TMI Blog2017 (9) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The memorandum and articles of Association of the company also authorizes it to invested surplus funds in shares or in any other form of investments Assessee is an investor and not a Trader in shares. Therefore, looking to the facts of the case, we confirm the finding of the Ld. CIT (A) in holding that the income of short-term capital gain shown by the assessee on sale of shares is likely to be charged under the head capital gains and not under the head business income. With respect to the addition made on account of business income instead of short-term capital gain on sale of the shares is dismissed. - Decided against revenue Disallowance u/s 14A - AO's non satisfaction about the correctness of the claim - Held that:- In the present case unless the ld Assessing Officer records his satisfaction about the correctness of the claim of the assessee cannot move ahead for application of Rule 8D of the Act. The Hon'ble Delhi High Court in case of CIT Vs. Taikisha Engineering India ltd (2014 (12) TMI 482 - DELHI HIGH COURT) has held that it is only when voluntary disallowance made by the assessee u/s 14A of the Act is found to be unsatisfactory on examination of accounts, that A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. During the year the assessee has shown the capital gain from long-term capital gain of ₹ 124707/-from mutual funds, income from short-term capital gain of ₹ 1979164/ from reduction of units and income from short-term capital gain of ₹ 1728820/-. 3. Before the assessing officer the assessee submitted that it is shown the above amount as a investment. However, the Ld. assessing officer held that looking to the nature of transaction of shares it was found that the assessee was doing frequent transaction for sale and purchase of shares. He further held that that assessee has dealt in thousands of shares of various scripts and the huge volume itself suggest that assessee was doing the business activities in spite of making investments in treating it as capital gain. Therefore he held that short-term capital gain or non-sale and purchase of shares of ₹ 1728819/- is treated as business income and not as capital gain as shown by the assessee. 4. The Ld. CIT (A). On appeal before him held that the appellant s investor in share and not a Trader and therefore directed the Ld. assessing officer to treat the income from sale of shares as short-term capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown the income on sale of shares as short-term and long-term capital gain and which is been accepted by the Ld. assessing officer for assessment year 2010 11 to 2014 15. He referred to the various assessment orders where the assessee has earned income from capital gains both short-term and long-term and Ld. assessing officer in assessment orders under section 143 (3) has accepted the income from capital gains and has not made any adjustment on this account. In view of this it is submitted that income shown by the assessee on sale of shares is as investor and not as a Trader and therefore required to be charged under the head capital gains only and not business income. 7. The Ld. departmental representative relied upon the orders of the Ld. assessing officer. He therefore submitted that for the reasons given by the assessing officer the income on sale of shares is required to be charged to tax under the head business income only and not as short-term capital gain. 8. We have carefully considered the rival contentions and also perused the orders of the Ld. assessing officer and Ld. CIT (A). We have also carefully perused the direction of the Hon ble Delhi High Court on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is an investor and not a Trader in shares. Hon ble Delhi High Court in case of CIT versus Amit Jain 374 ITR 550 has held as under:- 8. The factors which Courts and Tribunals have to take into consideration whilst deciding whether income gained during a particular period is business income through purchase and sale of shares or other tradable capital assets, or capital gains on account of sale of such assets, has been spelt out and reiterated in a number of decisions. These include Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685 (SC); CIT v. Madan Gopal Radhey Lal [1969] 73 ITR 652 (SC); CIT v Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC); P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC) and CIT v N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149/[2007] 158 Taxman 13 (Mad). It was in the light of these decisions that the CBDT Circular No. 4/2007, was issued, indicating the principles applicable in this regard. These criteria are: (1) Intention of the assessee at the time of purchase of the shares. This can be found out from the treatment given to the purchase in the assessee's books of account. (2) Did the assessee borrow mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at were held by him. Significantly, dividend income amounting to about 4% of the value of the investment was earned by the assessee. What appears to have weighed almost conclusively with the tax authorities in the first and second instance is the value and frequency of the transactions. As underlined by us, that factor alone cannot be conclusive and would have to be weighed along with the totality of facts. An important detail which cannot be overlooked by the Court is that in all past periods and even subsequent periods, similar income reported by the assessee was accepted by the Revenue as short term capital gain. In fact for AY 2005-06, the scrutiny assessment under Section 143 (3) accepted the sum of ₹ 1.02 crores as short term capital gain. In the circumstances, it was all the more necessary for the Revenue to point to some unique feature or distinctive material to differentiate the assessee's activities for the subject assessment year, since they fundamentally remained the same and unchanged. 9. On an appropriate application of the authorities, this Court is of the opinion that the ITAT's findings and view cannot be faulted in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has earned exempt dividend income of ₹ 26349418/-. The ld Assessing Officer was of the view that the assessee has entered into several transactions of purchase and sales and according to him these are frequent transactions therefore, purchase and sale of shares of the assessee is not capital gain but business income as assessee is trader in share. The most of the reasons given by the ld Assessing Officer were based on the Assessment Year 2007-08 of the assessee. Therefore, he held that short term capital of ₹ 8148330/- and long term capital gain of ₹ 9366656/- is not chargeable to tax as capital gain but as business income. The assessee contested the above issue before the ld CIT(A) who based on the facts of the case held that assessee is an investor in shares and therefore, the income is chargeable to tax as capital gain. Therefore, the Revenue aggrieved by the order of the ld CIT(A) is in appeal before us. The ld Assessing Officer further disallowed a sum of ₹ 2029957/- u/s 14A of the Income Tax Act, 1961 as assessee has earned exempt income in the form of dividend which was also challenged by the assessee and the ld CIT(A) deleted the same. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares. In the Assessment Year 2007-08 when the issue is remanded by the Hon'ble High Court we have already taken a view that assessee is a investor and not a trader relying on the decision of the Hon'ble Delhi High Court. In view of above facts and binding judicial precedents for this year we hold that the income from capital gain cannot be treated as business income. In the result ground No. 2 of the appeal of the Revenue is dismissed. 17. Ground No. 1 of the Revenue of the appeal is against disallowance u/s 14A of the Act where the assessee has earned exempt income of ₹ 2.63 crores has made a disallowance of ₹ 378569/- in computation of total income. The assessee has disallowed the above sum based on the working of salary paid and also to the director towards investment management activity as well as the other salaries and 1/10th of other expenses on account of telephone etc. The ld Assessing Officer without recording the satisfaction about the correctness of the claim of the assessee applied the provisions of Rule 8D of the Income Tax Rules, and worked out total disallowance of ₹ 2408526/- and made the net disallowance of ₹ 2029957/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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