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2015 (10) TMI 944 - ITAT PUNE

2015 (10) TMI 944 - ITAT PUNE - TMI - Income from share transactions of the assessee - whether not chargeable to tax under the head ‘business income’ even though consistency, frequency and large volume were involved in the said transactions as held by CIT(A) - Held that:- Merely because there is consistency, frequency and volume in transaction of shares, the same cannot be treated as ‘business income. The intention of the assessee at the time of purchase of such shares/securities are to be seen. .....

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find any infirmity in the order of the CIT(A) on this issue. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed. - Decided in favour of assessee.

Indexation of share application money - CIT(A) rejected the claim of the assessee for indexation of share application money on the ground that no right has been created whatsoever in the land - Held that:- Respectfully following the decision in the case of Blue Star Ltd (2007 (3) TMI 290 - ITAT BOMBAY-J) and i .....

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Benefit of indexation being share capital denied - Ld.CIT(A) while holding that the assessee could have taken such benefit, however, denied the same on the ground that no shares were transferred, therefore, the assessee is not entitled to benefit of indexation - Held that:- We find the Ld.CIT(A) was not justified on this issue. We have already held in the preceding paragraphs that assessee is entitled to benefit of indexation on account of share application money. Following the same re .....

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hat the amount has been offered to tax in the preceding years. In our opinion, if the assessee has already accounted for such income on accrual basis in the past, the same cannot be taxed again in the current year on receipt basis. However, the same needs verification at the level of the AO. In view of the above, we remit ground of appeal No.3 to the file of the AO with a direction to verify the past records and find out as to whether the assessee has offered to tax the interest amount of ₹ .....

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one filed by the assessee and are directed against the order dated 27-04-2012 of the CIT(A)-V, Pune relating to Assessment Year 2008-09. For the sake of convenience, these appeals were heard together and are being disposed of by this common order. ITA No.1549/PN/2012 (By Revenue) : 2. The only effective ground raised by the Revenue reads as under : Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in holding that the income from share transactions of the ass .....

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igh. From the various details furnished by the assessee, he observed that the long term capital gain and short term capital gain declared by the assessee for the preceding and succeeding two years are as under: Asst. Year Long term capital gain (in Rs.) Short term capital gain (in Rs.) Purchase Sale LTCG Shown (Claimed Exempt) Purchase Sale STCG shown 2006-07 29,00,931 56,45,456 25,44,113 17,10,470 19,58,514 2,48,044 2007-08 9,01,095 25,87,468 16,86,373 42,16,697 41,47,022 (-)69,675 2008-09 8,68 .....

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ansactions as short term capital gain/long term capital gain is to be taxed at lower rate when it falls under the category of short term capital gain and claim exempt, vis-à-vis long term capital gain which is to the tune of ₹ 25,44,113/-, ₹ 16,86,373/-, ₹ 23,13,343/- and ₹ 1,68,758/- for A.Y. 2006-07, A.Y. 2007- 08, A.Y. 2008-09 and ₹ 2009-10 respectively. Rejecting the various explanations given by the assessee and distinguishing the various decisions cited .....

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borrowings for investment for shares were obtained. Some loans akin to quasi capital are taken by the assessee from close family members towards initial capital in business. No interest has been paid on these loans. There were only 31 sale transactions leading to short term capital gain and 34 transactions leading to long term capital gain totaling to 65 transactions. The companies whose shares were transacted are about 25 in the entire year. There was not a single day-trade or immediate sale af .....

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and earns dividend from over 58 companies and mutual funds to the tune of ₹ 1.86 lakhs. It was submitted that if a person has two portfolios then CBDT Circular will apply. Since the assessee has only one activity, therefore, he has got only one portfolio. Relying on various decisions it was argued that the capital gain shown by the assessee should be accepted. 4. Based on the arguments advanced by the assessee, the Ld.CIT(A) directed the AO not to treat the long term capital gain and shor .....

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gain on shares has been taxed as capital gain. Yes, it is true that the appellant has shown substantial gain in purchase and sale of transactions but the same cannot justify treating the same as business income unless business motive, its treatment in books, borrowing money for the same etc. are brought on record to substantiate the claim that the same represents business transaction. After going through all the factual matrix associated with the transaction, I am not inclined to treat the same .....

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se the Assessing Officer treated the long term capital gain and short term capital gain declared by the assessee from purchase and sale of shares as business income mainly on the ground of consistency, frequency and volume of the transactions. We find the Ld.CIT(A) directed the Assessing Officer to treat such income as long term capital gain and short term capital gain as declared by the assessee on the ground that the assessee has not done trading in shares in the past and in all the years such .....

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investment in shares and such shares were always valued at cost. 6.1 The Pune Benches of the Tribunal are consistently taking the view that merely because there is consistency, frequency and volume in transaction of shares, the same cannot be treated as business income. The intention of the assessee at the time of purchase of such shares/securities are to be seen. Since the assessee in the instant case has made purchases and sold the shares supported by actual deliveries through the Demat accou .....

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dismissed. ITA No.1551/PN/2012 (By Assessee) : 7. Facts of the case, in brief, are that the assessee alongwith his business associates named Ashwin Bhogilal Shah and Subhash Bhikchand Chuttar entered into Memorandum of Understanding (MOU) on 21st May, 1998 with Srishti Developers Pvt. Ltd. represented by its Directors Shriram Dattatray Karandikar and Shri Madhumad Trimbank Pethe for development of land bearing Survey No.50/l/(P), 51, Hissa No.l & Hissa No.2 at Village Tungarli, within the li .....

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e said land in the newly created company, the value of which was mutually agreed to be ₹ 1,00,00,000/-. However, the land could not be transferred to the new company and ultimately settlement agreement was signed on 27/05/2007 between M/s.Shrishti Developers Pvt. Ltd. represented by Karandikar Group, the assessee Group and M/s.Dinesh Enterprises (Third party). As per this tripartite Agreement, the assessee and associates surrendered all rights pertaining to the said land for which M/s.Dine .....

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and also LTCG of ₹ 178 on 10 shares of M/s.Shristi Hotels Pvt. Ltd. 7.1 During the course of assessment proceedings, the Assessing Officer came to the conclusion that the shares of M/s.SHPL were never sold and there was no cost of acquisition in respect of the rights in land held by M/s.Shristi Developers Pvt. Ltd. Accordingly, he taxed the entire receipt of ₹ 49,36,000/- under the head "LTCG". Since the assessee had shown LTCG of ₹ 12,16,277/- in the revised return o .....

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7; 49.36 lacs for settlement of following rights as per clause 3(a) of the Settlement Agreement which reads as under: "(3)(a) All claims of Executants- No,2 to 5 against the Executant No,1 and/or Executant No.6 and for the said land and/or the money so far paid and/or returns thereof have been settled fully and finally . (b) Except the amount receivable by the Executants-No.2 to 5 as enumerated in the annexure, the Executants-No.2 to 5 are not entitled to any other money or other claims wha .....

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Shah S.B. Chuttar (HUF) Shyam B Jain Share Application money with Srishti Hotels 4.00 4.50 4.50 10.00 Deposit with Srishti Developers Pvt. Ltd. - 8.66 Total 4.00 4.50 4.50 18.66 ANNEXURE 'B' AMOUNTS SETTLED & TO BE PAID IN THE FOLLOWING MANNER (Amount Rs. in Lakhs) Mr.Shyam B Jain 49.36 Mr. Ashwin Shah 34.46 Mrs. Harshida A Shah 10.54 Mr. Subhash B. Chuttar 5.64 TOTAL 100 12. Thus, from the reading of clause (a), (b) & (c) of para 3 and Annexures 'A' & 'B" o .....

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d by virtue of appellant being a shareholder in M/s.SHPL but also refund of share application money as well as deposit. Therefore, for arriving at the sale consideration in respect of land amount of ₹ 18.66 lacs (10 + 8.66) has to be excluded. After excluding the amount of ₹ 18.66 lacs, the balance amount comes to ₹ 30,70,000/- (Rs.49,36,000 - ₹ 18,66,000). This amount of ₹ 30,70,000/- needs to be subjected to capital gain. 14. As far as the claim of the appellant t .....

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as denied by the Assessing Officer. Share application money was refundable amount and therefore, the same cannot be considered for benefit of indexation. 15. The appellant has taken the issue of interest on deposit amounting to ₹ 13,00,828/- in revised ground No.(2). As per appellant, the amount of ₹ 49,36,000/- consists of ₹ 13,00,828/- being unpaid interest on deposit made to M/s.Shristi Developers Pvt. Ltd. which has been offered for taxation in various years including curre .....

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t on deposits. Therefore, request as per revised ground No.2 cannot be entertained. 17. In Ground No.3 (revised), the appellant has the grievance that the Ld. Assessing Officer has erred in treating ₹ 8,66,000/- representing deposit as consideration for transfer of rights in SHPL. 18. This issue has been decided while adjudicating ground No.1 wherein LTCG was calculated at ₹ 30,70,000/- after deducting share application money of ₹ 10,00,000/- and deposit of ₹ 8,66,000/-. .....

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ciating that vide Settlement Agreement dated 27/05/2007, appellant's rights in Shristi Hotels Private Limited have been relinquished / extinguished, giving rise to capital gains under ITA, 1961; and as such, deduction of indexed cost of acquisition of the following investments ought to have been granted to the appellant, i.e. a) Share capital of ₹ 100/- and b) Share application money of ₹ 10,00,000/-. 2. Alternatively and without prejudice, the learned CIT(A) and the learned AO e .....

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ant in past years, as a part and parcel of full & final consideration of ₹ 49,36,000/- received under the settlement agreement dated 27/05/2007 from Karandikar group. The learned CIT(A) and A.O. erred in not appreciating that the said amount of ₹ 13,00,828/- is being doubly taxed, once from time to time in earlier years and again in A. Y. 2008-09. 4. The appellant craves, leave to add / modify / delete all or any of the grounds of appeal. 10. Ground of appeal No.1 by the assessee .....

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refundable amount and therefore the same cannot be considered for benefit of indexation. It is the submission of the Ld. Counsel for the assessee that indexation benefit on the share application money introduced by the assessee into M/s. Shrishti Hotels Pvt. Ltd. should be granted. For the above proposition, he relied on the decision of the Mumbai Bench of the Tribunal in the case of Blue Star Ltd. Vs. JCIT reported in 20 SOT 25. 11.1 We find the Mumbai Bench of the Tribunal in the case of Blue .....

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ards compensation for extinction or sterilization, partly or fully, of a profit-earning. source, such receipt, not being in the ordinary course of assessees' business is a capital receipt. In the case before-us, the assessee had entered into a joint venture agreement with HP by which the assessee was given the right to subscribe to the extent of 20 per cent of the paid-up capital of the joint venture, namely, HPIL. The joint venture agreement also contained a non-compete clause, which prohib .....

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00 paid by the assessee to HPIL was substituted by a sum of ₹ 15 crores to be paid to the assessee under the MOU containing similar non-compete clauses. The sum and substance of the agreement, i.e., MOU is that a sum of ₹ 15 crores has been paid over to the assessee as compensation upon termination of the joint venture agreement and consequently upon extinction of assessee's rights to subscribe the share capital of the joint venture namely, HPIL. Since it is compensation for exti .....

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e deemed to be the income of the previous year in which the transfer took place. It is not the case of the assessee that the requisites of section 45 for taxing the impugned sum as capital gains are not fulfilled. The right to subscribe to the share capital is a valuable right and so is the right to be involved in the affairs of joint venture under the joint venture agreement. Such right is a capital asset within the meaning of section 2(14) of the Income-tax Act, which defines capital asset as .....

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has been transferred during the previous year relevant to the assessment year under appeal through the MOU. Thus, the profits or game arising from the transfer of impugned capital asset effected in the previous year relevant to the assessment year under appeal are chargeable to tax under the head 'Capital gains' under section 45. 23. Section 48 provides for the mode of computation of capital gains. It provides that the income chargeable under the head 'Capital gains' shall be co .....

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s right to subscribe to the share capital. The prayer of the assessee that it should be allowed the benefit of indexed cost of acquisition, therefore merits consideration. In this view of the matter, we direct the Assessing Officer to tax the impugned amount as long-term capital gains after giving the benefit of indexed cost of acquisition as per law. 24. In view of the aforesaid, the order of the CIT(A) bifurcating the compensation received in two parts, i.e." (i) interest on share applica .....

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ation money introduced in M/s. Shristi Hotels Pvt. Ltd. We accordingly set aside the order of the CIT(A) on this issue and direct the AO to allow the benefit of indexation on the share application money and determine the long term capital gain in accordance with law after giving due opportunity of bearing heard to the assessee. We hold and direct accordingly. Ground of appeal No.1 by the assessee is accordingly allowed. 12. So far as the issue relating to benefit of indexation in respect of S .....

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ngs we hold that the assessee is entitled to benefit of indexation in respect of ₹ 100/- being share capital money in M/s. SHPL. Ground of appeal No.1 is accordingly allowed. 13. Ground of appeal No.2 was not pressed by the assessee for which the Ld. Counsel for the Departmental Representative has no objection. Accordingly, the same is dismissed. 14. In Ground of appeal No.3 the assessee has challenged the order of the CIT(A) in not considering the grievance of the assessee that the amount .....

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