies to the assessee as it is a company whose GTI (Gross total income) consists mainly of income which is chargeable u .....

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n provided in Explanation 73 itself. Ground No.6 is allowed." 11. Since we have dismissed the ground of the revenue on the chargeability of the tax as trading profit against the capital gain declared by the assessee, therefore, we are also not inclined to accept this ground of revenue's appeal and the same is dismissed. 12. In the ground no.2 of the cross objection filed by the assessee, the issue is that the ld. CIT (A) has erred in holding that interest earned by the assessee company .....

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s' as shown by the appellant. Ld. AO has computed the interest on loans under the head income from other sources with out giving any reason what so ever and absence of any reason is enough to reverse this treatment by your good self. The fact of the matter is that the appellant was engaged inter-alia in the business of granting of loans and was registered NBFC. Detailed submissions have been made in earlier ground relating to pleading and evidences about this activity having been made, which .....

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when the assessee earns interest in the course of its business of granting loans, there can not be view that the interest so earned is the business income as interest in such a case is direct and natural outcome of the business. Interest income has always been offered to tax as income from business and has been so assessed. Enclosed is a chart showing this fact along with the nature of assessment. It is not as if the interest income is always assessable under the head other source as seems to be .....

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change in facts in subsequent year - View taken-for earlier years would continue on principles of consistency - CIT vs. Dalmai Promoters Developers P. Ltds. 281 ITR 346 (Delhi). -S.28 - Business - Other sources - Business income or income from other sources - assessee operating cellular mobile telephone services - deposit of margin money to obtain license - deposit linked to business - Interest on deposit - Assessable as business income - CIT Vs. Koshika Telecom Limited 287 ITR 479 (Delhi) . Thu .....

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contested by learned AR and ultimately it has been held that majority of portion represents capital gain. By applying same analogy interest income will be treated as income from other sources. This ground is dismissed." 14. We have heard both the sides on this issue. The CIT (A) has dismissed the assessee's ground without going into the details regarding business of granting the loans as the assessee was registered as NBFC. There is no clear cut finding regarding this aspect in the orde .....

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.2558/Del/2011) is dismissed and the cross objection filed by the assessee (CO No.209/Del/2011) is partly allowed. ITA NO.2894/DEL/2011 & CO NO.210/DEL/2011 17. Ground no.1 taken by the revenue reads as under :- "On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in holding that out of the income of ₹ 41,42,72,140/- from transactions in shares and securities held by the A.O. as business income, only an amount of ₹ 1,60,05,383/- would comprise busine .....

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ccepted as such in assessment year 2006-07, though sold within a period of 30 days." 19. We have heard the rival submissions. The aforesaid issues in the revenue's appeal and cross objection filed by the assessee are decided by us in paras 8 & 8.1 of this order. Accordingly, following our aforesaid decision, we dismiss ground no.1 of the assessee's appeal and allow the cross objections filed by the assessee on the aforesaid issues. 20. Ground No.2 of the revenue's appeal rea .....

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r of the property rights as Business Income not as short term capital gains. In this regard AO has not given any particular finding in the body of the assessment order. He has treated all the capital gains as business income. In this regard ld. AR of the assessee vide letter dated 9.2.2011 has submitted as under:- "In the above appeal Ground No. 3 assails action of the Assessing Officer in assessing short term capital gain arising from assignment of property rights as business income withou .....

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unsam Properties Pvt. Ltd. of Kolkata and the assessee company, the assessee company booked 7500 sq. ft. of semi built-up area forming part of the committed area of 25000 sq. ft. in favour of M/s. Sunsam Properties Pvt. Ltd. by CHANDRAS GREENS PROJECTS of Kolkata in a plot of land situated at Eastern Metropolitan Bye-pass commonly known as BANTALA HILLOCK and made full payment of consideration therefore from time to time. 4. Obligation of Sunsam Properties Pvt. Ltd. was to get the plans of the b .....

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and Construction Company Pvt. Ltd. by agreement dated 20th September, 2006. On such transfer it earned a profit of ₹ 1,53,00,000/-. 6. Appellant is not in the business of acquiring, developing and selling of the property. The property was sought to be acquired purely as an investment proposition. Therefore, investment made in the property .was a capital investment and gain arising on transfer of rights therein is a capital gain and assessable as capital gain. 7. It is, therefore, submitte .....

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nt." From the facts as narrated in CIT (A)'s order, we find that assessee was not doing the business of dealing in immovable property. Therefore, we find no fault in the order of the CIT (A) and whatever surplus earned by the assessee on the transfer of the property vide his agreement dated 22.10.2004 with M/s. Sunsam Properties Pvt. Ltd. for 7500 sq.ft. of semi built up area shall be considered as short term capital gain as held by the CIT (A). Hence, this ground of revenue's appea .....

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tal gain, viz., long term or short term, and it is not indulged in speculative transaction, therefore, this ground of revenue's appeal also stands dismissed. 24. Ground No.3 in the cross objection filed by the assessee is general in nature and does not require any adjudication. The same is dismissed. 25. In the result, the appeal filed by the revenue (ITA No.2894/Del/2011) is dismissed and the cross objection filed by the assessee (CO No.210/Del/2011) is partly allowed. ITA NO.2662/DEL/2012 .....

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