TaxTMI 
TaxTMI 
2013 (12) TMI 1548
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....(1)(i) of the Income-tax Act, 1961, on which tax is leviable at flat rate of 10 %. 3. As the common grounds are involved in all the appeals, these were heard together and are now being decided by this consolidated order. 4. Ld. Authorized Representative, Shri Prakash Jain, firstly argued the case of Shri Sushil Karwa (I.T.A.No.308/Ind/09) and submitted that the assessee is a Managing Director of M/s. Krishidhan Seeds Limited. The assessee was also having income from sale of shares, which were offered for taxation under the head "Capital Gains". During the course of assessment, the AO observed that the assessee had purchased shares of Rs. 16,05,41,706/- and sold shares of Rs. 14,12,79,276/- and earned profit of Rs. 1,74,56,316/-. The assessee declared this profit as "short term capital gain" whereas the AO held that the same is to be assessed under the head "Profits and gains of business or profession" which is challenged by the assessee. It was observed by the Assessing Officer that it was evident from the copies of bank statement, submitted by the assessee, that the assessee has not invested his saving in shares. He has borrowed funds from M/s. Krishidhan Seeds Limited and u....
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....fit from business and profession against which the assessee is in further appeal before this Tribunal. 6. It was argued by the ld. Authorized Representative, Shri Prakash Jain that the assessee is not involved in business of trading in shares but was having income from salary as a Director of a Company. He was fully employed in the management of the affairs of the company in which he was Managing Director. The assessee has invested major income and past years savings in the shares for the purpose of earning dividend income and also ripening the benefits of appreciation in price of shares, which every investor always does in shares. The ld. Authorized Representative invited our attention to the statement giving script wise details of investment made and sold during the year, which indicate that the assessee had never indulged in bulk trading in shares nor in any speculative activities in share line. He submitted that all the shares in which investment was made are of highly reputed listed company having huge volume on day to day basis. It was also contended that neither in the past nor in the subsequent year, the assessee had undertaken trading activities or F & O activities in j....
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.... investment and not a business. 8. As per ld. Authorized Representative the shares were disclosed in the balance sheet as investment and not as stock in trade, this fact itself proves that the assessee is an investor and not trader in shares. With regard to the observation of the CIT(A) that the assessee has entered on the very same day transaction of purchasing shares of same company on many occasions, the contention of the ld. Authorized Representative was that whenever the assessee wants to buy shares, only the available lots can be purchased and, therefore, to fulfil the requirements of the assessee, the broker has to approach the another seller to meet the buying requirement of the assessee. Merely because shares were purchased on same day or more than one occasion will not indicate that the assessee has entered in to separate transaction of purchases but only because the broker of the assessee was able to lift a lesser amount of shares from one seller, this position occurred. Such position should not be adversely taken for treating that the assessee has entered into huge transaction of purchase of shares in the same company. 9. It was further contended by the ld. Author....
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.... to be treated as capital gains. On the other hand, if the shares are purchased with the intention to earn profit thereon and the same is treated as stock in trade in the books of account, the profit arising out of sale of such shares are liable to be treated as business income. Volume and frequency of transaction is also one of the guiding factors to find out whether the assessee is engaged in the business of purchase and sale of shares or making investment to have capital gains thereon. In the instant cases before us, we found that the assessee has invested in shares of Indian Companies since last 5 - 6 years, which is clear from the statement of shareholding of the assessee. Thus, the fact of the assessee investing in shares for the last several years is not in dispute. There is also no dispute to the fact that the assessee has treated the equity shares of Indian Companies as investment i.e. capital asset all along. The assessee has also valued the shares at cost thus given a particular treatment to the shares held as investment, therefore, without brining on record contrary material, the AO cannot change the intention and manner of investment being made by the assessee. Had the....
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.... of subsequent and preceding year, the assessee had shown the shares under the head "investment". Furthermore, in the preceding years also, the gain arising on shares was offered by the assessee under the head "Short term capital gain" and the same was accepted by the Department. Undisputedly, since the financial year 1995-96 the assessee was making investment in shares and in all these years, the assessee had classified the same under the head "Investment in shares" and not under the head "Closing stock". Even if contention of the ld. CIT(A) is accepted that the shares are shown by the assessee in the balance sheet as closing stock and later on the assessee has changed the heading as investment in shares, the position will not change since during the assessment year in question no profit was earned by the assessee on the sale of shares for which the heading was bona fidely changed. This fact is clear from the details of script-wise and date-wise purchases and sales of shares placed in the paper book. We also found that there is not a single transaction where the assessee squared up the transaction on the same date without taking delivery of the shares. It is undisputed that the....
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.... employees, equipments etc., where as in the instant case, the assessee was not having such infrastructure and whatever decision of investment or sale of shares is taken, the same was materialized through broker. Thus, there was no organized efforts to obtain profits except that shares are purchased cautiously and whenever it is felt that prices of such shares are quoted nicely, they were sold. The decision to dispose of investment at a short interval is being taken by the assessee keeping in view the eventuality of down trend in the market sentiments over a particular script. Merely because the assessee was able to realize better prices of its investment at a short interval, cannot be solitary yardstick for treating such action as an adventure in the nature of trade, giving rise to business profits, when all the surrounding circumstances, indicate otherwise. No where the AO has indicated any transaction of purchase of shares without taking delivery and making full payment of such investment. Even in the case of investment it is for the assessee to decide when to dispose them off so as to have a maximum return out of them. There is no theory that the shares held as investment shoul....
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.... rate) and Long-term capital gains were taxed @ 20%, after adjusting for inflation by indexing the cost of acquisition. For listed securities, the taxpayer had an option to pay tax on long-term capital gains @ 10% but without indexation. For Foreign Institutional Investors (FIIs), the long-term capital gains and short-term capital gains were taxed at the rate of 10% (without indexation) and 30% respectively. In case of a trader in securities, however, the gains were taxed as any other normal business income. Thus tax liability on the income from purchase & sale of shares as regards to the STCG & business income was at par. However, the issue of treatment of income from share transaction as capital gain or business income has in-fact arisen after the amendment brought with Finance Act - 2004 by insertion of provisions of section 111A and 10(38) as regards to levy of Transaction tax and exemption / concession on capital gain arising from securities entered in a recognized stock exchange. With a view to simplify the tax regime on securities transactions, a tax at the rate of 0.015 per cent. (see: change in rates on securities transactions, by Finance Acts, at appropriate head) is levi....
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....respect of delivery based transaction are liable to be taxed as capital gain and not as business income. 15. Similar is the facts and circumstances in case of Shri Ashish Subhashchandra Karwa, wherein the assessee has treated equity shares of Indian Company as investment all along. The details of investment in shares as on 31.3.2006 are as under : - S .No. Name of Securities No. of Shares Amount Date of Purchase No. of shares 1. KRISHIDHAN SEEDS LTD.PS 80000 800000 18.02.2005 80000 2. KRISHIDHAN SEEDS LTD.ES 617890 6178900 30.03.2003 21700 18.02.2005 56400 31.03.2006 539790 617890 3. RAJENDRA SEEDS CO. PVT. LTD. 3087 308700 31.03.2004 3087 4. UNION BANK SHARE 38390 20.02.2006 16. In the preceding years also the assessee liquidated his investment in equity shares of Indian Companies which were accepted by the Department accepted, except in the assessment year in question where in the Department treated the gain from purchase and sales of shares as business income.....
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....CONSTRU 1000 08/12/2005 400 20/12/2005 1600 23/12/2005 2000 02/01/2006 1000 3704327.11 17/02/2006 7 RPG TRANSMISSION 2000 348182.50 06/03/2006 15000 573418.40 13/01/2006 8 SSTILES 9 UPPAR GANGA 2000 12/01/2006 500 13/01/2006 2000 16/01/2006 2000 2181749.88 17/01/2006 19. In the case of Manish Jaynarain Karwa, the facts and circumstances are pari materia. The assessee was holding shares as investment and shown the same as capital assets in the balance sheet. In preceding and subsequent year also the assessee liquidated his investment in equity shares of Indian Companies which were accepted by the department except in the a....
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.... with intention of investment, accordingly treated in the balance sheet as capital assets. In preceding years also the assessee liquidated his investment in equity shares of Indian Companies and department accepted the same, except in the assessment year in question wherein the department treated the gain on purchase and sales of shares as business income. The year wise details of capital gain earned in preceding years are as under:- Assessment year Capital Gain/Loss on sales of shares offered in Return of Income Remark 2002-03 Rs.1,22,419/- Copy of acknowledgement enclosed. 2004-05 Rs.1,49,677/- Copy of Computation of Income and acknowledgement enclosed 2005-06 Rs.4,92,221/- Copy of Computation of Income and acknowledgement is enclosed in paper book. 22. Details of investment in shares as on 31st March, 2006 was as under :- S. No. Name of Securities No of Shares Amount Date of Purchase No. of Shares 1. KRISHIDHAN SEEDS LTD. PS 100000 1000000.00 18/02/2005 100000 2. KRISHIDHAN SEEDS LTD. ES 569559 5695590.00 30/03/2002 45800 31/03/2003 319....
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....s which were entered by the assessee as investment in books of accounts. It is also undisputed that there is not a single transaction where the assessee squared off the transaction on the same date without taking delivery of the shares. It is also undisputed that the assessee has taken the delivery of all the shares by making full payment and the shares are shown in balance sheet as investment and valued at cost in all the preceding years. The contention of Ld. A.O. & CIT(A) that frequency transaction are very high is not correct in view of details of purchases and sales which are placed in paper book. The assessee uniformly and consistently had been showing the purchase of equity shares of Indian Company as investment which is clear from the following year wise balance sheets of the assessee for the assessment years 2005-06 to 2007-08. That in preceding year i.e. in assessment year 2005-06 also there was a short term capital gain of Rs. 6,28,570/- which was accepted by the department, though u/s 143(1) of the Act. 24. Details of investment in shares as on 31st March, 2006 was as under :- S.No. Name of Securities No of Shares Amount Date of Purchase No. of Shar....
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....vestment in the accounts maintained by the assessee. A detailed date wise list of investment in shares is placed on record. It is undisputed that the assessee treated the equity shares of Indian Companies as investment i.e. "Capital Assets" all along. The assessee uniformly and consistently showing the purchases of equity shares of Indian Company as investment which will be clear from the year wise balance sheets of the assessee for the assessment years 2005-06 to 2007-08 enclosed in paper book. In preceding years also the assessee liquidated his investment in equity shares of Indian Companies and department accepted the same, except in the assessment year in question wherein the department treated the gain from purchases and sales of shares as business income. The year wise details of capital gain earned in preceding year are as under :- Assessment year Capital Gain/Loss on sales of shares offered in Return of Income Remark 2004-05 Loss Rs. 1,74,166/- Copy of Computation of Income and acknowledgement enclosed. 2005-06 Rs. 9,59,819/- Copy of Computation of Income and acknowledgement enclosed in paper book. 27. In the case of Smt. Mathuradevi Jaynarain ....
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.... Assessment year Capital Gain/Loss on sales of shares offered in Return of Income Remark 2004-05 Rs.1,49,675/- Copy of Computation of Income and acknowledgement enclosed 2005-06 Rs.11,09,967/- Copy of Computation of Income and acknowledgement is enclosed in paper book. 31. Details of Investment in Share as on 31st March, 2006, was as under :- S.No. Name of Securities No of Shares Amount Date of Purchase No. of Shares 1 KRISHIDHAN SEEDS LTD. PS 100000 1000000.0 0 18/02/2005 100000 2 KRISHIDHAN SEEDS LTD. ES 953085 9530850.0 0 30/03/2002 47500 30/03/2003 18550 30/03/2004 175 18/02/2005 75100 31/03/2006 811760 95308 5 3 RAJENDRA SEEDS CO PVT LT 2522 252200.00 31/03/2004 2522 4 SUBHASH FERTILIZERS P. LTD 15400 154000.00 31/03/2000 10600 31/03/2003 4800 ....
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....ce 1995-96 and further increase time to time. 2 KRISHIDHAN SEEDS LTD.ES 775214 7752140.00 Since 1995-96 and further increase time to time. 3 RAJENDRA SEEDS P LTD (Share) 104700 1047000.00 Since 1995-96 and further increase time to time 4 SUBHASH FERTILIZERS P. LTD 88100 881000.00 Since 1995-96 and further increase time to time 5 UNION BANK SHARES 6400.00 Before 31/03/2005 38390.00 2/20/2006 6 ESSAR STEEL 1200 55860.00 4/19/2005 7 MALWA COTTON 1000 11/7/2005 1800 11/23/2005 1000 2/23/2006 4000 1210157.15 1/25/2006 8 RAMSWARUP 10000 831661.00 2/13/2006 9 STATE BA....
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.... The above observations of Hon'ble Judges of the Apex Court was reiterated by Hon'ble Apex Court in the case of Kerala State Industrial Corpn. v. CIT [2003] 259 ITR 51 holding as under:- "That the Finance Minister's Speech can be relied upon to throw light on the object and purpose of the particular provisions introduction by the Finance Bill has been recognized by this Court in K.P. Verghese v. ITO [1981] 131 ITR 597 (SC), at 609. Again in the case of R & B Falcon (A) (P.) Ltd v. CIT [2008] 301 ITR 309 (SC), it was held that (Page 323) Rules of executive construction in a situation of this nature may also be applied. Where a representation is made by the makers of legislation at the time of introduction of Bill or construction thereupon is put by the executive upon its coming into force, the carries great weight." The Hon'ble Delhi High Court in CIT v. A.R.J. Security Printers [2003] 264 ITR 276 and CIT v. Neo Pollypack(P.) Ltd. [2000] 245 ITR 492 held that even when the doctrine of res judicata does not apply to income tax proceedings, where a issue has been decided consistently in earlier assessment years in particular manner, the same view should preva....
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....placing reliance on the decision of the Mumbai Bench of the Tribunal in the case of JM Shares & Stock Brokers v. JCIT dated January, 2009. Briefly, the claim of the assessee before the learned Commissioner of Income Tax (Appeals) was that the delivery based transactions were made with an investment motive and as such the income therefrom was in the nature of short term capital gains whereas the income arose from F&O transactions and daily trading in shares were with the business motive which were showed as business income only which was mainly through stock broker, Arihant Capital Markets Limited, registered with NSC, NSE and BSE. It is also seen that in the impugned order the board circular no. 4/2007 dated 15.6.2007 wherein it was emphasized that it is possible for a tax payer to have two port folios i.e. an investment port folio comprising of securities which are to be treated as capital asset and trading port folio comprising stock in trade which are to be treated as trading asset, was considered. The Board further clarifies that no single principle would be decisive and the total proposition needs to be considered. The assessee has maintained only one port folio and claimed th....
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.... made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. More specifically when, the assessee either utilised his own funds/ family funds or did not pay any interest and depicted the transactions in shares under investment portfolio. During hearing, it was also explained by the learned Counsel for the assessee that accounts were maintained by the assessee in two separate capacities i.e. trader and investor and never treated the same as holdings of shares as stock in trade which clarifies the intention of the assessee. This assertion was not controverted by the Revenue. 38. The ld. Sr. DR placed reliance upon the decision of this Tribunal in ACIT v. Naveet Kumar [IT Appeal No.346 (Ind.) of 2013, dated 30-08-2013]. We have perused this order and found that it has been clarified that ''if the shares are shown as investment and not as stock in trade, profit arriving from such shares will be capital gains and not business profit''. The matter was restored to the Assessing Officer to examine the facts and then decide accordingly. Therefore, this judicial pron....
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....e of Sushil Jai Narayan Karwa, the AO found that part of the investment was made by the assessee out of loan taken from Krishidhan Seeds Limited in which assessee was the Director. Accordingly, the addition of Rs. 1,50,67,070/- was made under the head "Deemed Dividend". By the impugned order, the ld. CIT(A) confirmed the action of the AO against which the assessee is in further appeal before us. 40. It was argued by the ld. Authorized Representative, Shri Prakash Jain, C. A., that the AO has wrongly included the shares held by the HUF and minor children of the assessee, while computing share holding of assessee in M/s. Krishidhan Seeds Limited. It was submitted that HUF and minors could not be included for working out the holding. As per ld. Authorized Representative, the Income-tax Act does not define the voting rights, hence, for the voting rights, the provisions of the Companies Act 1956, are applicable, according to which minor cannot only be the member of the company, but they can also exercise their voting rights. Provisions of Section 41 of the Companies Act, and the notification issued by the Company Law Board, spells that - "a minor can also be a member of the company i....
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.... ITR 67 (SC). In view of these judgments, the ld. CIT DR argued that shares held by HUF and minor children of assessee Shri Sushil Karwa has to be added in the shares held by him in his individual capacity, as a result of which holding of shares and voting powers goes above 10 %. Therefore, the loan received by him from M/s. Krishidhan Seeds Limited in which he is Managing Director, fall within the definition of dividend u/s 2(22)(e) of the Income- tax Act, 1961, and hence it is taxable in his hands. 43. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated upon the case laws cited by ld. Authorized Representative and ld. CIT DR alongwith ld. Senior D.R. during the course of hearing before us, in the context of factual matrix of the instant case. From the record, we found that the assessee Shri Sushil Karwa is in whole time employment with Krishidhan Seeds Limited and had received gross salary of Rs. 15 lakhs from it. In addition to it, Shri Sushil Karwa was also having income from house property, interest on FDRs, saving bank account and dividend income. Shri Sushil Karwa is also shareholder of Krishidhan Seeds....
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....heir applicability to the issue of section 2(22)(e) of the Income-tax Act, 1961: (i) Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1 (ii) S.A.I. Narayana Row 64 ITR 67 (SC) (iii) Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227 45. We had carefully gone through the above decisions and find that the facts of these decisions are distinguishable from the facts of instant case therefore proposition laid down in these cases are not applicable to the facts of assessee's case. Furthermore the ratio laid down by the Honb'le Supreme Court in the above decisions do not apply to the facts of the assessee's case which will be clear from the followings discussions: (i). Rameshwarlal Sanwarmal (supra) (a) In the case of Rameshwarlal Sanwarmal (supra) the shares of HUF was registered in the personal name of the Karta while in the case of assessee the shares are registered in the name of Sushil J. Karwa HUF and not in the name of assessee. This fact is clear from the annual return of the company Krishidhan Seeds Ltd filed under the Company law. A xerox copy of the same is also placed on record by the assessee. (b) This decision of the Supreme Co....
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.... registered holder of shares, who is not the beneficial owner of shares, then the provisions under section 2(22)(e) of the Income-tax Act, 1961 shall not be applicable. (f) In the present case neither the shares are registered in the name of assessee nor the assessee is a beneficial owner of the shares as same are registered in the name of Sushil J. Karwa HUF and beneficial owner is also Sushil J. Karwa HUF. (g) It is pertinent to mention here that there is no bar under the Company Law for registration of shares in the name of HUF like a Individual Company Mutual Fund, Insurance Fund, Venture Capital Fund, which is clear from the application form issued for subscribing the shares in public issue. Morever, in the annual return of the company Krishidhan Seeds Ltd under the column details of share holders the company is mentioning the name of HUF in respect of shares held by the Sushil Jainarain Karwa HUF and not of the assessee. (h) In the case of Indian Technocraft Ltd. (supra) the Hon'ble Delhi High Court by considering the decision of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) and Rameshwarlal Sanwarmal (supra) held as under:- Page 46 para 22 'It is....
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....rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power. It is not possible to accept the contention of the learned Departmental Representative that under the 1961 Act there is no requirement of a shareholder being a registered holder and that even a beneficial ownership of shares would be sufficient.' Page 47 para 24 'The expression "shareholder being a person who is the beneficial owner of shares" referred to in the first limb of Section 2(22) (e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shares holder but not he beneficial then the provision of Section 2(22) (e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2 (22) (e) will not apply'. Page 47 para 46 In view of the above, this appeal is also dismissed. A xerox copy of the order was also enclosed herewith. Reliance was also placed on the following decisions:- (i) Bhaumik Colour (P.) Ltd. (supra). (ii) Jt. CIT v. Kunal Organics (P.) Ltd. [2007] 164 Taxman 169 (Ahd.) (Mag.....