9911796707
TMI Blog2017 (12) TMI 1174X X X X Extracts X X X X X X X X Extracts X X X X ..... iving income from sale of shares. The assessee maintains two sets of books of accounts. One is in the trade name 'Kamal Kumar Dugar & Co'. This account is maintained for the purpose of recording, inter alia, trading in shaes. Relevant income arising out of trading in shares is credited in the profit and loss account. Closing balance in the share trading account is reflected in the Balance sheet as trading stock. The assessee maintains another set of accounts in his personal name i.e 'Kamal Kumar Dugar' and the assessee records his investment in shares and the capital gains arising therefrom in this set of accounts. Thus, there are two sets of accounts which are being maintained by the assessee since long. 3.1. The assessee purchased 50000 shares of HFCL Infotel Ltd on 2.6.2005 for total amount of Rs. 2,12,50,000/- which were noted in the books of the assessee maintained in the name 'Kamal Kumar Dugar & Co.'. The name of HFCL Infotel Ltd was changed to Quadrant Televenture Ltd. On 1.4.2008, these shares were transferred from Trading Account to Investment Account and accordingly it formed part of the statement of accounts maintained in the name of Kamal Kumar Dugar which relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,158.42 82,52,064.48 45,69,718.25 Sales 50,73,97,067.01 15,67,38,010.88 93,74,98,835.71 Closing Stock 3,87,87,632.50 7,08,95,876.36 9,53,96,985.47 Expenses in P&L Account Opening Stock 5,05,54,229.14 3,87,87,632.50 7,08,95,876.36 Purchases 47,73,91,010.39 18,71,47,376.00 94,98,62,502.31 Securities Transaction Tax 21,09,500.28 3,43,934.00 22,85,152.00 Net Profit transferred to Capital Account 9,03,25,524.76 72,59,726.14 73,62,662.21 3.4. The assessee also furnished the summary of share trading account for the Asst Years 2008-09 , 2009-10 , 2010-11 and 2011-12 as under:- ASST YEAR CLOSING STOCK SHARE TRADING INCOME (INTRA DAY) TRADING INCOME (DELIVERY) TOTAL INCOME 2008-2009 3,87,87,632.50 7,59,00,158.42 1,82,39,459.98 9,41,39,618.40 2009-2010 7,08,95,876.36 82,52,064.48 16,98,878.74 99,50,943.22 2010-2011 9,53,96,985.47 45,69,718.25 1,21,37,442.51 1,67,07,160.76 2011-2012 2,29,42,009.74 2,74,44,530.98 24,65,981.58 2,99,10,512.56 3.5. The assessee sold 50000 shares of HFCL Infotel Ltd on different dates during the year. The total sale consideration was Rs. 3,18,91,865/- and the acquisition cost of the same were Rs. 2,13,56,252/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempts the gains arising on sale of shares if the securities transaction tax is levied on such sales. It was argued that the Income Tax Act does not contain any provisions prohibiting the conversion of shares from Trading Account to Investment Account. The assessee also placed reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT vs Dhanuka and Sons reported in [1979] 124 ITR 24 (Cal) dated 21.7.1978, it had been categorically held that profit and gains on shares transferred from trading account to investment at prevailing market rate is not a transaction at all because a person cannot have transaction with himself and in turn such profit cannot be taxed. If such shares be disposed of at a value other than the value at which it was transferred from the business stock, the question of capital loss or capital gain would arise. It was also submitted that in so far as the reference made by the ld AO to the decision of the Hon'ble Apex Court in the case of CIT vs H.Holck Larsen reported in 160 ITR 67 (SC) , that the same refers to the repeated and regular activity of buying and selling of shares and infers that the same is to be considered as business activity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at which it was transferred from the business stock, the question of capital loss or capital gain would arise. But in the present case, at the time of conversion of shares from trading account to investment account, the price of shares were below the purchase price on 01.04.2008. Therefore, in view of the facts, above discussion and also following the ratio of the judgment of Hon'ble, High Court (Cal) in the case of CIT Vs. Dhanuka & Sons, facts of that case are similar to the facts of the present case, I am of the opinion that the conversion of shares of M/s HFCL Infotel Ltd from trading account to investment account was legitimate, therefore the AO is directed to treat the income on sale of those shares as income from long term capital gain as against business income treated by him." 6. Aggrieved, the revenue is in appeal before us on the following grounds- "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the transaction of conversion of shares from stock-in-trade to investment and its subsequent sales as LTCG and not business income. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Municipal Commissioners, DACCA decided on 16th April, 1935 and reported in 40 Calcutta Weekly Notes (CWN) 17 being as follows:- "It is a fundamental principle of law that a natural person has the capacity to do all lawful things unless his capacity has been curtailed by some rule of law. It is equally a fundamental principle that in the case of a statutory corporation it is just the other way. The Corporation has no power to do anything unless those powers are conferred on it by the statute which creates it." This view finds support from Kikabhai Premchand (supra) where the situation at hand was contemplated as would appear from the following as expressed in the dissenting view: "..... When the asset is withdrawn from the stock-in- trade of the business the position in my opinion would be no different. So far as this business is concerned the asset would go out and cease to be a part of its stock-in-trade and this again would be the measure of the profit or loss as the case may be of the business qua that particular asset " In Dhanuka & Sons (supra) the same situation was contemplated where on stock transferred in investment account, the question of capital loss or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing examined....." That apart, this assessee lost its right of appeal to this Court on the question arising in the previous assessment year on account of delay in preferring the same. There was no adjudication on merits, of its claim of conversion, on appeal to the High Court. The only reason given by the Tribunal in rejecting the claim of the assessee for the previous assessment year, as would appear from its order dated 13th May, 2011 (copy handed up), is that to the Tribunal it appeared there is no provision in the Act in respect of conversion of stock-in-trade into investment and its treatment. Hence, it held that the lower authorities rightly made the addition as there was understatement of income by analyzing the assessee's trading and investment account in shares. Thus, before us there is no impediment for the assessee to seek adjudication on the point. The question formulated is answered accordingly and in favour of the assessee. The appeal is disposed of." In view of aforesaid undisputed facts and respectfully following the judicial precedent relied upon hereinabove, we find no justifiable reason to interfere with the order of the ld CITA in this regard. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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