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2015 (6) TMI 95
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....their acquisitions were business profits instead of short term capital gains; 3. That the Commissioner (Appeals) erred in confirming the disallowance of expenditure of Rs. 1,65,196/- under Section 14A of the Act; 3.1 That the Commissioner (Appeals) failed to appreciate that no expenditure was incurred for the dividend income earned and as such no expenditure was to be deducted under the said provisions; 3.2 That the Commissioner (Appeals) failed to appreciate that the entire expenditure was incurred by the Appellant for the purposes of its business; 3.3 That the Commissioner (Appeals) failed to appreciate that the Assessing Officer erred in applying the formula laid down in the Rule 8D of the Rules without recording as to why the claim of the Appellant that no expenditure was incurred for the dividend income was incorrect; 3.4 That the Commissioner (Appeals) failed to appreciate that the Assessing Officer erred in calculating the disallowance under Rule 8D of the Rules at Rs. 16,40,609/-; 3.5 That the disallowance of Rs. 1,65, 196/- under Section l4A of the Act is excessive and unreasonable; 4. That the loss of Rs. 66,5....
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....unal in assessee's own case for AY 2006-07 (supra) has categorically held as under: "4. The Ld. Counsel for the assessee Mr. Ajay Vohra repeated the arguments raised by the assessee before the Ld.CIT(A). He supported the order of the Ld.CIT(A) to the extent the Ld.CIT(A) accepted the contentions of the assessee. On the finding of the Ld.CIT(A) that wherever the holding period of shares is less than 30 days, it should be held that the income arising from such shares if business income, the Ld. Counsel argued that this is an artificial segregation, which is not supported by any precedent or proposition of law. He referred to page 37 of the Ld.CIT(A)'s order and pointed out that certain shares sold, were from out of investment made during the Previous Year and which were opening balances of the current year. He contended that there were no borrowed funds and the assessee had no infrastructure whatsoever to carry out any trading activity. He pointed out that the assessee had paid security transactions tax and had not claimed any deduction for the same. Ld.Counsel pointed out that t....
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....l Estate Developers. As the company was not able to start its business, investments were made in various shares and securities. 2. The Board of Directors at its meeting on 26.12.2004 and 25.3.2005 resolved to acquire and hold shares out of surplus funds as part of its investment portfolio. 3. The shares and securities acquired are classified as investments in the balance sheet and were valued at cost only. 4. There were no borrowed funds out of which the shares/securities were purchased. The purchases were made out of own funds. 5. In an order passed u/s 143(3) of the Act for the AY 2005-06 similar profits/gains declared under the head capital gains are accepted by the department as such. 6. Some of the shares sold were acquired during the preceding F.Y., wherein it was classified as investments and accepted as such. 7. The short term capital gains of Rs. 1,75,51,496/- was earned out of 41 shares/securities and thus can be classified as follows. i. Rs. 1,01,92,939 on shares held for more than 90 days; ii. Rs. 19,03,596/- for shares held between 61 to 90 days and Rs.18,45,019/- for shares held between 3....
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....oying or using it .... The presence of such an intention is no doubt, a relevant factor and unless it is offset by the presence of other factors, it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said - initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade"." (emphasis supplied) The apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd: 100 ITR 706 (SC) observed as follows: ..... Where the purchase of any article or of any capital investment, for instance, shares, is made without the intention to resell at a profit, a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character. Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of ....
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....kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or gain in an operation of profit-making. If the transaction is in the ordinary line of the assessee's business, there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade. The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue if he deals with them as an adventure in the nature of trade. The fact that the original purchase was made with the intention of resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction. For instance, an assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in a higher price. Such an investment, though motivated by a possibility of enhanced value, does not render the investment a transaction in the nature....
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....ention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (v) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realisable value (whichever is less), it will indicate that items in question are treated as stock in trade. (vi) How the company is authorised in MOA/AOA? Whether for trade or for investment? If authorised only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity and vice versa. (vii) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock in trade) then onus would shift to the revenue to....
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....st the intention of the assessee as to whether he proposed into dealing in shares or earn dividend and profit out of such investment. The Assessing Officer was guided more because of the total amount involved rather than the actual intention and the way of carrying on share transaction. There is no doubt that even a single transaction can be in the nature of trade but the assessee has demonstrated that his. intention was never to trade in shares. The intention is manifested by treatment given to such investment that the investment is out of own fund and not borrowed that the investment is not rotated frequently, that the total number of transactions are very few, that all the shares purchased are not sold and rather held for quite number of days. It is to be noted the Income Tax Act itself has provided that when the shares are held for a period of one year or more will be treated as long term capital asset contrary to other assets where the holding period to treat such asset a long term is more than 36 months. Thus even after holding the shares for more than 12 months and showing such intention from the conduct, the Assessing Officer cannot replace his opinion for that of the asses....
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....of investment is supported from audited balance sheet for the year ending 31.3.2005. The details of investment are given in respective schedule to the balance sheet. ii. In the preceding year, there were sales of shares and shares were reflected under the head investment in the respective balance sheet. The same was assessed by the AO u/s 143(3) as capital gain only. iii. The entire investment is out of the funds of assessee and there is no case of any loan or use of borrowed funds. iv. The assessee has not paid any interest on such investment. v. All the share transaction where through demat accounts and subjected to security transaction tax (STT). vi. Separate details were maintained and profit and loss account was worked out on the basis of same and correctness such profit/loss is not in dispute. vii. The assessee has earned dividend income of Rs. 10,01,322/-. viii. The assessee has earned capital gain on the basis of period of holding. ix. In view of the unfavourable market conditions, the management of the assessee decided to investment the available funds in various shares/securities in order to earn retu....
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....siness income. The facts show that out of the total short term capital gain of Rs. 1,75,51,496/- the undisputed fact is that an amount of Rs. 1,39,41,555/- was earned on shares which were held by the assessee for more than 30 days. In fact short term capital gain of Rs. 83,56,196/- was earned on shares which were held for more than 4 months. Similarly the assessee earned capital gains of more than Rs. 40 lakhs for shares which were held for more than 5 months. This is not a characteristic of a trader. There are no borrowed funds. The assessee has always classified the purchases as investments in its books of accounts. In the earlier year the assessee has disclosed capital gains and the AO in the order passed u/s 143(3) accepted the same. On this factual matrix we agree with the contentions of the Ld.Counsel for the assessee that the gains in question cannot be assessed under the head income from business.' 8.3. We now consider the findings of the Ld.CIT(Appeals) wherein he has held that the gains received on shares which were held for a period of less than 30 days should be assessed as income from business. The Mumbai H Bench of the Tribunal in the case of Mr.Hitesh Satish....
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....he shares held as stock in trade or short term capital gain from investment. From the impugned order, we may observe that the CIT(A) has given a bifurcation by holding that gain earned by the assessee company on the sale of shares within the period of 30 days was in the nature of business income and remaining amount was treated as short term capital gain earned from the sale of shares having holding period of more than 30 days. In view of order of the Tribunal in assessee's own case for AY 2006-07 (supra), the basis adopted by the CIT(A) on the criteria of holding period is not sustainable as per provisions of the Act and respectfully following the order of the coordinate Bench of the Tribunal, the conclusion of the CIT(A) is demolished. At the same time, we are inclined to hold that since the income from sale of shares was treated as short term capital gain in the earlier AYs by accepting the contentions of the assessee as noted in the Tribunal order para 8.1, hence, we have no reason to take a different view on the same set of facts and circumstances in the present case for AY 2008-09. Therefore, we conclude that the issue is squarely covered in favour of the assessee for AY 2008....
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....ESSING OFFICER. It is seen that appellant has received dividend income of Rs. 17,27,369/- during the year. These dividends are exempt from tax and such income does not form part of total income. It is also seen that appellant has shown total average investments of Rs. 32,81,21,848/- on which exempt income in the form of dividend and long term capital gain was receivable to the appellant. It is observed that earning of exempt income is not a passive activity. In the present age of making of investment, maintaining or continuing with investment and time of exit from the investment are well informed and well coordinated management decision involving not only inputs from various sources but also acumen of senior management functionaries. Therefore, cost is inbuilt even in so called passive investment. There are incidental expenditure of collection, telephone and follow up etc. Therefore, expenses related to earning of exempt income are embedded in the 'expenses debited to profit and loss account. It is seen that appellant has incurred Rs. 1,65,196/- other than Security Transaction Tax for earning exempt income. As per the formula prescribed by the Rule 8D, the 0.5% of the averag....