TaxTMI 
TaxTMI 
2019 (5) TMI 1605
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.... a) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and facts in deleting the addition of Rs. 85,73,413/- on sale of shares by holding it as Capital Gains, ignoring that the investment in equity shares by way of equity participation is nothing but business investment of the assessee and the profit earned on sale of these shares on the basis of buy back arrangement is business income of the assessee? b) Whether the learned ITAT has erred in law and facts of the case in deleting the addition of Rs. 85,73,413/- on sale of shares by holding it as Capital Gains by relying upon Punjab State Industrial Corporation Limited vs. DCIT reported as (2006) 102 ITD 1 (Chd.) (SB) while ignoring that the observation of ITAT in Punjab State Industrial Corporation Limited (supra) is an obiter dicta and not ratio of the decision and that the issue for consideration before ITAT in that case was whether deduction on inter-corporate dividend under section 80M of the Income tax Act, 1961 was allowable on net dividend after reducing proportionate expenses. The issue whether profit earned on sale of equity shares on the arrangement of buy back by the....
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....ook Bond & Co. Limited vs. CIT, (1986) 162 ITR 373 (SC) held that if ownership of shares is incidental to carrying on of the business, or, if the shares are held as business assets, dividend income should be treated as income from business?" 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No.147 of 2018 may be noticed. The assesseecorporation was set up with the objective of development of industries in the State of Haryana. It is primarily engaged in the financing activities and developing the industrial estates. The assessee for the assessment year in question i.e. 2005-06 filed its return of income on 29.10.2005 by declaring an income of Rs. 12,93,53,616/-. The assessee maintained its accounts on cash system of accounting. Notice under Section 143(2) of the Act was issued and served on the assessee on 31.1.2006. The assessee participated in the proceedings through its representative and furnished books of account etc. After considering the entire material on record, the Assessing Officer framed the assessment vide order dated 24.12.2007, Annexure A.1, making the following additions:- i) Addition on account of unclaimed refunds ....
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....e. 4. We have heard learned counsel for the appellant-revenue. 5. The grievance of the appellant revenue is that the Tribunal erred in law in holding that the assessee corporation had been claiming the profits earned from sale of shares as capital gains which had never been disputed by the revenue and there was no change in the circumstances in respect of impugned assessment year. The Tribunal applied the principles of consistency and deleted the addition by holding that the profit earned from sale of shares was capital gains and not income from business. After thoroughly examining the issues, detailed findings have been recorded by the Tribunal. Firstly, the assessee had shown profits earned from the sale of shares as capital gains and claimed exemption from payment of tax on the same. The Assessing Officer held that the basic intention of holding equity shares by the assessee was to earn interest on the loans advanced and therefore held that the transaction could not be classified as capital gain. The Assessing Officer further held that it was in the ordinary course of business of the assessee and related to its primary object of financing and was therefore clearly business....
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....profits earned on sale of shares as business income of the assessee as against capital gain shown by the assessee. Brief facts relevant to the same are that the assessee had shown profits earned from the sale of shares as capital gains and claimed exemption from payment of tax on the same. The Assessing Officer found that there were two methods followed by the assessee of doing its financing business. First being equity proportionate and second investment banking. The Assessing Officer observed that in both the cases, the assessee released the amount of advance after adjusting the amount of interest accrued on such loan meaning thereby that the assessee retained the equity of the borrower and subsequently sold it back to the borrower or in the open market fixing minimum rate of sale to be inclusive of the interest of 20% per annum. The Assessing Officer, therefore, held that the basic intention of holding equity by the assessee was to earn interest on the loans advanced and therefore held that the transaction could not be classified as capital gain. The Assessing Officer held that it was in the ordinary course of business of the assessee and related to its primary object o....
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....cting proportionate administrative expenses or interest expenses, it was held that the nature of holding of the shares was imperative to decide the issue. The majority view of the Bench, on the nature of the investment, was that the assessee was holding shares as capital investment....... Xxxxxxxxxxxxxxxxxxxx Since the facts in the present case are identical to that in the case of PSIDC, the issue stands squarely covered by the said decision. 29. The Revenue contended before us that the findings were mere observations i.e. obitor dictum. We find no merit in the same since on the issue of the nature of profits earned the ITAT has clearly held the same to be in the nature of capital gains. Further even on the issue of deduction under Section 80M the findings of the ITAT that the purchases of shares was by way of investment cannot be said to be an obiter dictum. An obitor dictum is a latin phrase meaning "by way" i.e. a remark in a judgment that is said in passing. As is evident from the above, the said were the findings of the majority view based on the facts of the case which cannot be termed as incidental or passing remark or opinion. Therefore, we reject....
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....ibed that the shares shall be bought back by the private promoter after a specified period at a defined consideration. Therefore, realization from such investments was liable to be taxed under the head "Capital gains" and not as business activity. The relevant observations recorded by this Court read thus:- "2. Learned counsel for the appellant submitted that the investments made by the assessee in the shares and the sales thereof was exigible under the head profit and gain from business and not capital gains as has been held by the Tribunal. 3. After hearing learned counsel for the appellant, we do not find any merit in the appeal. The Tribunal while rejecting the contention of the revenue had held as under:- "5. We have considered the rival submissions carefully. We have also perused the precedent referred the CIT (Appeals) in support of his conclusion that the activity of the assessee in investing in shares is not a business activity but is liable to be taxed under the head 'capital gain'. In our view, the nature of activity of taking up the shares in the private companies which are jointly promoted with the private entrepreneurs cannot be equa....
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....he assessee and having been accepted by the Department in the earlier assessment years, cannot be departed without cogent cause and justification. The Revenue has not brought out any change in the facts or in law which would justify departure from the accepted position in the earlier years. 4. Further, the Tribunal had relied upon its decision in the case of Punjab State Industrial Development Corporation Ltd. (ITA No. 1333/Chandi/94 and ITA Nos. 944 & 1591/Chandi/95) decided on 22.11.1996 against which reference had been filed before this Court which was numbered as ITR No. 20 of 2000. Question No.2 at the instance of the revenue therein was as under:- "2. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the investment in shares of companies jointly promoted by the Corporation along with other industrial undertakings, is in the nature of investment and not stock-in-trade and profit realised on disinvestment in these shares, is not business income but a capital gain?" 5. This Court vide judgment dated 30.9.2010 held as under:- "11. In the present case, as has been found by the Tribunal, the ass....
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....rily in the nature of trade because the purchase was made with the intention of resale [see Jenkinson v. Freeland (1961) 39 Tax Cases 636; Radha Debi Jalan v. ClT (1951) 20 ITR 176 (Cal); India Nut Co. Ltd. v. ClT (1960) 39 ITR 234 = AIR 1959 Ker 298; M/s. Sooniram Poddar v. ClT (1939) 7 ITR 470 (478-479) = AIR 1939 Rang 337; at p. 338; Ajax Products Ltd. v. ClT (1961) 43 ITR 297 (310) (Mad); Gustad Irani v. ClT (1957) 31 ITR 92 (Bom); and Mrs. Alexander v. ClT (1952) 22 ITR 379, 402 = AIR 1953 Mad 166, 170). 14. 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 [see Leeming v. Jones (1930) 15 Tax Cases 333 and also the decisions of this Court in Saroj Kumar Mazumdar v. ClT (1959) 37 ITR 242 (250-251) = AIR 1959 SC 1252, 1258-1259 and Janki Ram Bhadur Ram v. CIT (1965) 57 ITR 21 = AIR 1965 SC 1898)." In view of the above, the substantial questions of law are answered against the revenue and in favour of the assessee. Consequently, the appeal stands dismissed." 7. With regard to the additional questio....
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....en set up with the main object to establish industrial estates and to provide finance for growth of industry in the State, the shares acquired by it were closely related to its business activity and dividend income earned there from was thus to be treated as income from business. The Assessing Officer relied upon the decision of the Hon'ble Apex Court in the case of Brook Bond India Limited vs. CIT, 162 ITR 373. He further held that the provisions of section 14A would come into play and proportionate expenditure also was disallowed in case the dividend income is held to be exempt. The learned CIT(Appeals) upheld the addition so made. 41. Before us, the learned counsel for the assessee stated that the dividend income has been exempted from the taxation by the Finance Act, 2003 w.e.f 1.4.2004 by virtue of insertion of section 10(34) in the Act and, therefore, it made no difference whether dividend income was in the nature of business income or otherwise and the same could not be subjected to tax in any case. 42. The learned DR on the other hand, supported the order of the CIT(Appeals) and the Assessing Officer. 43. We have heard the contentions of both the ....