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TMI Blog2020 (2) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... lar issue in the assessee's own case stands adjudicated by the Co-ordinate Bench of the Tribunal for the assessment years 2006-07, 2008-09 and 2010-11 in ITA Nos. 2863/Del/2010, 3911/Del/2011 and 3635/Del/2011. 5. At the outset, both the parties accepted to the preposition that there has been no change in the factum except the amounts involved. Since, the matter already stands adjudicated in the absence of any material changes, we hereby dismiss the appeal of the revenue. For the sake of ready reference, the relevant portion of the ground no. 2 and ground no. 5 in the order dated 22.12.2015 is hereby reproduced: "The following additions/disallowances were made by the Assessing Officer in the assessment framed under sec. 143(3) of the Income-tax Act, 1961: S. No. Nature of addition/issue Amount 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 GroundNos.10 to 18 3. Interest income 9,00,000 Ground No.19 4. Disallowance u/s.14A 5,33,768 GroundNos.20 to 22 (not pressed) 6. The assessee questioned the above additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue before us. 9. The Learned CIT(Appeals) has, however, upheld the action of the Assessing Officer treating the claimed short term capital gain of Rs. 6,71,16,180 and loss of Rs. 47,82,051 (net gain Rs. 6,23,34,128) as business income. This action of the first appellate authority has been questioned by the assessee in its above 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 7 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the assessee sold shares of certain other companies and the gain realized was offered under the head "long term capital gain" as period of holding was more than one year and claimed exemption. In support, he referred page No. 137 of the paper book having details of such shares. In 9 addition to the above, the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred page No. 228 of the paper book in support. He submitted further that assessee had sufficient interest income and referred page No. 236 of the paper book in support. He submitted that dividends were also received during the year. The Learned AR also placed reliance on the following 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 - 2006TIOL-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.CMUM-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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is a NBFC and the assessee company is one of the promoter companies of Dabur India Ltd. and the 'controlling interest 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. VIeEnterprisesPvt.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% Total number of shares of DIL (paid up) 286419713 100% 9.1 The assessee company has been holding the shares of Dabur India Ltd. over a period of time and the same are shown as investments in the books of account. During the F.Y. 2005-06 relevant for the impugned assessment year, the assessee sold 23,55,000 shares of Mj s Dabur India Ltd. and realized profit under the head Long Term Capital Gains (LTCG) and claimed exemption ujs 10(38). 9.2 Similarly the assessee sold shares of certain other companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bengal and Assam Investors Ltd. vs. CIT (2002TIOL-705-SC-IT) 16 * Slocum Investment Pvt. Ltd. vs. DCIT (2006-TIOL300-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 the case of Sarnath Infrastructure (P) Ltd. Vs. Asstt.CIT (2008) 16 DTR (Lucknow)(Trib) 97, the Tribunal has considered almost all the important judicial decisions laying down legal principles to determine the nature of transaction i.e. trading transaction or investment in the light of CBDT Circular No. 4 of 2007. The Tribunal has summarized the principles in para 13 of the said order. For the sake of ready reference, the same are reproduced as under: "After considering above rulings we cull out following principles, which can be applied on the facts of a case to find out whether transactions (s) in question are in the nature of trade or are merely for investment purposes: 1) What is the intention of the assessee at the time of purchase of the shares (or any other item)? This can be found out from the treatment it gives to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity. However, the profits/gains realized on purchase and sale of shares were offered under the head "capital gain" on the basis that the shares have been held as investment in the books of account. There is no dispute that intention and the entries in the books showing the shares as investment is the guiding and determining factors. This fact has also not been denied that the gain realized on sale of shares of Dawar India Ltd. in financial year 1989-90 (relevant for assessment year 1990-91) was offered to tax under the head "capital gain" by Gyan Enterprises Pvt. Ltd., which is one of the co-promoters of Dawar India Ltd. The Assessing Officer taxed the same as business income against which Gyan Enterprises Pvt. Ltd. preferred first appeal and the Learned CIT(Appeals) accepted the contention of the assessee that the gain should be assessed under the head "capital gain". The said First Appellate Order was upheld by the ITAT vide its order dated 12.1.2004 in ITA No. 2160/Del/1990 for assessment year 1990-91. 18. The details of number of shares of Dabur India Ltd. held by the assessee over a period of time and the transaction/changes are follows: Date as on No. of shares (in lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets is measured. 19.3 Schedule L (on Investments) to the Balance Sheet enclosed along with return that long -term investments are stated at cost less permanent diminution in value of investments only. The Investments (Other than Trade) of Rs. 44.71 crores as on 31 March 2006 are detailed in Schedule F of the Balance Sheet. The aforesaid investments are made upon the decision made by Board of Directors and with clear intention to hold the aforesaid Capital Assets as investment. The intention of the assessee is therefore never to make profit from sales as in the case of trading activities. The intention is to have steady and substantial capital appreciation and earn dividends if any from such investment. 19.4 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 Rs. 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 whichever is lower. 19.5 Thus, the intention of the assessee is very much clear as to what stocks are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6 crores to M/s. Dawar Foods Ltd. at the interest rate of 10%. The submission of the assessee remained that assessee had advanced an amount of Rs. 6 crores to Dawar Foods Ltd. initially at the interest rate of 10%, however, during the year on mutual consents the rate was reduced from 10% to 8.5%. The Assessing Officer had not accepted this explanation of the assessee but the Learned CIT(Appeals) has accepted the same with this finding that it is a settled principle of law that only real income is to be taxed. In this regard, he has followed the ratios laid down in the case of CIT vs. Shoorji Ballabdass & 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 Rs. 6,23,34,129 claimed by the assessee as short term 25 capital gain as business income (Ground Nos. 1 and 2) and secondly disallowance of expenses amounting to Rs. 5,33,768 under sec. 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income from shares is treated as short term. A look into the holding period of shares Appendix B would reveal that out of 560 scripts, the transactions pertained only to 60- 65 scripts which were sold in 27 at different times. 409 scripts out of 560 total scripts has a holding period of more than 60 days having a short term capital gain of Rs. 5.13 crores out of Rs. 6.23crores, only Rs. 1.09 crores were earned from 151 scripts having a holding period of 15-60 days barring few which are than 10 days. Thus, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, accepted the claimed long term capital gain against which the Revenue is in appeal raising ground Nos. 1 to 3 in this regard. 38. In support of the grounds, the Learned CIT(DR) has basically placed reliance on the assessment order. He submitted that the assessee was holding shares mainly of group company including Dabur India Ltd. as investment since long back. The assessee was also engaged in the purchase and sale of shares and mutual funds mostly of Blue Chip Companies as stock in trade. Shares held as stock in trade were transferred from stock in trade to investment account. The intention of the assessee is of significance and volume as well as frequency of transaction would decide the issue. The Learned AR on the contrary submitted that the assessee can hold shares 34 either as investment or as stock in trade as clarified in CBDT Circular No. 4 of 2007 dated 15.6.2007. 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 was allowed to be taxed under the head "capital gain". The Learned AR adopted similar arguments as advanced by him hereinabove on an identical issue in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in the said company and the profit on sale of shares enjoying managing control is always considered as capital gain as per the decision cited hereinabove in the cases of Accra Investment Pvt. Ltd. vs. ITO (supra), Ram Narain & Sons (P) Ltd. (supra) and Raja Bahadur Kamakhya Narain Singh vs. CIT (supra). He 36 also referred page Nos. 7 to 15 of the paper book i.e. investments as on 31.3.2008, 31.3.2007, 31.3.2006 and 31.3.2005, and page Nos. 149 to 181 i.e. computation of income with details of capital gain with balance sheet for the year. 40. Having gone through the orders of the authorities below, we find that the Learned CIT(Appeals) has dealt with the issue in detail meeting out respective cases of the parties and has come to the following conclusion: "13. The facts of the case were examined from the perspective of ratio laid down in the above cases. 14. As already stated the assessee is a NBFC. The assessee has offered the profits/gains on purchase and sale of units of Mutual Funds as business income on the ground that the said activity constitutes regular business activity. However, the profits/gains realized on purchase and sale of shares were offered under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant facts are that the Assessing Officer noted that during the assessment year under consideration, the assessee had shown short term capital gain of Rs. 5,83,72,785. In the computation of income furnished during the assessment proceedings, an amount of Rs. 3,53,22,682 was shown as "short term capital loss under sec. 111A". Details of capital gains and losses were furnished. On perusal of the same, the Assessing Officer noted that in the computation of taxable income only an amount of Rs. 3,53,22,682 was offered for tax at special rate under sec. 111A of the Act. The amount of Rs. 2,30,50,076 being short term capital gain had not been included while computing the taxable income. The Assessing Officer also noted that during the assessment years 2005-06 and 2006-07 and 200708, income from short term capital claimed by the assessee was treated as business income in the assessment order framed under sec. 143(3) of the Act. He accordingly rejected the claim of short term capital gain of Rs. 5,83,72,758 by the assessee and treated the same as business income. The Learned CIT(Appeals) has upheld the same against which assessee is in appeal. 45. In support of the grounds, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below have denied the claimed short term capital gain mainly on the basis that the assessee carried on the activities of purchase and sale of shares on regular basis, volume of purchase and sale of shares was huge, frequency of transaction was very high, conduct of assessee was that of a trader in shares and no proper records were maintained as per report under sec. 142(A) issued by the special auditor. The authorities below have not discussed the submissions of the assessee supported with details of the transaction in detail. Instead on general observation and the approach of the Assessing Officer in the assessments for the assessment years 2005-06, 2006-07 and 2007-08 have held that the claimed short term capital gain was actually business income. They have not discussed as to how they have arrived to the conclusion that claimed short term capital gain is actually business income. The assessee had furnished the list of shares and the number of scripts involved around hundred. It had classified the gains into long term and short term after taking into consideration the period of holding of shares. The Learned CIT(Appeals) has simply noted that number of shares and frequency of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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