TaxTMI 
TaxTMI 
2010 (10) TMI 100
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....0/- made by the Assessing Officer by disallowing set off of income against long term capital loss of earlier year? (c) Whether in the context of facts of the present case, the Tribunal has correctly interpreted the principle of law laid down by the Hon'ble Apex Court in the judgments relied upon? (d) Whether the order passed by the ITAT is vitiated by perversity on account of non-application of mind to the specific observations made by the Assessing Authority? 2. The basic facts which are requisite to be stated for adjudication of this appeal are that the assessee-respondent is a company engaged in the business of sale and purchase of shares. It filed its return declaring an income of Rs.60,05,375/- in which it included short term capital gain at Rs.38,476/- and long term capital gain at NIL after set-off of long term capital loss of previous years amounting to Rs.2,08,24,174/-. The return was processed under Section 143(1) of the Act. Thereafter, the case was selected for scrutiny and a notice under Section 143(2) of the Act was issued. In the course of assessment proceedings, the assessing officer observed that in computation of the income filed, the assessee had shown long ....
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....d the "Objects Clause" of the Memorandum of Association has a large number of objects and not one of these objects could be said to be the principal object of the company. It was put forth that the company was not trading in shares in the year under consideration but, in fact, the company discontinued purchase and sale of shares in the said instruments many years ago and after 31st March, 1996, there had been no purchase of shares as stock-in-trade of the company. The company invested in the Times Bank Ltd., as a long term investment, a sum of Rs.100.35 lakhs in the year 1996 and Rs.201.15 lakhs in the year 1997 and, therefore, the said investment in the Times Bank Ltd are long term investments as per the resolution of the Board. On 5th May, 2000, the Times Bank Ltd got merged with HDFC Bank and in lieu of 30 lakhs equality shares of Times Bank Ltd held by the company, it received 5,21,739 converted equity shares of HDFC bank after the merger. The company adopted a policy of liquidating its equity investments and buying debt mutual funds and the said action of the company would clearly reflect that the company is not a trader in equity shares and it is doing no business of buying a....
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....ow that the assessee is not a dealer in shares; that the accounts of the company had not been rejected in the assessment year and there is no material to show that the assessee at any point of time indulged in trading of these shares and stocks in the year under consideration; that the order passed by the assessing officer is vulnerable inasmuch as he, at one place, opined that the Memorandum of Association is not the sale indicator while, on the other hand, relied on the same for the purpose of adjudication; that the Memorandum of Association has not been appositely appreciated which has made the order of the assessing officer indefensible; that incorporation of clause relating to investment in shares in the Memorandum of Association does not clothe the company with the characteristics of dealer in shares unless other circumstances like activities of the company are proved; that whether the assessee had invested in a long term investment or was dealing with shares would always depend upon facts; that on similar transactions of sale and long term investment in previous years, the assessing officer had himself accepted the same to be in the nature of long term assets giving rise to ....
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....sing on the sale of shares has to be treated as long term capital gains and, accordingly, the addition of Rs.2,65,77,430/- was deleted and the assessing officer was directed to recompute the total income of the assessee company by treating the profit on sale of shares as long term capital gains. 7. Being grieved by the aforesaid order, the revenue preferred an appeal before the tribunal. There were two appeals being ITA No.3640/Del/2007 and ITA 2872. The ITA 3640 dealt with the assessment year 2003-04 where the question arose whether the first appellate authority had acted appropriately in deleting the addition of Rs.2,65,77,430/- made by the assessing officer on account of treatment of capital gains on sale of shares as profits and gains of business. The tribunal, after referring to the submissions of the parties, came to hold as follows:- "We find that the Assessing Officer in the present case has assessed the income in question as income from business on the basis of the object clause of Memorandum of Association of the assessee company as per which the assessee can deal in shares. The Assessing Officer has placed reliance on various judgments but as per para No.3 and 3.2 of ....
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....al gain. In this context, we may refer to a passage from the decision in Commissioner of Income Tax, U.P v. Madan Gopal Radhey Lal, [1969] 73 ITR 652 (SC) : "A trader may acquire a commodity in which he is dealing for his own purposes, and hold it apart from the stock-in-trade of his business. There is no presumption that every acquisition by a dealer in a particular commodity is acquisition for the purpose of his business; in each case the question is one of intention to be gathered from the evidence of conduct and dealings by the acquirer with the commodity." [Emphasis supplied] 10. In this regard, it is profitable to refer to the decision in Vijaya Bank Ltd. v. Additional Commissioner of Income-tax, Bangalore, AIR 1991 SC 239 wherein the Apex Court was dealing with the fact situation where the assessee, a banking company, had received certain amounts on securities purchased from another banking company as well as in the open market. The two amounts were brought to tax by the assessing officer despite the assertion of the assessee that the same were deductible. The order of the assessing officer was confirmed by the first appellate authority but the tribunal held that the inter....
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....usiness income. Hence, we answer the question referred in the affirmative i.e., in favour of the assessee and against the Department." 12. In Commissioner of Income Tax v. Gulmohar Finance Ltd., [2008] 170 Taxman 483 (Delhi), this Court was dealing with the issue whether the shares held as an investment of the assessee and profit earned by the assessee on the sale of the shares should be treated as capital gains or as a business income. In that context, the Bench has held thus: - "It was noted by the Tribunal that in earlier assessment years, the assessee had shown the shares held in BT Tech Net Ltd. as investment right from the date of purchase and this was shown as such in the balance sheet of the assessee, which was filed along with the return of income. No objection was taken to this position in the earlier years. However, the Commissioner has now decided that it was not an investment without there being any change in facts and therefore, the Tribunal held that there was no occasion for the Commissioner to take a contrary view than what was disclosed and accepted on earlier occasions. Even on merits, the Tribunal came to the conclusion that the shares held by the assessee i....