TMI Blog2019 (5) TMI 1605X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of trading. Infact, the object of trading in shares was lacking in as much as the financial collaboration agreement itself prescribed that the shares shall be bought back by the private promoter after a specified period at a defined consideration. Therefore, realization from such investments was liable to be taxed under the head Capital gains and not as business activity. Disallowance on account exempt income - dividend claimed exempt by holding the activity of the assessee as investment and not trading in shares - HELD THAT:- Tribunal after examining the matter recorded that the Finance Act, 2003 inserted clause (34) to section 10 which deals with income which is exempt from taxation and does not form part of the total income at all excluding the income by way of dividend from the purview of taxation. At the same time, Section 115-O was inserted in the Act making the companies distributing dividend to pay tax at a specified rate thereon. Thus, taxation of dividend changed hands from the recipient to the payer of dividend by virtue of this amendment brought about in the Act. The case of Brook Bond India Limited [ 1986 (9) TMI 2 - SUPREME COURT] did not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 85,73,413/- on sale of shares by holding it as Capital Gains by relying upon Punjab State Industrial Corporation Limited vs. DCIT reported as (2006) 102 ITD 1 (Chd.) (SB) while ignoring that the observation of ITAT in Punjab State Industrial Corporation Limited (supra) is an obiter dicta and not ratio of the decision and that the issue for consideration before ITAT in that case was whether deduction on inter-corporate dividend under section 80M of the Income tax Act, 1961 was allowable on net dividend after reducing proportionate expenses. The issue whether profit earned on sale of equity shares on the arrangement of buy back by the borrowers is business income or not was before the learned ITAT in the case of PSIDC (supra)? c) Whether on the facts and in the circumstances of the case, the order passed by the learned Income Tax Appellate Tribunal is perverse in nature and against law as it grossly overlooked the scheme of the Income Tax Act, 1961 and material available on record? d) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal is right in law in applying the principle of consistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of industries in the State of Haryana. It is primarily engaged in the financing activities and developing the industrial estates. The assessee for the assessment year in question i.e. 2005-06 filed its return of income on 29.10.2005 by declaring an income of ₹ 12,93,53,616/-. The assessee maintained its accounts on cash system of accounting. Notice under Section 143(2) of the Act was issued and served on the assessee on 31.1.2006. The assessee participated in the proceedings through its representative and furnished books of account etc. After considering the entire material on record, the Assessing Officer framed the assessment vide order dated 24.12.2007, Annexure A.1, making the following additions:- i) Addition on account of unclaimed refunds amounting to ₹ 3,67,81,729/- ii) Addition on account of income from industrial area activities amounting to ₹ 35,45,87,944/-; iii) Addition on account of income from sale of shares amounting to ₹ 85,73,413/-; iv) Addition on account of deduction under Section 36(1)(viii) amounting to ₹ 8,32,000/-. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there was no change in the circumstances in respect of impugned assessment year. The Tribunal applied the principles of consistency and deleted the addition by holding that the profit earned from sale of shares was capital gains and not income from business. After thoroughly examining the issues, detailed findings have been recorded by the Tribunal. Firstly, the assessee had shown profits earned from the sale of shares as capital gains and claimed exemption from payment of tax on the same. The Assessing Officer held that the basic intention of holding equity shares by the assessee was to earn interest on the loans advanced and therefore held that the transaction could not be classified as capital gain. The Assessing Officer further held that it was in the ordinary course of business of the assessee and related to its primary object of financing and was therefore clearly business profit of the assessee. Therefore, the profit of ₹ 85,73,413/- was held to be business profit of the assessee. The CIT(A) held that the dominant intention of the assessee was to finance the units and had minimum percentage of return on the same and therefore, income earned was in the nature of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from payment of tax on the same. The Assessing Officer found that there were two methods followed by the assessee of doing its financing business. First being equity proportionate and second investment banking. The Assessing Officer observed that in both the cases, the assessee released the amount of advance after adjusting the amount of interest accrued on such loan meaning thereby that the assessee retained the equity of the borrower and subsequently sold it back to the borrower or in the open market fixing minimum rate of sale to be inclusive of the interest of 20% per annum. The Assessing Officer, therefore, held that the basic intention of holding equity by the assessee was to earn interest on the loans advanced and therefore held that the transaction could not be classified as capital gain. The Assessing Officer held that it was in the ordinary course of business of the assessee and related to its primary object of financing and was therefore, clearly business profit of the assessee. He therefore held the profit of ₹ 85,73,413/- to be the business profit of the assessee. Before the ld. CIT(Appeals), the assessee pleaded that it was participatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, on the nature of the investment, was that the assessee was holding shares as capital investment . Xxxxxxxxxxxxxxxxxxxx Since the facts in the present case are identical to that in the case of PSIDC, the issue stands squarely covered by the said decision. 29. The Revenue contended before us that the findings were mere observations i.e. obitor dictum. We find no merit in the same since on the issue of the nature of profits earned the ITAT has clearly held the same to be in the nature of capital gains. Further even on the issue of deduction under Section 80M the findings of the ITAT that the purchases of shares was by way of investment cannot be said to be an obiter dictum. An obitor dictum is a latin phrase meaning by way i.e. a remark in a judgment that is said in passing. As is evident from the above, the said were the findings of the majority view based on the facts of the case which cannot be termed as incidental or passing remark or opinion. Therefore, we reject the contention of the revenue that the decision in the case of PSIDC cannot be applied to the facts of the present case. More ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed consideration. Therefore, realization from such investments was liable to be taxed under the head Capital gains and not as business activity. The relevant observations recorded by this Court read thus:- 2. Learned counsel for the appellant submitted that the investments made by the assessee in the shares and the sales thereof was exigible under the head profit and gain from business and not capital gains as has been held by the Tribunal. 3. After hearing learned counsel for the appellant, we do not find any merit in the appeal. The Tribunal while rejecting the contention of the revenue had held as under:- 5. We have considered the rival submissions carefully. We have also perused the precedent referred the CIT (Appeals) in support of his conclusion that the activity of the assessee in investing in shares is not a business activity but is liable to be taxed under the head 'capital gain'. In our view, the nature of activity of taking up the shares in the private companies which are jointly promoted with the private entrepreneurs cannot be equated to an ordinary investor who takes up the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Department in the earlier assessment years, cannot be departed without cogent cause and justification. The Revenue has not brought out any change in the facts or in law which would justify departure from the accepted position in the earlier years. 4. Further, the Tribunal had relied upon its decision in the case of Punjab State Industrial Development Corporation Ltd. (ITA No. 1333/Chandi/94 and ITA Nos. 944 1591/Chandi/95) decided on 22.11.1996 against which reference had been filed before this Court which was numbered as ITR No. 20 of 2000. Question No.2 at the instance of the revenue therein was as under:- 2. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the investment in shares of companies jointly promoted by the Corporation along with other industrial undertakings, is in the nature of investment and not stock-in-trade and profit realised on disinvestment in these shares, is not business income but a capital gain? 5. This Court vide judgment dated 30.9.2010 held as under:- 11. In the present case, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale [see Jenkinson v. Freeland (1961) 39 Tax Cases 636; Radha Debi Jalan v. ClT (1951) 20 ITR 176 (Cal); India Nut Co. Ltd. v. ClT (1960) 39 ITR 234 = AIR 1959 Ker 298; M/s. Sooniram Poddar v. ClT (1939) 7 ITR 470 (478-479) = AIR 1939 Rang 337; at p. 338; Ajax Products Ltd. v. ClT (1961) 43 ITR 297 (310) (Mad); Gustad Irani v. ClT (1957) 31 ITR 92 (Bom); and Mrs. Alexander v. ClT (1952) 22 ITR 379, 402 = AIR 1953 Mad 166, 170). 14. A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment [see Leeming v. Jones (1930) 15 Tax Cases 333 and also the decisions of this Court in Saroj Kumar Mazumdar v. ClT (1959) 37 ITR 242 (250-251) = AIR 1959 SC 1252, 1258-1259 and Janki Ram Bhadur Ram v. CIT (1965) 57 ITR 21 = AIR 1965 SC 1898). In view of the above, the substantial questions of law are answered against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the impugned assessment year the assessee had earned dividend income amounting to ₹ 2,97,432/-. The Assessing Officer held that since the assessee corporation had been set up with the main object to establish industrial estates and to provide finance for growth of industry in the State, the shares acquired by it were closely related to its business activity and dividend income earned there from was thus to be treated as income from business. The Assessing Officer relied upon the decision of the Hon ble Apex Court in the case of Brook Bond India Limited vs. CIT, 162 ITR 373. He further held that the provisions of section 14A would come into play and proportionate expenditure also was disallowed in case the dividend income is held to be exempt. The learned CIT(Appeals) upheld the addition so made. 41. Before us, the learned counsel for the assessee stated that the dividend income has been exempted from the taxation by the Finance Act, 2003 w.e.f 1.4.2004 by virtue of insertion of section 10(34) in the Act and, therefore, it made no difference whether dividend income was in the nature of business income or otherwise and the same could not be subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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