TaxTMI 
TaxTMI 
TaxTMI 
2015 (8) TMI 220
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.... challenging the assessment of the long term capital gain arising out of the sale of shares as business income and thereby denying the exemption on such income u/s 10(38) of the Act, was allowed by the ld. CIT(A) and the alternative grounds were not adjudicated, bonafide believing that the exemption had been granted to the assessee, the assessee did not file any appeal against the order passed by the ld. CIT(A); that it was on 20-8-2013, that the assessee received order dated 1-8-2013, passed by the A.O., giving effect to the ld. CIT(A)'s order; that it was seen that therein, the A.O. had relied on the directions of the ld. CIT(A) and, consequently had sought to tax the long term capital gain; that a notice of demand u/s 156 of the Act was thus issued, demanding Rs. 2,12,75,180/- from the assessee; that it is pursuant to the aforesaid order passed by the A.O., giving effect to the ld. CIT(A)'s order, that the assessee has become aggrieved and has had to prefer this appeal; and that it is due to this reason, that an inadvertent delay of 18 days has occurred in filing the appeal, which be ordered to be condoned. 3. Having considered the above contents of the affidavit accompanying t....
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.....O. proposed to treat the gains as the business income of the assessee and the assessee was asked to explain as to why this should not be done, the assessee Trust having been created on 24.3.2010 and the shares, transferred to the D-Mat account on 26-3-2010, having been sold on 30-3-2010, i.e., within seven days of the formation of the Trust. The assessee submitted a written explanation dated 11-2-2013. This comprehensive letter stands reproduced in the impugned order, at pages 2 to 7 thereof, comprising para 4.1 of the order. 3. The A.O. observed, inter alia, that the settlors of the Trust had contributed six lacs equity shares of M/s Tech Mahindra. It was observed that the main objective of the Trust was to ensure an effective succession planning mechanism and intergenerational transfer of the Trust corpus and income. It was observed that the shares were sold just about seven days after acquisition thereof, which was too short a period for treating the activity as an investment, rather than a business. It was observed that since the objective behind creating the Trust was not to hold the shares as investment, but to sell them, the sale of the shares was clearly a business activi....
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....hat the profit from the sale of the M/s Tech Mahindra shares was temporarily invested in liquid fund and post that, it was invested, as per the Trust Deed, to broaden the base of the investment, into more secured investments. Reliance has been placed on "Saroj Kumar Mazumdar vs. CIT", 37 ITR 242 (SC) and "Ashok Kumar Jalan vs. CIT", 187 ITR 316 (Bom). 7. We have heard the parties and have also perused the record. The issue is as to whether the ld. CIT(A) has correctly directed the A.O. to treat the gain in question as capital gain and not business income, as had been done by the A.O. The objects of the Trust, as visualized in its Trust Deed, are as follows (assessee's paper book, page 51):- "The objects of the Trust primarily would be utilization of the Trust Corpus and the income generated thereon for the benefit and maintenance of the Beneficiaries to the Trust, ensuring effective intergenerational transfer of wealth and such other objects as are specifically detailed in Schedule 1 herein." 8. Schedule I to the Trust Deed (assessee's paper book, page 63) runs as follows:- a. To ensure effective succession planning mechanism and intergenerational transfer of Trust Corpus and I....
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.... Rs. 14,69,09,814/-, earned on the sale of shares, was exempt from tax u/s 10(38) of the Act. It was stated that the Trust had received six lacs shares of M/s Tech Mahindra from the Settlor of the Trust, as the corpus of the Trust. This letter/certificate is placed at the assessee's paper book, page 101. It reads thus: "26th March 2010 To whomsoever it may concern This is to confirm that in my capacity as a Settlor of Vernan Private Trust, I have contributed the following shares towards the corpus of the aforementioned Trust on 26th March, 2010. Scrip No. 1: Tech Mahindra Limited. Demat Account No. Date of Purchase Qty Amount (Rs) 1204470004464687 24 Oct. 08 26600 9,968,582.32 :IN 300214 :10768294 26 March 07 573400 38,417,800.00 Sincerely, Sd/- Vineet Nayyar (Settlor Vernan Private Trust)" Thus, it is evident that the shares were contributed by the Settlor of the Trust, towards the corpus of the Trust. 11. It is in the above factual background that it is to be seen whether the transfer or sale of shares by the assessee was in the nature of business/adventure in the nature of trade. As seen hereinabove, the six lacs shares of M/s Tech Mahindra Ltd. wer....
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....tion of the Trust, to be a prudent decision. Too, it is also on record that soon after the sale of the Tech Mahindra shares, the price thereof dipped substantially. All this is an indication to the fact that the activity was not a business activity, nor an adventure in the nature of trade. It has also been taken note of, correctly, by the ld. CIT(A) and not refuted by the Department, that the Trust is expressly prohibited from undertaking any business activity. Moreover, the avowed intention of the Trust as discussed hereinabove, has never been disproved and it is only that the alleged intention of carrying on business has been superimposed thereon. This has rightly been rectified by the ld. CIT(A) by making detailed observations regarding the observation of the A.O., that the intention of the Settlors themselves was to carry on business activity, being extraneous, a valid Trust having come into existence and such Trust having not been found to be ingenuine; that the acquisition of shares was not a voluntary purchase made by the assessee Trust, but they were contributed to its corpus at the time of the very inception of the Trust; that the assessee's claim holding pattern by way of....