TaxTMI 
TaxTMI 
2015 (6) TMI 95
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....f 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. 66,59,311/- on sales of shares during the year was also business loss and was to deducted from the tota....
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....; "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 trading in shares, is not an object of the company and that the shares held were disclosed as investments in th....
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....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 31 to 60 days and Rs.36,09,941/- for shares held below a period of 30 days. 8. The finding of the AO that the holding period of majority of the shares by the assessee was between 10 days to 01 month is fact....
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....on 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 trade because the purchase was made with the intention of resale. A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment. ....
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...., 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 of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business ..... " (emphasis supplied) * In the case of Karam Chand Thapar & Bros. (P) Ltd. Reported in 82 ITR 899 the Hon'ble Supreme Court held as follows. "..................... The Tribunal also relied ....
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....ments 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 prove that apparent is not real. (viii) The mere fact of credit of sale proceeds of shares(or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that the assessee was holding the shares (or the items in question) for investment. (ix) One has to find out what are the legal requisites fo....
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....hares. 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 assessee in holding that the shares are held as stock in trade and profit from which is to be assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct and other relevant factors as considered by the learned CJT(A). It is also seen that the shares were treated as investment in earlier year and which fact has been accepted by the Assessing Officer. The assessee has also earned huge dividend ....
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.... 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 return/dividend rather than keeping the funds idle. x. In the meeting held on 26.12.2004 and 24.3.2005 the board of assessee company resolved to acquire and hold shares/securities out of surplus funds to be held as part of the investment portfolio of the company. This shows the intention of appellant. xi. Shares/securities have been recorded in "Scrip name - Investment account" and not as "stock in trade" in the books of accounts. xii. Had the shares been held by the assessee not as investment but as stock in trade, the ....
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....s 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 Satishchandra Doshi Etemia vs. JCIT in ITA no.6497/Mum/2009 and ITA 148/Mum/2010 for the AY 2003-04 and other appeals had after considering a number of decisions at page 15 held as follows. "Therefore, the bifurcation of the short term capital gain and treating the transaction as investment in the cases where the holding period of more than 30 days and as business transaction in the case where the holding period is less than 30 day, in our considered opinion, is not justified on the part of the CIT(A). Since there cannot be a sing....
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....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 2008-09 and respectfully following the same, sole ground of the revenue being devoid of merits is dismissed and ground no. 2 and 2.1 of the assessee are hereby allowed. Ground No. 3 to 3.5 of the assessee. 8. Ld. Counsel of the assessee contended that the Commissioner (Appeals) erred in confirming the disallowance of expenditure of Rs.l,65,196/- under Section 14A of the Act. Ld. Counsel also contended 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 of the Act. Ld counsel strenuously poin....
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....cision 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 average investment comes to Rs. 16,40,609/-, however, the appellant has only incurred Rs. 1,65,196/- on earning exempt income. As discussed above, on earning exempt income the appellant has to incur indirect expenses on collection, telephone, management, follow up etc. Therefore, the expenses relating to exempt income are restricted to the extent of expenses claimed. Therefore, the disallowance made by the Assessing Officer of Rs. 1,65,196/- is confirmed." 11. In view of above, we are inclined to hold the contention of the assessee is not acceptable that the disallowance restricted and upheld by the CIT(A) was incurred for the maintenanc....