TaxTMI 
TaxTMI 
2013 (9) TMI 11
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.... this ground are that the assessee sold shares worth Rs.95.14 lakh and the profit from the sale of such shares was treated as capital gain split into two parts, viz., Rs.26.76 lakh as long term capital gain exempt u/s 10(38) and Rs.5.61 lakh as short term capital gain chargeable to tax at the rate of 10%. On being called upon to explain as to why the profit shown under the head Capital gains should not be taken as Business income', the assessee tendered his explanation stating that the long term capital gain has resulted from the shares held for a long time exceeding more than one year and the short term capital gain has resulted from the shares held as investment for less than one year. The Assessing Officer observed that the assessee had shown profit from sale of shares as Business income in the preceding years and hence there was no reason to deviate from the earlier stand. This was sought to be rebutted by the assessee stating that the shares were held as Investment' through out the earlier years and were consequently valued at cost. It was only for the purpose of the head under which the income falls, that the assessee treated it as Business income'. Not convinced with the ass....
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....05. Similarly shares of Universal Cans & Containers Limited were purchased in 1994 and sold in the previous year relevant to the assessment year under consideration giving profit or loss on the transfer, as the case may be. Shares of Ritesh Industries Limited were purchased in 1995 and sold on 24.02.2005. Similar is the position about certain other shares. The shares of Hughestele Com India Limited were purchased in the calendar year 2003 and sold in the previous year relevant to the assessment year under consideration with holding period not less than 400 days in any case. Now the question arises as to whether the shares held for a minimum period 400 (i.e. more than a year) days and maximum up to 5063 day (i.e. more than thirteen years) can be considered as Investment' or Stock in trade'? Whereas, stock in trade is usually sold at earliest to reap the immediate profit so that the sale proceeds may be turned over time and again, investment is made with a view to gain from appreciation in its value over a relatively longer period rather than realizing immediate profit on sale. It is axiomatic that profit resulting from the transfer of stock in trade is Business income', but from inv....
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....ficial provision, but such shares were already held as long term capital assets, though profit from their transfer in past, if any, was inadvertently shown as business income. It is a case of setting the position right rather than needlessly exploiting a beneficial provision. At the cost of repetition, we want to accentuate that the assessee has taken consistent stand in the earlier years that these shares were his Investment' and showed the same in his earlier balance sheets as Investments'. It was only for the purpose of offering of income from sale of such shares that the same was shown as Business income instead of Capital gains'. When we consider the totality of facts and circumstances prevailing in the instant case, such as, holding of shares in some cases for a period of more than 13 years, no utilization of borrowed funds in the acquisition of such shares, treatment of such shares as Investments' in earlier balance sheets and valuing these shares as like Investment' and not as Stock in trade', we reach an irresistible conclusion that income from sale of such shares was rightly claimed as long term capital gain. The impugned order on this issue is overturned. 6. Insofar a....
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....ome'. The Assessing Officer observed that the assessee had not mentioned "Money lending" as his business in some of the earlier years and it was due to inadvertence that interest income was accepted as business income for the assessment year 1999-2000. He, therefore, refused to grant deduction of Rs.15 lakh claimed by the assessee as loss in money lending business. No relief was allowed in the first appeal. 8. We have heard the rival submissions and perused the relevant material on record. It is observed that a sum of Rs.40 lakh was advanced by the assessee to M/s. Aircommand Limited in an earlier year. After some litigation, the assessee could finally succeed in recovering a sum of Rs.25 lakh against the outstanding amount of Rs.40 lakh. This resulted into loss of Rs.15 lakh. The claim of the assessee is that this loss resulted from money lending business and hence should be considered as bad debt u/s 36(1)(vii). Au contraire, the view point of the Revenue is that this is not a business loss and hence not deductible. 9. It is noticed that the assessee advanced a sum of Rs.40 lakh to M/s.Aircommand Limited in the year 1993-94. Apart from that, the assessee also advanced money....
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....ut of the loan advanced in earlier years, interest from which was shown as business income, cannot be considered as anything other than bad debts of the money lending business. Sub-section (2) of section 36 clearly provides that in making any deduction for bad debt or part thereof, no deduction shall be allowed unless the debt or part thereof inter alia represents money lent in the ordinary course of business of money lending which is carried on by the assessee. Since the assessee is admittedly engaged in the money lending business and a sum of Rs.15 lakh turned out to be irrecoverable from such business, there is no justification in denying the deduction u/s 36(1)(vii) read with section 36(2). We, therefore, overturn the impugned order on this issue. This ground is allowed. 10. Last ground is against upholding the action of the A.O. in treating the interest income earned during the year amounting to Rs.17,391 as Income from other sources'. Consistent with the stand for not allowing deduction of Rs.15.00 lacs towards bad debts that the money lending was not the business of the assessee, the AO held that the interest income earned from such money lending in the instant year was c....