TaxTMI 
TaxTMI 
1997 (10) TMI 394
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the leading industrialist of the country. The marriage was celebrated on 17-5-1989. 2. The assessee purchased 2,50,000 shares of Indo-Gulf Fertilizers & Chemicals Corporation Ltd. (hereinafter referred to as 'IGFCCL'), and subsequently another lot of 7,00,000 shares of the same company. In the appeal for the year under consideration, we are concerned with the purchase and sale of the second lot of 7,00,000 shares. Specifically, the issue raised in this appeal is whether the surplus arising to the assessee on the sale of 7,00,000 shares is assessable under the head 'Profits & gains of business' or under the head 'Capital gains'. The revenue implications of the issue are substantial as capital gains are assessed at a lower tax and also are eligible for certain deductions under section 48 of the Income-tax Act. 3. For understanding the issue raised in this appeal, it will be useful to set out the earlier transactions of the assessee. The assessee did not maintain any books of accounts; she, however,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it Trust of India (a )Master Equity plan 1000 Rs. 10.00 Rs. 10000 (b )Unit Scheme-1964 980 Rs. 14.20 Rs. 13916 Rs. 1249396 3.2 Mr. Aditya Birla, father-in-law of the assessee, was the Chairman of IGFCCL from about 1986. The assessee purchased 2,50,000 shares of IGFCCL in the year ending 31-3-1989, i.e., after her engagement to Mr. Kumarmangalam Birla. She purchased these shares from one Shri Umakant Nangalia as under : 27-10-1988 33000 shares Rs. 4,15,800 27-10-1988 65000 shares Rs. 8,19,000 22-11-1988 26400 shares Rs. 3,35,280 22-11-1988 115600 shares Rs. 14,63,920 28-11-1988 10000 shares Rs. 1,26,000 Share transfer fees Rs. 30,000 250000 Rs. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; 4.1 The assessee subsequently sold the first lot of 2,50,000 shares held in IGFCCL through M/s S.S. Dalmia for Rs. 1,05,25,000 on 11-9-1990 as follows: 1,50,000 shares at the rate of Rs. 42 per share Rs. 63,00,000 1,00,000 shares at the rate of Rs. 42.25 per share Rs. 42,25,000 Rs. 1,05,25,000 4.2 As already mentioned the cheque for the sale proceeds of 2,50,000 shares was received on 11-10-1990, i.e., about a month after the sale and it was deposited in the assessee's bank account with UCO Bank and a copy of this account may be seen at page 35 of the paper book. Besides the sale proceeds of 2,50,000 shares, the assessee also obtained a loan of Rs. 30 lakhs from M/s. S.S. Dalmia and deposited this amount on 16-10-1990 into her said account in UCO Bank. The available funders were utilised for making the following payments : 11-10-1990 Payment to M/s. S.S. Dalmia for purchase of 4,50,000 shares of IGFCCL Rs. 85,27,500 11-10-1990 Payment to M/s. S.S.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; Rs. 16,87,411 31-3-1991 Rs. 17,09,411 This account has also been squared up by 24-12-1991. 4.6 From the above debit balances in this current accounts of the assessee with the two family concerns, it may be observed that even the acquisition of the 2,50,000 shares is only out of borrowed funds. We have already indicated hereinabove the other investments held by the assessee, the value of which as on 31-3-1991 was only of the order of about Rs. 12,50,000. So, it is clear that the purchase of both the first lot of 2,50,000 shares of IGFCCL and the second lot of 7,00,000 shares of IGFCCL was made substantially out of the borrowed funds, whether it be from family concerns or from outside parties. 4.7 At this stage we may also mention that the funds borrowed from the family concerns are said to be interest free. It may also be observed that the shareholdings....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp;Rs. 1,02,90,870" The Assessing Officer, however, took the view for this assessment year that the surplus on the sale of 7,00,000 shares has to be assessed under the head 'Business'. He observed that the assessee had carried on an adventure in the nature of trade. He relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT v. Sugar Dealers [1975] 100 ITR 424 wherein the Hon'ble High Court has held as follows : "Profit arising from even a solitary transaction can sometimes be held to be a revenue income if the transaction can be said to be an adventure in the nature of trade." The Assessing Officer has also observed in page-7 of his order that at one point of time the assessee was having about 9,50,000 shares of M/s. IGFCCL. He observed that no ordinary person can think of purchasing such huge quantity of shares of this company and that too only with borrowed funds. He ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 424 wherein the Hon'ble High Court has held as follows : "Profit arising from even a solitary transaction can sometimes be held to be a revenue income if the transaction can be said to be an adventure in the nature of trade." Assessing Officer has also observed in page-7 of his order that at one point of time the assessee was having about 9,50,000 shares of M/s. IGFCCL. He observed that no ordinary person can think of purchasing such huge quantity of shares of this company and that too only with borrowed funds. He also refuted the argument of the assessee that the assessee was having substantial amount of her own funds available for deployment in the purchase of 7,00,000 shares of IGFCCL as the sale of 2,50,000 shares of IGFCCL was three months after the purchase of 7,00,000 shares. The assessee failed in its appeal before the CIT(Appeals) also who observed that the Assessing Officer had discharged the burden of establishing that the transaction of purchase and sale of 7,00,000 shares w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... revenue implications, in view of the factual position, namely, that the assessee is not an investor in share and that the gains from the transactions in these shares were speculative in nature, the Assessing Officer may rectify the assessment order in accordance with law. The Assessing Officer is directed to recompute the income under the relevant head and enhance the total income accordingly." The Tribunal, however, cancelled the said order under section 263 vide its order dated 31-1-1997 in ITA No. 893 (Mumbai) 1996. The Tribunal held as follows : "6. The rival submissions have been very carefully considered. It was pointed out during the hearing that even in assessment year 1989-90 the assessee did sell off some of the shares, but of a different company and the income therefrom had been assessed under the head 'Capital gains'. The assessee had been holding shares of different companies and all the acquisition, no doubt, had commenced after she was married to Mr. Kumarmanglam Birla in the year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned with the term "record of any proceedings" and they have held that records of the proceedings mean the records based on which orders were passed. We may also observe that courts have been repeatedly holding that it is permissible for the assessing authorities to take a different view in a later year. We may not need to travel to the various decisions of various High Courts and Supreme Court, but it would suffice to state that what is decided in one year may not apply to the following year, which has been so held by the Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321 . It was precisely for this reason that the Bombay High Court in CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 had observed that where a fundamental aspect permeating through the different assessment year has been found as a fact, one way or the other the authorities have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to the changed in the subsequent year. This particular decision is so provided to emphasis that the settled matter should not be disturbed. Accordingly upholding the various issues raised before us, we s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment year 1991-92, which we have extracted hereinbefore. In particular, he relied on the observation of the Tribunal that the desire to hold large number of shares and to increase capitalworth was the reason behind the transaction of purchase and sale of the earlier holdings of 2,50,000 shares. So, it is pleaded that as the purchase of 7,00,000 shares is motivated by considerations of holding a number of shares and as the purchase of earlier lot of 2,50,000 has been held to be on capital account, it must necessarily follow that the purchase of 7,00,000 shares was also on capital account and, as already mentioned, the issue had already been decided by the Tribunal for the assessment year 1991-92 in the said order. He has strenously contended that as the Tribunal has reversed the order u/s 263 for the assessment year 1991-92, a different view cannot be taken for the present assessment year. He has stressed that a view taken in one year cannot be departed from in the subsequent year and in this context, he had relied upon the following decisions :- (i) CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 (Bom.) (FB), (ii) CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctional High Court in the case of H.A.Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.) and the decision of the Apex Court in the case of New Jehangir Vakil Mills & Co. Ltd. v. CIT [1963] 49 ITR 137 and another decision of the Apex Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321/ 60 Taxman 248. It is pleaded that the Tribunal did not notice that in the context of purchase of 7,00,000 shares, assessee obtained a loan of Rs. 30 lakhs from a broker and that even the 7,00,000 shares were subsequently sold and the sale proceeds were invested in some tax free bonds. The issue raised by the ld. Departmental Representative in this context is that if the assessee wanted to hold a large number of shares why did see sell the 7,00,000 shares and invest the sale proceeds in bonds. These are the additional facts, which according to the ld. Departmental Representative were not considered by the Tribunal in its order for the assessment year 1991-92 and so any conclusion arrived at by the Tribunal for that year should not come in the way of the Tribunal for arriving at a different view for the assessment year 1992-93. It is also pleaded that the earlier order of the Tribunal concern itse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 shares. Out of the second lot of 7,00,000 shares of IGFCCL, only about 1,50,000 shares had to be bought out of a loan taken for that purpose. He further proceeded to argue that even when the assessee bought the first lot of 2,50,000 shares, she had no funds of her own and, inspite of this, the Tribunal held in favour of the assessee for the assessment year 1991-92 and the same logic would hold good for the assessment year 1992-93 also. In other words, the argument advanced is that as the Tribunal held that the 2,50,000 shares were bought as investments, it has to be held that even the 7,00,000 shares were bought only as investments. He also mentioned that the decision of the Hon'ble Allahabad High Court in the case of Raja Jagdish Pratap Sahi (supra) and that of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (supra) relied on by the revenue are distinguishable on fact. Finally, he observed that, if it is held that any assets purchased with borrowed funds are necessarily indicative of a trading transaction, it means that only a rich man can buy investments and no poor man can ever think of buying anything as investment. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d separately for each assessment year in the light of the circumstances prevailing in that year. We are of the view that the issue relating to the purchase and sale of 7,00,000 shares has to be gone into by us and for this purpose, the cumulative effect of all the factors available for consideration for this assessment year has to be considered. 11. It is common ground between the parties that even a single transaction of purchase and sale of shares can, in certain circumstance, be of the nature of an adventure in the nature of trade. It is also common ground that to determine whether a relevant asset is a trading asset or an investment, the totality of the facts and circumstances has to be considered. It is also not disputed before us that it is the intention at the time of purchase of the assets in question that is most crucial to determine whether the asset bought is a trading asset or an investment. So, there is not much dispute about the basic legal principles that have to be considered for deciding this appeal. The dispute mostly is only about the ascertainment of the relevant factua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 13. Similar is the view taken by the Apex Court in the case of Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421 wherein also the shares purchased with borrowed funds to acquire a managing agency of a company were held as investments. The Hon'ble Allahabad High Court in the case of Raja Jagdish Pratap Sahi (supra), held that when the intention of the assessee at the time of acquisition of the shares is to resell them at a profit when the market appreciates, the shares are to be regarded as its stock-in-trade whereas, when an ordinary investor changes his investments, the surplus realised is capital in nature. In this case, Zamindari bonds were sold and invested in Tata ordinaries and the subsequent sale of the shares was held to be on capital account as the Tribunal found on material on record that the assessee had no intention at any time to use his shareholdings as stock-in-trade and to make a profit by the sale thereof. 14. In the case of Ashok Kumar Jalan v. CIT [1991] 187 ITR 316 , the Hon'ble Bombay High Court held that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e second lot of 7,00,000 shares were purchased on different dates in the month of June, 1990 at average prices ranging between Rs. 18 and Rs. 19.10 per share. The relevant details of the purchase had already been given by us hereinbefore. 17. Now, the question to be seen is, what could be the intention of the assessee when she bought 7,00,000 shares i.e. whether they were bought with an intention of trading in them or not. There is no way of ascertaining the intetion except from the surrounding circumstances. The argument advanced before us was that the 7,00,000 shares in question were bought substantially with the sale proceeds of 2,50,000 shares purchased earlier. It is also made out that the assessee had to take only a loan of about Rs. 30,00,000 from a broker towards meeting the balance of the acquisition cost of 7,00,000 shares. We have to examine the correctness of this argument. When she bought the 7,00,000 shares in the month of June, 1990 at the average rates ranging between Rs. 18 to Rs. 19.10 per share, she could reasonably have expected to sell her 2,50,000 shares only at these....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sale proceeds, acquire the entire or almost the entire block of 7,00,000 shares. It is inconceivable that a young lady of 21 years would have taken upon herself an interst bearing liability exceeding Rs. 1 crore unless she intended to trade in the 7,00,000 shares and, thus, clear the liability. To our mind she launched on an adventure in the nature of trade as defined by the Apex Court in the case of Sutlej Cotton Mills, cited supra. 19. We do not find any circumstance of sufficient weight to indicate that the assessee did not intend to trade in the 7,00,000 shares. The shares were not bought even to acquire control of the company. At any rate, no such argument has been advanced before us. One argument advanced before us was that the assessee did retain the shares till she enjoyed the dividend of Rs. 6,92,500 which was returned. To our mind, this factor does not counter the weight of the fact that the 7,00,000 shares were purchased only out of interest bearing borrowed funds. Dividend is a natural incident of shareholdings and the very smallness of the return on the investment indicates ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es not preclude us from deciding the issue regarding the nature of the acquistion of 7,00,000 shares which is the issue posed in this appeal. In this view of the matter, we do not find it necessary to consider the case law cited by the ld. counsel for the assessee in which it has been held that the Tribunal cannot depart from its earlier decision, unless there is additional evidence. At any rate, the Tribunal did not have occasion to consider the fact that the entire 7,00,000 shares were obtained only out of borrowed funds because the sale of 2,50,000 shares was subsequent to the acquisition of 7,00,000 shares. We do not find any reference in the order of the Tribunal to the fact that the sale proceeds of 2,50,000 shares was not available to the assessee on the day or days she acquired 7,00,000 shares. Further, it appears that the assessee sold away even the bonds of the Indian Railway Finance Corporation which were acquired out of surplus left with the assessee out of the sale proceeds of 7,00,000 shares. As these facts of significance were not considered by the Tribunal, we are of the view that the finding given by the Tribunal for the assessment year 1991-92 in no way precludes ....