TMI Blog2024 (3) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an investor and held shares by way of investment, and gain arising out of transfer of shares would be treated as capital gains and not business income. Accordingly, the AO is directed to treat the income of the assessee arising out of transfer of shares as capital gains. Nature of expenses - Disallowance of legal expenses - HELD THAT:- In the Present case of the Assessee, the facts are similar to that of CIT vs. Delhi Safe Deposit Co. Ltd [ 1982 (1) TMI 2 - SUPREME COURT] Appellant being holding the Chairmanship in M/s AB Hotels nothing but a profit earning asset of the Assesses. Thus, the expenditure incurred by the Assessee in order to protect the same would be an allowable expenditure. Respectfully, following the Hon ble Apex Court in the case of CIT vs. Delhi Safe Deposit Co. Ltd. , (supra) we hold that in the present case, the legal expenses claimed by the assessee are allowable expenses u/s 37 of the Act. - Dr. M. L. Meena, Accountant Member And Sh. Anikesh Banerjee, Judicial Member For the Appellant : Sh. Sudhir Sehgal, AR For the Respondent : Sh. Manoj Aggarwal, Sr. DR ORDER PER DR. M. L. MEENA, AM: Both the captioned appeals have been filed by the assessee against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also a reference to a Gujarat High Court decision in case of Commissioner of Income Tax v. Rewashanker A. Kothari: [2006] 283 ITR 338, wherein various tests were formulated in order to determine whether an assessee could be said to be carrying on the business of sale and purchase of various securities or whether the said assessee was holding them as an investment. One of the most important tests outlined in that decision was as to whether the transactions in the shares were of a large volume and were frequent and whether there was continuity and regularity in such transactions of purchase and sale. It was noted that if there was repetition and continuity coupled with the magnitude of the transactions bearing a reasonable proportion to the holding then it would be an important circumstance in considering such activity to be in the nature of trade and business. 5. This aspect pertaining to the volume of transactions, the frequency of transactions and the continuity and regularity of the purchase of sale of the shares which was highlighted in the Gujarat High Court decision as also in the Delhi High Court decision and which was specifically taken note of by the tribunal, has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that - Where assessee had purchased shares with clear intention of being an investor and held shares by way of investment, gain arising out of transfer of shares should be treated as capital gains and not business income. 9. He further placed reliance on the Judgment in the case of the Jurisdictional Hon ble Punjab Haryana High Court in the case of CIT vs S.K Kaintal as reported in 23 DTR 68 (P H HC) is worth to mention here wherein it was held as under: Where the assessee sold its agricultural land which was used by it for carrying out agricultural activities after holding the same for more than two decades, gain arising out of sale of such land was held to be assessable as Capital gain and not Profits and gain of business or profession 10. The Ld. AR argued that the transactions of sale and purchase of shares cannot be classified as in the nature of business activity as the assessee is actively involved in the various other businesses which are either conducted by him in his individual capacity or as partner. The share business requires full time attention but as the Assessee is actively involved in many other business priorities. Even if the person is investing on routine ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be considered by the AO with the intention of the Assessee as an investment. The AR further argued that it is a matter of fact that the department has not pointed out any different facts as compared to the AY 2004-05 and 2006-07 wherein same has been accepted as investment in the Assessee s own case and even for the AY 2010-11, the Coordinate Bench has decided the issue in favour of the Assessee and the department has not even filed any further appeal before the Hon ble High Court. In view of that matter, the Tribunal, its order dated 27.06.2013 has even rightly held that the investment made by the Assessee as declared in the balance sheet is to be treated as Investment portfolio and not trading portfolio (Pg. 24 of the Tribunal order). 13.1 The second test often applied is as to why and how and for what purpose the sale was effected subsequently. The Ld. AR argued that every person would make an investment only to fetch profit. There is no question of holding the Investment for a long period of time when the same profit is earned by the assessee in a short span of time out of the investment. The Tribunal has even held that although the AO has mentioned that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 27.06.2013 has even discussed that the AO has mentioned that the assessee had made substantial transaction and has earned huge profit and that can even happen even in the case of investment portfolio. Thus, this test has even earlier been examined by the Hon ble Bench. 14. In the subsequent various Judgments of Hon ble Courts even after referring the Judgment of Hon ble Delhi High Court and Gujrat High Court, it has been decided that the frequency of transaction is not important and what is the main factor to be considered is intention of the investor. 15. In the case of Smt. Yamini Khandelwal vs ACIT , 142 taxmann.com 529 (Kol Trib) vide order dated 27.09.2022 while referring the Judgment of Hon ble Gujarat High Court in the case of Commissioner of Income Tax vs. Rewashanker A. Kothari , (Supra) held that Mere high volume of transactions and utilization of borrowings in purchase of shares could not alter assessee's consistent treatment of shares purchased on delivery basis as investment, which was even accepted by revenue for several years 16. Further, even the Hon'ble Gujarat High Court in the case of Pr. CIT v. Bhanuprasad D Trivedi, HUF , [2017] 87 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is not earning any business income from the said Company but the other business of the Assessee is directly linked to each other. If the status of the Assessee as a Chairman in M/s AB Hotels is affected, it would naturally affect all other businesses of the Assessee. Moreover, the Assessee is earning annual dividend income of more than Rs. 1 crore from M/s AB Hotels Ltd. It is true that the Dividend income is exempt in the hands of the Assessee, but it is just the shift of the hands that the Company is paying Corporate Dividend Tax on the same. The Dividend Income earned by the Assessee is used to make investments in many other concerns from where a handsome amount is earned by him. So, the same cannot be disallowed. He placed reliance in this regard on the Judgment of the Apex Court in the case of CIT vs. Delhi Safe Deposit Co. Ltd. , as reported in 133 ITR 756 wherein it has been held as under: In the instant case, the assessee incurred the expenditure in question to avoid any adverse effect on its reputation, to protect the managing agency which was an income earning apparatus and for retaining it with the reconstituted firm in which the interest of the assessee was the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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