TaxTMI 
TaxTMI 
2011 (11) TMI 481
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....vt.Ltd., and 8,333 shares of Rs.10 each in Bay Containers Terminal Pvt Ltd. The assessee"s holding in these companies was 33.33% and the shares being in private limited companies, the shares could not have been traded at all. Yet these two shares along with shares held in public limited companies, were all along treated as stock in trade in the books of account. It was in this backdrop that gains on sale of these Shares, which were claimed to be long term capital gains by the assessee, were treated as business profits by the Assessing Officer. In the course of assessment proceedings, the assessee had also filed a board resolution dated 1st April, 2002, whereby assessee had converted his entire stock in trade of shares as investment. This did not impress the Assessing Officer, and was disregarded. The reasoning adopted by the Assessing Officer was this. The assessee himself has treated the shares in Marine Container Services Pvt Ltd., and Bay container Terminal Pvt Ltd., and the provisions of Section 2(14) which define capital asset, do not extend to, inter alia, any stock in trade held for the purpose of business and profession. Accordingly, gains on sale of these shares, which too....
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....ne Container Services (South) P. Limited and Bay Container Terminal P. Limited. Capt Katre, Capt A. Batra and Capt S. Batra commenced their association with them purely in advisory capacity. However, Capt Hirudayaraj and Mr. B. Vikram remained fully in charge of day-to-day operations of these companies. Capt Hirudayaraj prematurely died of" cancer in year 1985 and thereafter the day-today business remained in the hands of" Mr. B. Vikram. In the year I 1990, Mr B. Vikram died in a road accident in Tamilnadu. Thus both these original promoters were no more alive by beginning of year 1991. Thus there was a Management vacuum in running of" these two companies, which had earlier been assisted by Capt V W Katre, Capt A C Batra and Capt S. Batra. These companies had achieved reasonable success with assistance and guidance of Capt V W Katre, Capt S. C. l3atra and Capt A.C. Batra. With both the original promoters (with no heirs capable of running these businesses) being no more alive, the companies would have faced a virtual extinction, if the management was not taken over by somebody who understood the business of these two companies. Therefore, Capt V.W.Katre, Capt S.C....
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.... are stock in trade or investment,. The appellant has submitted that it is settled position in law that the nomenclature used in the accounts are not determinative of the nature of the transaction and relies on the following cases: (a) The Jurisdictional Bombay High Court in case of Fort Properties Private Limited vs Commissioner of income Tax reported in 208 ITR 232. (b) The Gujarat High Court reported in 283 ITR 338 in the case of CIT V Rewashankar Kothari 01st of both cases has earlier been discussed. (c) The length of period of holding the shares will be a guide to determine whether the holding of the shares would constitute investment. (The shorter the period, the greater the presumption that, the transactions are business transactions. In this case, the shares were held for a period for almost ten years and hence this important criteria has to be factored in determining the position as to whether the shares were held as investments or stock in trade. The share in question were acquired by the Appellant Company in years 1992.93 and indeed the matter is almost ten years old at the time of their disinvestments by the appellant. It is an un....
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....OMMISSIONER OF INCOME-TAX reported in 35 ITR 594 and set out the tests for ascertaining the nature of the transaction, which is extracted hereunder: "Some of the indicia for testing whether the transaction was a transaction in the nature" of investment or a,, adventure in the nature of trade, are (i) Was the purchase a trade and where the purchase of the commodity and its resale allied to his usual trade or business incidental to it? (ii) What was the nature of the commodity purchased and resold and in what quantity was it purchased and resold? (iii) Did the purchaser, by any act subsequent to the purchase, improve the quality of the commodity purchased and thereby make it more readily resalable? (iv) What were the incidents associated with the purchase and resale? (v,) Were they similar to the operations usually associated with trade or business? (vi) Are the transactions of purchase and sale repeated? With regard to the purpose of selling the shares of the two private limited companies. the Appellant has submitted that In year 2002, on 23rd May (2002) Capt V.W. Katre reached the age of sixty....
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....ws held by the AO it is observed that the main contention of the AO was related to the shares having been shown as stock-in-trade in the balance sheet and accordingly their treatment should be strictly considered as business income since the issue oh investment was not at all valid. However, the appellant has admitted in his submissions that due to special circumstances and also bonafide error all the shares i.e. those which were relating to the private companies as well as those relating to reputed listed companies were together shown as stock-in-trade. For various reasons which have been put forward by the appellant it is clear that the nature of share holding of private shares i.e. Bay Container Terminal Pvt. Ltd. and Marine Containers Services Pvt. Ltd., were qualitatively different than those of RPG Telecom, ESSAR Gujarat and LandT. The shares of related companies which were held for purposes of having 'controlling interest' in the share capital and also having restrictions of trading need to be treated differently than other shares. The appellant has also elaborately discussed that there was no intention or motive, neither any possibility in easily trade in the shares of priv....