TaxTMI 
TaxTMI 
2019 (7) TMI 70
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....apital gain/loss as business income, the assessee-company is an Investment Company and income arising from the activities carried out by the company is not business income but income from capital gain." 2.1 Briefly stated, the assessee-company is stated to be Investment Company registered with RBI as Non-Banking Finance Company (NBFC) inter alia engaged in investment and money advancing activities for the assessment years in question. The assessee filed return of income for AY 2012-13 in question declaring loss of Rs. 1,81,90,320/-. The return filed by the assessee-company was subjected to scrutiny assessment. In the course of scrutiny proceedings, the AO observed that the record of the assessee shows that principal activity of the assessee is dealing in shares. The AO accordingly disputed long-term capital gain/loss and short-term capital gain/loss offered by the assessee on purchase and sale of shares offered by the assessee under the head 'Capital Gains'. The AO noted that the assessee has incorrectly declared the gains/losses arising on purchase and sale of shares to be taxable under the head 'capital gains' whereas in reality the profit and gains are liable to be taxed under ....
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.... coupled with huge profits generated would indicate a clear profit motive of the assessee. The AO took note of some judicial pronouncements as well as the CBDT Circular No. 4/2007 issued by the CBDT in this regard and found that having regard to the substantial nature of value of transactions, the magnitude of purchase and sale, the assessee was found to be engaged in a systematic, regular and periodic activity with numerous and continuous transaction which is akin to adventure in the nature of trade in distinction to an investment activity only as claimed by assessee. The AO accordingly held that income/loss arising from purchase and sale of shares give rise to business income and cannot be taxed at concessional rate applicable for income assessable under the head 'capital gains'. The AO, in short, denied the benefits of concessional tax treatment on gains/loss arising from sale of shares. 3. Aggrieved, the assessee preferred appeal before the CIT (A). In the first appeal, the CIT (A) however reversed the action of the AO on the ground that the investment in the form of shares were held at the command of fund managers etc. and shown in the books of account as investment. The CIT ....
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....ctions were not very high. It may also be noted that the investments are carried forward from the earlier years also and there is no finding of A.O. that the activity of the appellant was treated as business in any of the earlier years, it is also very relevant to mention that the major investment of Rs. 24.04 crores was made through the Fund Managers and hence the appellant was not engaged in any organized and systematic activity of purchase and sales of the shares by itself. Another substantial part of Rs. 15.24 crores was investments in the bonds. Balance amount of Rs. 8.24 crores was invested in unquoted shares of 5 companies and jewellery. Therefore, keeping in view of the above mentioned facts and circumstances of the case, thus it emerges that appellant company was not engaged in any business activity of purchase and sale of the shares. This view gets support from the decision of Hon'ble Supreme Court in the case of CIT v. Associated Industrial Development Co. (P.) Ltd. (1971) 82 ITR 586. Even the CBDT Circular No. 4/2007 also supports the case of the appellant because the shares/mutual funds were shown as investment in the books of account and the investment was made out of....
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....ting aside the order of the CIT (A) and restoration of the order of the AO in this regard. 4.2 The learned AR for the assessee, on the other hand, relied upon the order of the CIT (A). The learned AR for the assessee pointed out that the intention of the assessee is required to be gauged at the time of purchase as recorded in the books of account. The learned AR submitted that no borrowed funds have been utilized and therefore, the assessee was in no hurry to resale the shares and take business risks. The learned AR thereafter submitted that the frequency, magnitude and regularity of transactions are to be seen in the context of a given case. The assessee in the instant case has entered into meagre value of transactions of low magnitude and frequency. The learned AR also pointed out that the assessee has engaged deployed its surplus funds with the help of the professionals (PMS) to assist the assessee in wealth creation. The learned AR next submitted that the Revenue itself has accepted the transactions in shares under the head 'capital gains' as declared without any interference in the earlier AY 2010-11 and therefore, doctrine of consistency should apply while adjudicating the i....
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....n to a business venture. It is the case of the Revenue that the transactions of purchase and sale in shares etc. are trading in nature and thus chargeable to tax at normal rate under the head 'business income'. It is further case of the Revenue that the frequency, magnitude and regularity in carrying out the purchase and sale involving large number of transactions and scrips lends credence to the impression of an adventure in the nature of trade referred to in Section 2(13) of the Act and therefore it is akin to the business giving rise to its taxability under s.28 of the Act. 6.1 Before we proceed further, it would be pertinent to note in the context that there is a qualitative difference between profits arising from sale of capital assets and that of trading assets under the Act. Section 2(13) of the Act defining 'business' and Section 2(14) defining 'capital assets' operate in mutual exclusion. To put it differently, capital assets (non-current investment) and trading assets (stock-in-trade or current investment) are treated differently under the scheme of the Act. They cannot be compared on par with which other as similar class of asset. Noticeably, Section 2(13) of the Act de....
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....eeks to obliterate the influence of short-term fluctuations too which ordinarily a trader does, who is guided by these short-term considerations. This peculiar aspect in the case of the assessee gives a clue that assessee is engaged in the business activity or something akin thereto particularly when read alongside the object clause. The intention of investment qua trading is ordinarily differentiated by time horizon. The repeated churning of portfolio by a professional naturally erodes the element of longevity in such act. The investment as a capital asset is an act of faith in distinction to risk based approach adopted by a trader. The assessee has regularly booked losses at short intervals which underscores a risk based approach. 6.3 We require to note here that definition of business under s.2(13) of the Act is quite elastic and even includes an adventure which is in the nature of trade though strictly such transaction may not bear all the trappings of a trade or commerce. In appropriate circumstances even a solitary transaction may fall within the sweep of 'adventure in the nature of trade' as held in the case of Dalmia Cement Ltd. v. CIT [1976] 105 ITR 633 (SC) and many othe....
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....r i.e. there cannot be any straightjacket formula and there should not be a sweeping conclusion but a case to case test or approach should be adopted. 6.6 The issue is essentially factual and is governed by facts of each case. Judicial utterances made in the setting of the facts of a case would not thus apply unless it is shown that the facts are identical. We are thus not required to delineate the nicety of law de hors the facts in such a case. The CIT (A) in our view has applied the legal principles in an abstract manner de hors the peculiar facts of the case and therefore, cannot be approved. We accordingly set aside the order of the CIT (A) and restore the action of the AO. 6.7 In the result, appeal of the Revenue for AY 2012-13 is allowed. 7. The grounds of appeal raised by the assessee in IT Appeal No. 1158/Ahd/2016 for AY 2012-13 read as under: "1. The order passed by the ld. CIT (A) is bad in law, contrary to legal pronouncements and same be quashed. The addition is unwarranted and same be deleted now. 2. The ld. CIT (A) has erred in upholding the disallowance of Rs. 66,41,156/- made by the AO u/s. 14A of the Act r.w.r 8D. The ld. CIT (A) has erred in law in upholdin....