TMI Blog2015 (12) TMI 1816X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Schedule I of the Balance sheet showing a closing value of ₹ 30.85 crores on 31 March 2006. The accounting policy for trading of shares is disclosed in Schedule L of the Balance sheet which states that closing stock of securities is valued at cost of market price which ever is lower. Thus, the intention of the assessee is very much clear as to what stocks are to be treated as business stock and what to be treated as investment stock. The Policy and treatment of stock transaction are clearly reflected in the Balance sheet of the assessee. We thus fully concur with the finding of the Learned CIT(Appeals) that the profit of ₹ 34,61,63,879 in respect of shares sold during the year (including gain of ₹ 29,05,58,750 realized on sale of shares of Dawar India Ltd. ) has been rightly treated by the assessee as long term capital gain and thus the Learned CIT(Appeals) has rightly held that the assessee is eligible for exemption under sec. 10(38) of the Act on the said long term capital gain. The First Appellate Order in this regard is thus upheld. The ground Nos. 1 and 2 are accordingly rejected. It is also clear that 84% gains from capital gains were long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We are thus of the view that the Learned CIT(Appeals) has rightly deleted the disallowance. The same is upheld. - ITA No. 2863/Del/2010, ITA No. 3911/Del/2011, ITA No. 2240/Del/2010, ITA No.3635/Del/2011 - - - Dated:- 22-12-2015 - Shri I.C. Sudhir And Shri L.P. Sahu Assessee by: Shri MP Rastogi, Adv. Department by: Shri Sumit Chandra Sharma, CIT- DR ORDER I.C. Sudhir, Assessment Year: 2006-07: The parties are in cross-appeals against the common First Appellate Order. 2. The Revenue (ITA No. 2863/Del/2010) has questioned First Appellate Order on the following grounds: 1. On the facts and in the circumstances of the case, the Learned CIT(Appeals) has erred in holding that the assessee is a regular investor and under no stretch of imagination, it can be treated as trader in shares ignoring the fact that the assessee was carrying on a systematic activity in order to derive income from business of trading in shares. 2. On the facts and in the circumstances of the case, the Learned CIT(Appeals) has erred in holding ₹ 34,61,63,879 to be long term capital gains instead of treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in (Rs.) Grounds of appeal raised 1. Long Term Capital Gain treated as business income. 34,61,63,879 Ground Nos. 1 to 9 2. Short term capital gain treated as business income. 6,71,16,180 Ground Nos. 10 to 18 3. Interest income 9,00,000 Ground No. 19 4. Disallowance u/s. 14A 5,33,768 Ground Nos. 20 to 22 (not pressed) 6. The assessee questioned the above addition before the Learned CIT(Appeals) raising the issue regarding taxing the profits realized on sale of shares as business income against capital gain offered by the assessee either under long term capital gain or short term capital gain depending upon the period of holding of the shares. The view of the Assessing Officer was that the assessee s intention was to do trading in shares, securities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve appeals. 10. In support of ground Nos. 1 and 2 of the appeal preferred by the Revenue, the Learned CIT(DR) has basically placed reliance on the assessment order. He referred contents of page Nos. 17 to 20 of the assessment order with the submission that frequency and volumes of the transactions suggest that it was not a case of investment but business. The assessee has converted stock in trade to investments. He placed reliance on the decision of the Authority for Advance Ruling in the case of Fidelity Group reported in 288 ITR 641 (AAR). He submitted that where a company purchases and sells shares, it must be shown that they were held as stock in trade and that existence of the power to purchase and sell shares in the Memorandum of Association is not of decisive of the nature of transaction. He submitted that the substantial nature of transactions, the manner of maintaining books of account, the magnitude of purchases and sells and the ratios between purchases and sells and the holding period would furnish a good guide to determine the nature of transaction. He contended that ordinarily the purchase and sale of shares with the motive of earning a profit would resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also sold shares of various other companies (approximately 170) and offered the gains under the head short term capital gain , since the period of holding in those transactions was less than one year. In support, the Learned AR referred page Nos. 142 to 146 of the paper book. The assessee had also applied special rate of taxation thereon as prescribed under sec. 111A of the Act, made available at page No. 141 of P.B. The Learned AR also referred Board Resolution (Page No. 215 of P.B), extract of investment ledger account (Page No. 216-217 of P.B.), financial statement with audit report (page Nos. 218 to 244 of P.B.) and Memorandum of Association (page Nos. 243 to 263 of P.B.). 12. The Learned AR submitted that as submitted above, the shares of Dawar India Ltd. have been held by the assessee as investment as a promoter for controlling interest and this position was accepted by the Department up to the assessment year 2005-06. The intention of the assessee behind the transaction is significant and frequency of transaction alone would not decide the issue ipso facto. He submitted that the assessee can hold shares either as investment or as stock in trade as clarified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing decisions: i) CIT vs. Chowdry Associates ITA No. 544/2013 order dated 30.1.2015 (Delhi High Court): ii) CIT vs. Ashok Wadia 2014-TIOL-518-H.C-Del-IT; iii) Bengal Assam Investors Ltd. vs. CIT 2002 TIOL-705- S.C-IT. iv) Slocum Investment Pvt. Ltd. vs. DCIT 2006-TIOL-300- ITAT-Delhi; v ) Ram Narain Sons Pvt. Ltd. vs. CIT 41 ITR 534 (S.C); vi) Karnataka State Ind. Investment Dev. Corpn. Ltd. vs. DCIT 59 ITD 643 (Bang,.); vii) CIT vs. Gopal Purohit 2010-TIOL-129-S.C-MUM-IT; viii) CIT vs. Devasan Investment P. Ltd. - 365 ITR 452 (Del.); 14. Considering the above submission, we find that in its recent decision, the Hon ble jurisdictional High Court of Delhi in the case of CIT vs. Ashok Wadia (supra) has been pleased to hold that the legal standards concerning whether income is to be treated as business income or short term capital gain have been the subject matter of various decisions of the Hon'ble Supreme Court and Hon'ble Delhi High Court. Suffice it to say that there is no single, universal standard to distinguish the two. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the group companies as on 31.03.2005 is as under: Promoters of Dabur India Ltd. No. of shares held on 31.03.2005 % age of holding 1. VIe Enterprises Pvt. Ltd. 37430000 13.07% 2. Gya~ Enterprises Pvt. Ltd. 37250330 13.01% 3. Chowdry Associates 37438340 13.07% 4. Puran Associates Pvt. Ltd. 37352000 13.04% 5. ACEE Enterprises 37191990 12.99% 6. ~atna Commercial Enterprises Pvt. Ltd. 36456330 12.73% Total promoters holding 223118990 77.90% 7. Public, Fls. Mutual Fund etc. 63300723 22.10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dabur India Ltd. have been held as investment is by the assessee as a promoter for controlling interest for over two decades. This position was accepted by the Department up to A.Y. 2005-06. The intention of the assessee is of paramount significance and frequency of transactions would not decide the issue ipso facto. The assessee can hold shares either as investment or as stock in trade as clarified in Board Circular No. 4 of 2007 dated 15th June 2007. Entries in the books of account prove that shares in question are held as investment. In the case of group companies, the profit on sale of shares of Dabur India Ltd. was allowed to be taxed under the head capital gain. 11.2 The AR relied on the following case laws: Bengal and Assam Investors Ltd. vs. CIT (2002-TIOL-705-SC-IT) Slocum Investment Pvt. Ltd. vs. DCIT (2006-TIOL-300-ITAT-Del) Ramnarain sons Private Limited vs. CIT 41 ITR 534 (sq Karnataka State Industrial Investment and Development Corporation Limited vs. DCIT 59 ITD 643 (Banglore) CIT vs. Gopal Purohit (2010-TIOL-129-HC-MUM-IT) 12.1.1 In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . out of total of its holding of 3,74,30,000 shares. The details of all these shares sold during the year on which the assessee has claimed long term capital gain are as under: Promoters of Dabur India Ltd. No. of shares held on 31.03.2005 % age of holding 1. VIe Enterprises Pvt. Ltd. 37430000 13.07% 2. Gya~ Enterprises Pvt. Ltd. 37250330 13.01% 3. Chowdry Associates 37438340 13.07% 4. Puran Associates Pvt. Ltd. 37352000 13.04% 5. ACEE Enterprises 37191990 12.99% 6. ~atna Commercial Enterprises Pvt. Ltd. 36456330 12.73% Total promoters holding 223118990 77.90% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 31.03.2002 37.41 No change in holding 31.03.2003 37.41 No change in holding 31.03.2004 37.41 No change in holding 31.03.2005 374.30 Paid up value of ₹ 10 per Sh. is reduced to ₹ 1 each and purchased 20000 shares (37.41x10)+20=374.3 31.03.2006 725.78 Bonus of 1 share for 1 share held, allotted and sold 1.41 lacs shares before bonus and sold 20 lacs shares after bonus (374.30-1.41)x2=745.78 745.78-20=725.78 19. Thus, it is very clear from the above detail that shares of Dawar India Ltd. were held as investment. From the details of other shares given above, it is also apparent that those shares were held for considerable long time. Transaction of these shares has not been carried out on regular basis as gathered from the details of the number of shares and transactions. From the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards, trading stock where the assessee intends to make profits, such stock has been disclosed in Schedule I of the Balance sheet showing a closing value of ₹ 30.85 crores on 31 March 2006. The accounting policy for trading of shares is disclosed in Schedule L of the Balance sheet which states that closing stock of securities is valued at cost of market price which ever is lower. 19.5 Thus, the intention of the assessee is very much clear as to what stocks are to be treated as business stock and what to be treated as investment stock. The Policy and treatment of stock transaction are clearly reflected in the Balance sheet of the assessee. 19.6 We thus fully concur with the finding of the Learned CIT(Appeals) that the profit of ₹ 34,61,63,879 in respect of shares sold during the year (including gain of ₹ 29,05,58,750 realized on sale of shares of Dawar India Ltd. ) has been rightly treated by the assessee as long term capital gain and thus the Learned CIT(Appeals) has rightly held that the assessee is eligible for exemption under sec. 10(38) of the Act on the said long term capital gain. The First Appellate Order in this regard is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass Co., 46 ITR 144 (S.C). We thus do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No. 3 is accordingly rejected. 23. In result, the appeal preferred by the Revenue is dismissed. 24. The assessee ( ITA No. 2240/Del/2010) on the other hand has basically questioned the First Appellate Order mainly on two grounds. Firstly, upholding of ₹ 6,23,34,129 claimed by the assessee as short term capital gain as business income (Ground Nos. 1 and 2) and secondly disallowance of expenses amounting to ₹ 5,33,768 under sec. 14A of the Act against exempted income (Ground No.3). 25. Ground Nos. 1 and 2: Similar arguments have been adopted by the parties as advanced by them hereinabove on the issue of long term capital gain raised in the appeal preferred by the Revenue. The authorities below have treated the claimed short term capital gain of ₹ 6,23,34,129 accrued on disposal of shares invested for a short term period as business income. The assessee had also claimed benefit under sec. 111A of the Act on the said short term capital gain. 26. The assessee had furnished list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant states that when shares are acquired after paying STT and taking complete delivery of shares keeping a long term in view as 84% of shares are held for more than one year, transacting in some shares in short term to alter its investment vision and goal cannot be considered as an action borne out to do trade. It happens when the vision is long term, some shares thought purchased are dropped out from portfolio either because sufficient funds are not available to make them reach to a level to accumulate capital or because of some other allied reasons. 26.2 It is not the finding of the Assessing Officer or the Learned CIT(Appeals) that these shares were shown as stock in trade or the assessee was not correct in showing these shares as investment. We thus do not find infirmity in the claim of the assessee that the profit accrued on sale of these shares was short term capital gain and the assessee was eligible for claiming charging of the gain under the provisions laid down under sec. 111A of the Act. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to accept the claim of the assessee and allow the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax u/s. 111A. 3. Because the action is under challenge having overlooked ignored the CBDT Circular No. 4/2007 dt. 15.06.2007 in terms of which the gain arising on account of disposal of shares held as investment are liable to be taxed under the head capital gain and the decisions of the CIT(A) in the likely placed other cases. 4) Because the action is under challenge on facts and law having followed the Hon'ble Delhi High Court overlooking the facts of the said case. 5. Because the action is under challenge on facts and law in making proportionate disallowance of ₹ 24,57,661 u/s. 14A. 6. Because the action is under challenge on facts and law in making disallowance of s.1,09,525 u/s. 94(7) and 94(8). 31. Besides, the assessee has also moved application under Rule 27 of the ITAT Rules requesting therein to a new plea in order to support the First Appellate Order that the investment in Punjab Tractors Ltd. was made by the assessee in order to enjoy the controlling stakes in the said company and not to trade in shares. The Learned AR submitted that though the Learned CIT(Appeals) has allowed the appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have also adopted similar arguments as advanced by them on an identical issues hereinabove in the appeals for the assessment year 2006-07. 35. During the year in the assessments framed under sec. 143(3) of the Income-tax Act, 196, following additions/disallowances were made by the Assessing Officer, some of which were contested before the Learned CIT(Appeals) mentioned therein: S.No. Nature of addition/issue Amount in (Rs.) Grounds of appeal raised 1. Long Term Capital Gain treated as business income. 25,59,09,101 Ground No.2 2. Short Term Capital Gain treated as business income 5,83,72,758 Ground Nos. 2 and 5 3. Interest Expense disallowed. 3,89,53,657 Ground No. 7 4. Disallowance u/s. 14A 24,57,661 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies was enjoying management control. The shares of Punjab Tractors Ltd. along with other group companies were sold to Mohendra Mohindra Ltd. vide agreement dated 8.3.2007. Though the Learned CIT(Appeals) has allowed the appeal of the assessee, thereby, holding the sale of shares of Punjab Tractors Ltd. as long term capital gain on the basis of period of holding, but the assessee wants to support the First Appellate Order in terms of Rule 27 of the ITAT Rules in relation to the long term capital gain arisen on sale of shares of Punjab Tractors Ltd. on another ground also that the investment in Punjab Tractors Ltd. was made by the assessee in order to enjoy the controlling states in the said company and not to trade in shares. He submitted that profit on sale of shares enjoying managing control is always considered as capital gain and not business income. In support, he referred following decisions cited above in the cases of Accra Investment Pvt. Ltd. vs. ITO (supra), Ram Narain Sons Pvt. Ltd. (supra) and Raja Bahadur Kamakhya Narain Singh vs. CIT (supra). 39. Considering the above submission, we find that both the shares of MTNL and Punjab Tractors Ltd. have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration while deciding the issue. 16. Long Term Capital Gain of ₹ 25,59,09,100: From the facts brought on record as mentioned in Para 8 above, it is seen that both shares of MTNL and M/s. Punjab Tractors Ltd. have been shown as investment in the balance sheet as on 31.3.2007 and all the shares were sold and not many transactions are there in these scripts. As on 31.03.2008 no shares of MTNL and M/s. Punjab Tractors Ltd. are held. The said shares were held for considerable long time and shares are being sold when there is appreciation in the market. Similarly shares of ABN Amro Securities purchased in 1998-99 were sold on 14.07.2007 after a period of 7/8 years. In these shares the assessee has not carried out the transactions on regular basis as evident from the number of shares and transactions. In the light of the above facts and legal position, the profit of ₹ 25,59,09,100 realized on sale of shares has been rightly treated by the assessee as long term capital gains to be taxed as special rates prescribed u/s. 112. The action of the A.O. in treating the gain as business income is not approved. Accordingly, Ground No.2 is allowed. 41. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock in trade as clarified in CBDT Circular No. 4 of 2007 dated 15.6.2007. He submitted that the entries in the books of account prove that the shares in question are held as investment. In the case of group companies, the profit on sale of shares was allowed to be taxed under the head capital gain . He pointed out that in the case of group company, Chaudhary Associates, the Hon ble jurisdiction High Court of Delhi vide order dated 30.1.2015 in CIT vs. Chaudhary Associates ITA No. 544/2013 has reverted the order of the ITAT under similar facts of the case that a sum of ₹ 1,19,30,037 held by the ITAT in that case was not business income but the claimed short term capital gain. In that case also the assessee is a non-banking finance company and in the course of its finance activity, it has purchased and sold shares for the sum of ₹ 1,19,30,037 and had claimed the income on that count as short term capital gain. The Assessing Officer rejected the contention holding that the said amount was business income and brought it to tax on that count. The assessee succeeded in the appellate proceedings. Hon'ble High Court observed that the bulk of shares held by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon an identical issue in ground Nos. 1 to 3 hereinabove. Following the same, we hold that the authorities below were not justified in treating the claimed short term capital gain at ₹ 5,83,72,758. We thus while setting aside orders of the authorities below in this regard direct the Assessing Officer to accept the claimed short term capital gain. The ground Nos. 1 to 4 of the appeal preferred by the assessee are accordingly allowed. 48. Ground No.4 (Revenue): The Assessing Officer disallowed interest expenditure of ₹ 3,89,53,657 on the basis that there are interest free advances. He noted that assessee is using interest bearing funds by giving advances to various other group concerns and individuals without charging any interest from them. He noted that loans and advances (closing balance of which has been shown at ₹ 1,06,86,15,255 as on 31.3.2008) have been given or used by the assessee for non-business purposes. He accordingly disallowed a proportionate interest expenses. The Assessing Officer noted that the total interest on advances given free of interest to various parties worked out to ₹ 7,91,18,129. He noted further that the claim of int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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