TMI Blog2011 (1) TMI 1471X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Assessing Officer in rejecting the claim of the appellant for exemption under section 47(v) by treating the transaction of sale of shares of L T as adventure in the nature of trade, and thereby treating the profit on sale of shares as business income instead of capital gain from the sale of capital asset i.e. shares. 2. He further erred in confirming the action of the AO in treating holding of shares as stock in trade and not an investment , and transaction of sale and purchase of shares as adventures in the nature of trade . 3. He failed to appreciate and ought to have held that: i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee. The Assessing Officer rejected the claim of the assessee for two different reasons first, that the transaction between the assessee company and Piramal Holdings Pvt Ltd was not a transaction between a fully owned subsidiary and holding company inasmuch as not all the shares of the assessee company were held by Piramal Holdings Pvt Ltd; and, second- that the provisions of Section 47 (v) donot apply to the facts of this case inasmuch as the gains on sale of shares in L T Crossroads Pvt Ltd were not taxable under the head capital gains , but under the head profits and gains from business and profession . 5. As regards the first objection taken by the Assessing Officer, we are not really required to deal wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer noted that even though there is only one transaction of sale and purchase of shares, it is a well settled legal position that even a single transaction can be said to be an adventure in the nature of trade, and totality of facts and circumstances is to be taken into account to determine that aspect of the matter. He also observed that it is not really material as to how these shares were disclosed in the balance sheet because, as held by Hon ble Supreme Court in the case of Kettlewel Bulletin Vs CIT (53 ITR 261), the nomenclature given by the assessee to specify the item in the balance sheet would not be final as termed by the assessee when the facts of the case reflects to some other transaction as discussed above . He also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s borrowed from its holding company i.e. Piramal Holdings Pvt Ltd, that Piramal Holdings Pvt Ltd was also having substantial holdings, to the tune of ₹ 12 crores, in L T Crossroads Limited, and that the assessee, alongwith its group companies, was engaged in acquiring controlling holdings in L T Crossroads Ltd an activity, in the light of Hon ble Calcutta High Court s judgment in the case of CIT Vs Rajeeva Lochan Kanoria, constitutes a business activity. The CIT(A) held that analyzed various judicial precedents to support the proposition that a purchases made with a view to make profits on sale will constitute adventure in the nature of trade and that it is a combination of various factors which needs to be taken into account to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f emphasis has been placed by the authorities below as indeed by the learned Departmental Representative, it is important to bear in mind the fact that, as noted by the Assessing Officer himself, as against a net worth of 6.38 lakhs, the assessee had borrowed ₹ 9.47 crores from Piramal Holdings Pvt Ltd to acquire these shares. By no stretch of logic, this borrowing could be treated as a commercial borrowing as no lender would grant loan amounting to 100% of investment in shares when net worth of the borrower is less than 1% of the investment in shares. It is important to bear in mind the fact that the borrowing is from the holding company which fully owns the assessee company, and it is thus more of a mode of capital rather than a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adventure in the nature of trade. 9. As regards revenue s reliance on Hon ble Calcutta High Court s judgment in the case of Rajeev Lochan Kanoria (supra), there was no dispute in this case that the shares acquired by the assessee were capital assets, i.e. investments, in nature, but the question was whether deduction under section 36(1)(iii) in respect of borrowings to acquire those shares will be admissible since the investment in shares was clearly connected with business operations of the assessee . Affirming the order of the Tribunal, Their Lordships noted that there is no dispute that in this case computation of income under section 28 has taken place in the assessment order and that there is nothing in section 36(1)(iii) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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