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PRINCIPAL COMMISSIONER OF INCOME TAX-7 Versus PAVITRA COMMERCIAL LTD.

2018 (2) TMI 882 - DELHI HIGH COURT

Income from sale of shares - busniss income or capital gain - Held that:- The decisions of the Court have emphasized five broad tests whether the income bears the character of business income or capital gain – firstly, whether the company or concern is authorized in its Memorandum of constituting documents to deal with shares; (2) whether the entity had shown the shares under the head “Investment”; (3) whether the assessee/entity utilized its own funds and had not borrowed funds for the purpose .....

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approach in singular fixing scrutiny to the shifting and regulations of some shares to treat as business income, was erroneous. - Reporting of mercantile interest of doubtful debts - Held that:- The question is covered by the decision of this Court in Commissioner of Income Tax Vs. Vasisth Chay Vyapar Ltd. (2010 (11) TMI 88 - Delhi High Court). The Court had applied “real income” principle to uphold the assessee’s contention. Those observations are squarely applicable in the present case. - .....

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ncome as held by the Assessing Officer is justified? 2) Whether the ITAT was justified in holding that under the mercantile system of accounting, interest income accrued on basis of the assessee s contention that recovery as well as interest (on such deposits) is doubtful? 2. On the first question, this Court notices that the AO brought to tax substantial amount for the concerned Assessment Year rejecting the assessee s claim of capital gains. The assessee was engaged in the business of investme .....

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rejected the assessee s claim and held the profits to be business income. In doing so, the AO relied upon the judgment of the Supreme Court in Dalhousie Investment Trust Co. Ltd. v. CIT, Central Calcutta, (1968) 68 ITR 486 (SC) and other rulings. The CIT(A) upon re-appraisal of the facts and consideration of the authorities, held as follows : 4.3 I have carefully considered the facts of the case, order of the AO and submissions made by the ld. AR. The central point of dispute in this ground of a .....

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w that the entire income earned by the appellant on sale of shares and mutual funds is taxable as business income. It is noted that the finding of the A0 is primarily based on the notes of audit, wherein it is stated that during the year the appellant company has acquired the amalgamating companies which were engaged in the trading of shares. The appellant is pleading that the observation of the ld. AO is misconceived as it is a matter of record that the companies which have been amalgamated the .....

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ppear correct, it is seen from the records of the appellant that the appellant company had distinct portfolio of shares and mutual funds under two categories i.e investments and stock in trade. The contention of the ld. AR, that it is not open for the AO to summarily reject the decisions of the Board of directors of the company as it is their prerogative to decide as to whether the company would earn income under the head capital gains or business income from sale of shares, also appears correct .....

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on the basis of Notes to audited account. Two distinct portfolio maintained by assessee in respect of shares held for thepurposes of trading and for investment has not been observed by him. 13………The summary of reconciliation of shares has been reproduced hereunder: PAVITRA COMMERCIALS LTD ASSESSMENT YEAR 2005-06 RECONCILIATION OF SHARES HELD AS STOCK IN TRADE PARTICULARS NO. OF SHARES AMOUNT (In Rs.) Opening Stock (Refer Annexure-I) 8,056,059.710 117,602,153.77 Add : Shares .....

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fer Annexure-3) 2,244,050.254 41,425,034.89 Closing stock of Shares held as Stock (Refer Annexure-4) 8,421,487.000 99,149,290.00 14. There is absolutely no allegation by Ld. AO regarding these facts as observed by Ld. CIT(A). We are therefore, of considered opinion that Ld. AO proceeded to compute sale of shares as business income merely on the basis of notes provided to Audited Accounts. We have perused the account at page 19 of paper book. From these Notes, it is clear that nature of business .....

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