TMI Blog2016 (9) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 after retaining the rights for more than three and a half years. It is also undisputed that the assessee has been in receipt of rental income from other properties in subsequent assessment years which have been duly mentioned in the respective assessment orders. Hence, we are of the concerned opinion that the surplus resulting from the sale of rights is assessable to tax only as capital gains and not as business income because the Department has not been able to demonstrate that purchase and sale of the rights was affected in the usual course of carrying on the business of the assessee. The frequency of the purchase and sale is isolated in the case of the assessee and, therefore, there is no reason to allege that this was only a device to pay lesser taxes. It is also seen from the records that the assessee company is in the practice of passing separate resolutions for making investment in properties/rights. In our considered view, the assessee has discharged its primary onus by showing that the sale of rights was not in the regular course of business or trade but rather an isolated transaction and now the onus was on the Revenue to show that the apparent was not real. No mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the assessee company had purchased shares of one closely held unquoted group company Mark Auto Ltd. It was further submitted that Mark Auto Ltd. was purchased by the assessee company during FY 05-06 in which the assessee company is holding around 48% share capital. It was further submitted that another 48% of the shares are held by Maruti Udyog Ltd. and the purpose of acquiring the shares of Mark Auto Ltd. was not to earn dividend but to secure the right to manage the company. The ld. AR further submitted that no continuous monitoring was required for the investment made in the above said company and that no expenditure in this regard was ever made by the assessee company. It was further submitted that no interest was paid by the assessee for any loan raised for the above said investment in shares and that the shares were purchased purely out of non interest bearing funds raised by the assessee and that the AO had mechanically applied the provisions of Rule 8D without verifying the quantum of expenditure. The ld. AR relied on the decision of the Hon ble Delhi High Court in the case of CIT vs. Holcim India P. Ltd. in ITA Nos. 486/2014 299/2014 for the proposition that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed and the expenses shall be allowed only to the extent they are related to the earning of taxable income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income, which is taxable as it is held by the Hon ble Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 (SC) that for attracting the provisions of section 14 A, there should be proximate cause for disallowance which as relationship with the tax exempt income. The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that no expenditure has been incurred for earning the exempt income, it is for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not form part of total income and if so, to quantify the extent of disallowance. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer must record that he , is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 95 (Bom.) has held that ordinarily where a person acquired land with a view to selling it later after developing it and actually divided the land into plots and sold the same in parcels, the activity could only be described as a business adventure. Generally speaking, the original intention of the party in purchasing the property, the magnitude of the transaction of purchase, the nature of the property, the length of its ownership and holding, the conduct and subsequent dealings of the appellant in respect of the property, the manner of its disposal and the frequency and multiplicity of transactions afforded valuable guides in determining whether the appellant was carrying on a trading activity and whether a particular transaction should be stamped with the character of a trading adventure. 5.4.1. The Hon ble Madras High Court in V. Ramanathan vs. CIT 51 ITR 640 (Mad.) has held that the distinguishing mark which differentiates a trading adventure from ordinary transaction of purchase and sale ending in a profit is not the profit motive of the individual, is not the speculative instinct of the individual, is not the risk that he undertakes in the matter, but the commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 7. The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particulars account or not so much frequency of sale and purchase will alone will not be sufficient to say that appellant was holding the shares (or the items in question) for investment. 8. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the appellant is complying with them. Whether it is the argument of the appellant that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchase were made? 9. It is permissible as per CBDT s Circular No. 4 of 2007 of 15th June, 2007 that an appellant can have both portfolios, one for trading and other for investment provided it is maintaining separate account for each type, there are distinctive features for both and there is no intermi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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