TMI Blog1997 (10) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the sale of 7,00,000 shares is assessable under the head Profits gains of business or under the head Capital gains . The revenue implications of the issue are substantial as capital gains are assessed at a lower tax and also are eligible for certain deductions under section 48 of the Income-tax Act. 3. For understanding the issue raised in this appeal, it will be useful to set out the earlier transactions of the assessee. The assessee did not maintain any books of accounts; she, however, had certain bank accounts and current account in certain concerns. She had certain shareholdings and other assets and details of her investments are given at page 54 of the appellant s paper book and they are reproduced below : As at Mar. 89 As at Mar. 90 As at Mar. 91 As at Mar. 92 Hindalco Inds. Ltd. 2000 3200 3200 Hindustan Gas Inds. 5585 5585 5585 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of share Rate per Amount Total 5. M/s. Birla Consultants P. Ltd. 3080 ₹ 24.90 ₹ 76692 6 M/s. Grasim Inds. Ltd. (Debentures) 45 ₹ 32.50 ₹ 1463 7 Unit Trust of India ( a )Master Equity plan 1000 ₹ 10.00 ₹ 10000 ( b )Unit Scheme-1964 980 ₹ 14.20 ₹ 13916 ₹ 1249396 3.2 Mr. Aditya Birla, father-in-law of the assessee, was the Chairman of IGFCCL from about 1986. The assessee purchased 2,50,000 shares of IGFCCL in the year ending 31-3-1989, i.e., after her engagement to Mr. Kumarmangalam Birla. She purchased thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,50,000 ₹ 28,50,000 587 29-6-1990 75,000 ₹ 14,32,500 ₹ 99,60,000 It may be observed that the total shares purchased from M/s. Jhawar Co., and M/s. S.S. Dalmia aggregated 7,00,000 shares and the cost of acquisition work out to ₹ 1,32,08,500 and along with the share transfer fees of ₹ 1,17,000 the aggregate works out to ₹ 1,33,25,500. The cost of acquisition of these shares was met subsequently through the sale proceeds of the first lot of 2,50,000 shares which were received on 11-10-1990. So, initially the cost of acquisition was met through temporary accommodation given by the brokers concerned. It may be observed that the above lot of 7,00,000 shares was purchased after the assessee s marriage and the total share holdings of the assessee in IGFCCL at one stage is of the order of 9,50,000 shares. 4.1 The assessee subsequently sold the first lot of 2,50,000 shares held in IGFCCL thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the 2,50,000 shares was made out of the current account of the assessee with the family concern of the assessee M/s. S. Kumars Research Services. Aggregate amount of ₹ 31,60,000 was debited on different dates between November 3, 1988 and December 16, 1988. 4.4 The account of the assessee with M/s. S. Kumars Research Service may be seen at pages-52 and 53 of the paper book which shows the following debit balances up to 31-3-1991 :- 31-3-1988 ₹ 1,85,176 31-3-1989 ₹ 30,09,665 31-3-1990 ₹ 24,79,558 31-3-1991 ₹ 24,85,219 It is only on 24-12-1991 the account was more or less squared up. 4.5 The assessee has also another current account with another family concern of the assessee, i.e., S. Kumars Co. which has been separately filed before us and this account shows the following debit balances :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Capital gains as claimed. However, the CIT took action under section 263 in respect of this assessment year and we shall advert to it presently. 6. For the assessment year 1992-93, the assessee returned the surplus on the sale of 7,00,000 shares of IGFCCL purchased in second lot under the head Capital gains . She returned the capital gains in question at a figure of ₹ 1,02,90,870 as per the following computation : Gross sale proceeds Rs. 3,97,46,775 Less : Dividend @ Re. 1 per share in respect of 6,77,600 shares ₹ 6,77,600 Hence sale proceeds ₹ 3,90,69,175 Less : Cost of acquisition of shares ₹ 1,33,27,000 (Cost price of share ₹ 1,32,08,500 share transfer fees Rs. 1,17,000 Bank cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely small period of 16 months calculated with reference to the dates of their acquisition, whereas the investments with the intention to earn dividend income are not generally made for such small periods; (v )she had no intention of holding the shares for herself as is evident from the bulk purchase of shares of a single company; (vi)the repetition of the transaction, appears to be in pursuance of a scheme to deal in the shares and earn the income; The Assessing Officer, however, took the view for this assessment year that the surplus on the sale of 7,00,000 shares has to be assessed under the head Business . He observed that the assessee had carried on an adventure in the nature of trade. He relied upon the decision of the Hon ble Allahabad High Court in the case of CIT v. Sugar Dealers [1975] 100 ITR 424 wherein the Hon ble High Court has held as follows : Profit arising from even a solitary transaction can sometimes be held to be a revenue income if the transaction can be said to be an adventure in the nature of trade. Assessing Officer has also observed in page-7 of his order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be legally permissible to allow such interest against income from other sources. As regards the acceptance of the claim of short-term capital gains in respect of the shares of M/s. AAC, M/s. G.K. Williams Ltd. and M/s. Hind Dev. Corpn. Ltd., though there are no revenue implications, in view of the factual position, namely, that the assessee is not an investor in share and that the gains from the transactions in these shares were speculative in nature, the Assessing Officer may rectify the assessment order in accordance with law. The Assessing Officer is directed to recompute the income under the relevant head and enhance the total income accordingly. The Tribunal, however, cancelled the said order under section 263 vide its order dated 31-1-1997 in ITA No. 893 (Mumbai) 1996. The Tribunal held as follows : 6. The rival submissions have been very carefully considered. It was pointed out during the hearing that even in assessment year 1989-90 the assessee did sell off some of the shares, but of a different company and the income therefrom had been assessed under the head Capital gains . The assessee had been holding shares of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier assessment year. The Gujarat High Court was concerned with the term record of any proceedings and they have held that records of the proceedings mean the records based on which orders were passed. We may also observe that courts have been repeatedly holding that it is permissible for the assessing authorities to take a different view in a later year. We may not need to travel to the various decisions of various High Courts and Supreme Court, but it would suffice to state that what is decided in one year may not apply to the following year, which has been so held by the Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 . It was precisely for this reason that the Bombay High Court in CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 had observed that where a fundamental aspect permeating through the different assessment year has been found as a fact, one way or the other the authorities have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to the changed in the subsequent year. This particular decision is so provided to emphasis that the settled matter should not be disturbed. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observation of the Tribunal that the desire to hold large number of shares and to increase capitalworth was the reason behind the transaction of purchase and sale of the earlier holdings of 2,50,000 shares. So, it is pleaded that as the purchase of 7,00,000 shares is motivated by considerations of holding a number of shares and as the purchase of earlier lot of 2,50,000 has been held to be on capital account, it must necessarily follow that the purchase of 7,00,000 shares was also on capital account and, as already mentioned, the issue had already been decided by the Tribunal for the assessment year 1991-92 in the said order. He has strenously contended that as the Tribunal has reversed the order u/s 263 for the assessment year 1991-92, a different view cannot be taken for the present assessment year. He has stressed that a view taken in one year cannot be departed from in the subsequent year and in this context, he had relied upon the following decisions :- (i) CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 (Bom.) (FB), (ii) CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.). The learned counsel has also pleaded that the assessee was only a young ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Radhasoami Satsang v. CIT [1992] 193 ITR 321/ 60 Taxman 248. It is pleaded that the Tribunal did not notice that in the context of purchase of 7,00,000 shares, assessee obtained a loan of ₹ 30 lakhs from a broker and that even the 7,00,000 shares were subsequently sold and the sale proceeds were invested in some tax free bonds. The issue raised by the ld. Departmental Representative in this context is that if the assessee wanted to hold a large number of shares why did see sell the 7,00,000 shares and invest the sale proceeds in bonds. These are the additional facts, which according to the ld. Departmental Representative were not considered by the Tribunal in its order for the assessment year 1991-92 and so any conclusion arrived at by the Tribunal for that year should not come in the way of the Tribunal for arriving at a different view for the assessment year 1992-93. It is also pleaded that the earlier order of the Tribunal concern itself with an order u/s 263 passed by the CIT and so related to the jurisdiction of the CIT u/s 263 which is not the issue in the present appeal. He pleaded that even a single plunge into the waters of trade tantamounts to undertaking an adventu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee for the assessment year 1991-92 and the same logic would hold good for the assessment year 1992-93 also. In other words, the argument advanced is that as the Tribunal held that the 2,50,000 shares were bought as investments, it has to be held that even the 7,00,000 shares were bought only as investments. He also mentioned that the decision of the Hon ble Allahabad High Court in the case of Raja Jagdish Pratap Sahi (supra) and that of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (supra) relied on by the revenue are distinguishable on fact. Finally, he observed that, if it is held that any assets purchased with borrowed funds are necessarily indicative of a trading transaction, it means that only a rich man can buy investments and no poor man can ever think of buying anything as investment. 10. We have given our anxious consideration to the issues raised in this appeal. We are of the view that we have to hold in favour of the revenue. Firstly, we do not agree with the contentions of the ld. counsel for the assessee that the matter has already been decided by the Tribunal in its order for the assessment year 1991-92. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the parties that even a single transaction of purchase and sale of shares can, in certain circumstance, be of the nature of an adventure in the nature of trade. It is also common ground that to determine whether a relevant asset is a trading asset or an investment, the totality of the facts and circumstances has to be considered. It is also not disputed before us that it is the intention at the time of purchase of the assets in question that is most crucial to determine whether the asset bought is a trading asset or an investment. So, there is not much dispute about the basic legal principles that have to be considered for deciding this appeal. The dispute mostly is only about the ascertainment of the relevant factual circumstances and the inference to be drawn from them. 12. Even though it is not disputed before us that there need not be repetitive transactions to constitute a trade, it is useful to recall the following remarks of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd., cited (supra)- It is not necessary to constitute trade that there should be a series of transactions, both of purchase and of sale. A sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent sale of the shares was held to be on capital account as the Tribunal found on material on record that the assessee had no intention at any time to use his shareholdings as stock-in-trade and to make a profit by the sale thereof. 14. In the case of Ashok Kumar Jalan v. CIT [1991] 187 ITR 316 , the Hon ble Bombay High Court held that a solitary transaction of purchase and sale of gold bonds did not amount to an adventure in the nature of trade because there was no evidence to show that the purchase of the bonds had been made with an intention to resell. The jurisdictional High Court also observed that the burden is on the revenue to prove that a solitary transaction amounted to an adventure in the nature of trade. The following relevant observations of the High Court are illuminating- There does not appear to be any material which would establish that the only motive of the assessee in purchasing these bonds was to make a profit by selling them at a later date. The assessee had not purchased bonds in very large quantities thereby indicating a desire to trade in them; nor is there any material to show that he had no intention of retaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare, she could reasonably have expected to sell her 2,50,000 shares only at these rates. She actually sold them on 11-9-1990 at rates ranging between ₹ 42 and ₹ 42.68 per share. This wind-fall by way of a rise in the value of her shareholdings could not, we are constrained to observe, have been anticipated at the time of acquisition of 7,00,000 shares, with which we are concerned. 18. We have also to examine the financial position of the assessee at the time of acquisition of these 7,00,000 shares. We have already indicated that even the first lot of 2,50,000 shares were bought out of funds borrowed from her family concerns. We have also indicated hereinbefore the debit balance with S. Kumar Research Services and S. Kumar Co. As on 31-3-1991, her debit balance with S. Kumar Research Services was ₹ 24,85,219 and with S. Kumar Co., it was ₹ 17,09,411. The deibit balance with M/s S. Kumar Research Services as on 31-3-1990 was ₹ 24,79,558 and with S. Kumar Company, it was ₹ 16,87,411. We have also indicated the value of her other assets, i.e. exclusive of 2,50,000 and 7,00,000 shares in question and that was only about ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have discharged even her interest liability through the dividend income. It is made out that the assessee did not have books of account and that she could not have traded in shares because, she was only a young and inexperienced lady. For an adventure in the nature of trade, no big organization by way of an office is required. To our mind, the youth and inexperience of the assessee cannot be made much of. Because of her family background, she must have been guided by people will versed in financial matters. At any rate, a young girl of her age without her background, would not normally even invest in shares on the scale she has done. 20. On a consideration of the cumulative effect of all the factors, we have to hold that the assessee bought the 7,00,000 shares as her trading assets. We would rely upon the insignia of trade or of an adventure in the nature of trade given by the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. cited supra and also the decision of the jurisdictional High Court in the case of Ashok Kumar Jalan (supra). Acquisition of the large block of shares, when the assessee had no ostensible means to pay for it, indicates as defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the argument of the ld. counsel for the assessee that no poor man can ever invest in shares, if it is held that acquisition of shares out of borrowed funds is necessarily indicative of a trading transaction. We are not holding that borrowed funds always and necessarily indicate a trading transaction. Our finding is based upon a consideration of the cumulative effect of the factors prevailing in this case. If the net worth of an assessee otherwise permits her to acquire shares, borrowed funds may not necessarily indicate a trading tran-saction. When the net worth of an assessee on the date of acquisition is negative or very small as in the present case, it is difficult to assume that she has borrowed funds on the scale she has done for investment purpose. In the circumstances, we uphold the order of the CIT(A) on this issue and hold that the profit of ₹ 2,57,42,175 derived by the assessee on the sale of 7,00,000 shares in question is assessable as business income. 23. The only other ground raised in this appeal reads as follows :- The CIT(A) also erred in upholding the action of the ACIT in treating a sum of ₹ 149 being a sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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