TMI Blog2022 (10) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... ove the view of the CIT(A) who had considered all the relevant materials and details which were placed by the assessee. The learned tribunal had failed to note that the assessee had maintained a separate account for investment, which fact was very material to consider the nature of transactions effected by the assessee during the relevant period. Thus, for the above reasons, we are of the considered view that the learned tribunal erred in reversing the order passed by the CIT(A). - Decided in favour of assessee. - ITA/49/2009 - - - Dated:- 30-9-2022 - HON BLE MR. JUSTICE T.S. SIVAGNANAM AND HON BLE MR. JUSTICE SUPRATIM BHATTACHARYA Appearance:- Mr. J.P. Khaitan, Sr. Adv. Mr. Agnibesh Sengupta, Adv. Mr. Saptarshi Kar, Adv.. .For the Appellant. Mr. Om Narayan Ray, Adv. ..For the Respondent. JUDGMENT (Judgment of the Court was delivered by T.S.SIVAGNANAM, J.) 1. This appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated September 30, 2008 passed by the Income Tax Appellate Tribunal A Bench, Kolkata (tribunal) in ITA No. 1004/Kol/2008 for the assessment year 2005-2006. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Associated Industrial Development Company Private Limited ( 1971) 82 ITR 586 (SC ), and the decision in H. Holck Larsen and the decision of the Authority for Advance Ruling (AAR), 288 ITR 641-AAR wherein 3 principles have been carved out and dealt with by the AAR. After taking note of the aforementioned decisions, the CBDT emphasized that it is possible for the taxpayer to have two portfolios i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Further it was pointed out that where an assessee has two portfolios, the assessee may have income under both heads i.e. capital gains as well as business income. In the light of the above, the assessing officer were advised to bear in mind the principles which should guide them in determining whether in a given case the shares are held by the assessee as investment and giving rise to capital gains or as stock-in-trade giving rise to business profits. The assessing officers were further advised that no single principle would be decisive and the total effect of all the principles should be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of buying and selling realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends, etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. As pointed out above, the second principle is a guide for determining the nature of transactions whether there were substantial transactions, the magnitude, maintenance of books of accounts and ascertaining the ratio between purchases and sales. With regard to the third principle, it was pointed out that where the object of investment in shares of the companies is to derive income by way of dividend etc. the transactions of purchases and sale of shares would yield capital gains and not business profits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the holding of shares is by way of investment or forming part of stock-in-trade is a matter within the knowledge of the assessee and if he produces proof to show that he had maintained the distinction between the shares which are held as stock-in-trade and which are by way of investment, then the intention of the assessee is a main criteria to be judged. The substantial question of law which arose in the said case was whether the assessee therein was a dealer in shares in the accounting periods relevant to the assessment years 1959- 1960 and 1960-1961. The Hon ble Supreme Court noted various decisions including the decision in P.M. Mohammad Meerakhan by referring to the decision in Ramnarain Sons (Pr.) Limited Versus Commissioner of Income Tax (1961) 41 ITR 534 (SC) wherein the Hon ble Supreme Court observed that in considering whether transactions was or was not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which was associated with a concept of trade or business. It was further held that the question whether the assessee s transactions amounted to dealing in shares an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If all the relevant factors have been taken into consideration and there has been no misapplication of the principles of law then the conclusion arrived at by the tribunal cannot be interfered with because the inference is a question of law. The legal principle that is deduceable from the above decisions are that in considering whether a transaction was or was not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which were associated with the concept of trade or business. That it is not possible to evolve a single legal test or formula which could be applied in determining whether a transaction was an adventure in the nature of trade or not and the answer to the question would depend in each case on the relevant factors and circumstances proved therein which will determine the character of the transaction. Further the distinction between the two types of transactions is not always easy to make. Bearing the above legal principles in mind, we proceed to examine the facts of the case. It is not in dispute that the assessee maintains two accounts, one for its investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther if in a year, the assessee invested in the scripts of 25 companies it cannot be called frequent trading. Furthermore, the CIT(A) noted that the assessee invested own surplus funds and shares were duly showed as investment in its D-Mat Account and the assessee had also invested in earlier years and received long term investment income which were treated as long term capital gains / short term capital gains. Thus, on appreciation of the entire materials placed, the CIT(A) came to the conclusion that the main object of the assessee was investment in shares and financing and net surplus received on investment could not be business of the assessee. The learned tribunal while reversing the findings of the CIT(A) did not consider all facts and relevant materials. The learned tribunal referred to the decision in Venkataswami Naidu and Company and agreed with the assessing officer stating that the assessee retained the scripts only for a few days and therefore the intention of the assessee was to earn quick profit. The learned tribunal failed to take note of the fact that the assessee had maintained two separate accounts and the assessee deployed its own surplus funds and the shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset and short term capital assets. This important factual explanation offered by the assessee was not considered and dealt with by the learned tribunal while reversing the order passed by the CIT(A). Mr. Rai, referred to the decision in P.V.S. Raju and on going through the said decision we find that the same would lend support to the case of the assessee. In any event in the said case, the assessing officer, the CIT(A) and the tribunal concurrently held against the assessee on facts and the court having found the orders to have been passed after considering all the factors and to be a reasoned order declined to entertain the appeal. In the said decision, several decisions of the Hon ble Supreme Court having been referred, to some of which we shall take note. In CIT Versus Vazir Sultan and Sons (1959) 36 ITR 175 (SC), it was held that one of the relevant tests in determining whether or not the shares/security are capital asset or whether it is in the nature of fixed assets or constituted as stock-in-trade of the assessee s business, fixed Asset is what the owner turns to provide keeping the asset in his own possession, stock-in-trade is what he makes profit by parti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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