TaxTMI 
TaxTMI 
2020 (2) TMI 979
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....erm/short term) treating it as business income. 4. The similar issue in the assessee's own case stands adjudicated by the Co-ordinate Bench of the Tribunal for the assessment years 2006-07, 2008-09 and 2010-11 in ITA Nos. 2863/Del/2010, 3911/Del/2011 and 3635/Del/2011. 5. At the outset, both the parties accepted to the preposition that there has been no change in the factum except the amounts involved. Since, the matter already stands adjudicated in the absence of any material changes, we hereby dismiss the appeal of the revenue. For the sake of ready reference, the relevant portion of the ground no. 2 and ground no. 5 in the order dated 22.12.2015 is hereby reproduced: "The following additions/disallowances were made by the Assessing Officer in the assessment framed under sec. 143(3) of the Income-tax Act, 1961: S. No. Nature of addition/issue Amount in(Rs.) Grounds of appeal raised 1. Long Term Capital Gain treated as business income. 34,61,63,879 Ground Nos.1 to 9 2. Short term capital gain Treated as business income. 6,71,16,180 GroundNos.10 to 18 3. Interest income 9,00,000 Ground No.19 4. Disallowance u/s.14....
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....le for exemption under sec. 10(38) of the Act. This action of the Learned CIT(Appeals) has been questioned by the Revenue before us. 9. The Learned CIT(Appeals) has, however, upheld the action of the Assessing Officer treating the claimed short term capital gain of Rs. 6,71,16,180 and loss of Rs. 47,82,051 (net gain Rs. 6,23,34,128) as business income. This action of the first appellate authority has been questioned by the assessee in its above appeals. 10. In support of ground Nos. 1 and 2 of the appeal preferred by the Revenue, the Learned CIT(DR) has basically placed reliance on the assessment order. He referred contents of page Nos. 17 to 20 of the assessment order with the submission that frequency and volumes of the transactions suggest that it was not a case of investment but business. The assessee has converted stock in trade to investments. He placed reliance on the decision of the Authority for Advance Ruling in the case of Fidelity 7 Group reported in 288 ITR 641 (AAR). He submitted that where a company purchases and sells shares, it must be shown that they were held as stock in trade and that existence of the power to purchase and sell shares in the Me....
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....res of Dabur India Ltd. and realized profit under the head "long term capital gains" and claimed exemption under sec. 10(38) of the Act. Similarly, the assessee sold shares of certain other companies and the gain realized was offered under the head "long term capital gain" as period of holding was more than one year and claimed exemption. In support, he referred page No. 137 of the paper book having details of such shares. In 9 addition to the above, the assessee also sold shares of various other companies (approximately 170) and offered the gains under the head "short term capital gain", since the period of holding in those transactions was less than one year. In support, the Learned AR referred page Nos. 142 to 146 of the paper book. The assessee had also applied special rate of taxation thereon as prescribed under sec. 111A of the Act, made available at page No. 141 of P.B. The Learned AR also referred Board Resolution (Page No. 215 of P.B), extract of investment ledger account (Page No. 216-217 of P.B.), financial statement with audit report (page Nos. 218 to 244 of P.B.) and Memorandum of Association (page Nos. 243 to 263 of P.B.). 12. The Learned AR submitte....
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....ja Bahadur Kamakhya Narain Singh vs. CIT - 77 ITR 253 (S.C) 13. The Learned AR submitted further that in its books of account, the assessee has valued the shares at cost price as investment and referred page No. 228 of the paper book in support. He submitted further that assessee had sufficient interest income and referred page No. 236 of the paper book in support. He submitted that dividends were also received during the year. The Learned AR also placed reliance on the following decisions: i) CIT vs. Chowdry Associates - ITA No. 544/2013 - order dated 30.1.2015 (Delhi High Court): ii) CIT vs. Ashok Wadia - 2014-TIOL-518-H.C-Del-IT; iii) Bengal & Assam Investors Ltd. vs. CIT - 2002 - TIOL-705- S.C-IT. iv) Slocum Investment Pvt. Ltd. vs. DCIT - 2006TIOL-300- ITAT-Delhi; v) Ram Narain Sons Pvt. Ltd. vs. CIT - 41 ITR 534 (S.C); vi) Karnataka State Ind. Investment & Dev. Corpn. Ltd. vs. DCIT - 59 ITD 643 (Bang,.); vii) CIT vs. Gopal Purohit - 2010-TIOL-129-S.CMUM-IT; viii) CIT vs. Devasan Investment P. Ltd. - 365 ITR 452 (Del.); 14. Considering the above submission, we find that in its recent deci....
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....gistered with Reserve Bank of India, is one of the promoter company of Dawar India Ltd. 15.1 The Learned CIT(Appeals) has dealt with the issue as under: "7. I have gone through the assessment order and the written submissions filed by the AR in this regard. 8. As already stated the assessee is a NBFC and the assessee company is one of the promoter companies of Dabur India Ltd. and the 'controlling interest of all the group companies as on 31.03.2005 is as under: Promoters of Dabur India Ltd. No. of shares held on 31.03.2005 % age of holding 1. VIeEnterprisesPvt.Ltd. 37430000 13.07% 2. Gya~ Enterprises Pvt. Ltd. 37250330 13.01% 3. Chowdry Associates 37438340 13.07% 4. Puran Associates Pvt. Ltd. 37352000 13.04% 5. ACEE Enterprises 37191990 12.99% 6. ~atna Commercial Enterprises Pvt. Ltd. 36456330 12.73% Total promoters holding 223118990 77.90% 7. Public, Fls. Mutual Fund etc. 63300723 22.10% Total number of shares of DIL (paid up) 286419713 100% 9.1 The assessee company has been holding the shares of Dabur India Ltd. over a period of t....
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....requency of transactions would not decide the issue ipso facto. * The assessee can hold shares either as investment or as stock in trade as clarified in Board Circular No. 4 of 2007 dated 15th June 2007. * Entries in the books of account prove that shares in question are held as investment. * In the case of group companies, the profit on sale of shares of Dabur India Ltd. was allowed to be taxed under the head capital gain. 11.2 The AR relied on the following case laws: * Bengal and Assam Investors Ltd. vs. CIT (2002TIOL-705-SC-IT) 16 * Slocum Investment Pvt. Ltd. vs. DCIT (2006-TIOL300-ITAT-Del) * Ramnarain sons Private Limited vs. CIT 41 ITR 534 (sq * Karnataka State Industrial Investment and Development Corporation Limited vs. DCIT 59 ITD 643 (Banglore) * CIT vs. Gopal Purohit (2010-TIOL-129-HC-MUM-IT) 12.1.1 In the case of Sarnath Infrastructure (P) Ltd. Vs. Asstt.CIT (2008) 16 DTR (Lucknow)(Trib) 97, the Tribunal has considered almost all the important judicial decisions laying down legal principles to determine the nature of transaction i.e. trading transaction or investment in the light of CBDT ....
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.... 37430000 13.07% 2. Gya~ Enterprises Pvt. Ltd. 37250330 13.01% 3. Chowdry Associates 37438340 13.07% 4. Puran Associates Pvt. Ltd. 37352000 13.04% 5. ACEE Enterprises 37191990 12.99% 6. ~atna Commercial Enterprises Pvt. Ltd. 36456330 12.73% Total promoters holding 223118990 77.90% 7. Public, Fls. Mutual Fund etc. 63300723 22.10% Total number of shares of DIL (paid up) 286419713 100% 17. The assessee had offered the profit/gain on purchase and sale of units of mutual funds as business income on the basis that the said activity constitutes regular business activity. However, the profits/gains realized on purchase and sale of shares were offered under the head "capital gain" on the basis that the shares have been held as investment in the books of account. There is no dispute that intention and the entries in the books showing the shares as investment is the guiding and determining factors. This fact has also not been denied that the gain realized on sale of shares of Dawar India Ltd. in financial year 1989-90 (relevant for assessment year 1990-91) was offered to tax under the head "capital gain" by Gyan Ente....
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....rned from Investment in equities 12,00,86,699 19.1 The assessee has earned above dividend out of Rs. 44.72 crores of investment in equities. During the year, the assessee has made purchase of Rs. 45.07 crores against sale of only Rs. 59.75 crores. 19.2 The treatment of income from above three income streams are based on accounting principles and standards as issued by Institute of Chartered Accountants of India and the assessee has consistently followed the same accounting principles over the years. The significant accounting policies adopted by the Company are disclosed in Schedule L - refer Annexure 2. The accounting policies are important here as it lays down how the treatment of various classes of assets is measured. 19.3 Schedule L (on Investments) to the Balance Sheet enclosed along with return that long -term investments are stated at cost less permanent diminution in value of investments only. The Investments (Other than Trade) of Rs. 44.71 crores as on 31 March 2006 are detailed in Schedule F of the Balance Sheet. The aforesaid investments are made upon the decision made by Board of Directors and with clear intention to hold the aforesaid Capi....
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.... delivery based. 20. Ground No.3: In this ground, the Revenue has questioned First Appellate Order whereby the Learned CIT(Appeals) has held that Rs. 9 lacs is not a real income. The learned CIT(DR) submitted that while holding so, the Learned CIT(Appeals) has ignored the fact that interest income of Rs. 60 lacs had already accrued and accordingly received by the assessee during the year. 21. The Learned AR on the other hand placed reliance on the First Appellate Order. 22. We having gone through the orders of the authorities below, find that the Assessing Officer had made addition of Rs. 9 lacs on the basis of special auditor's report that assessee had not shown interest income of Rs. 9 lacs received from Dawar Foods Ltd. as the assessee had advanced ICD of Rs. 6 crores to M/s. Dawar Foods Ltd. at the interest rate of 10%. The submission of the assessee remained that assessee had advanced an amount of Rs. 6 crores to Dawar Foods Ltd. initially at the interest rate of 10%, however, during the year on mutual consents the rate was reduced from 10% to 8.5%. The Assessing Officer had not accepted this explanation of the assessee but the Learned CIT(Appeals) h....
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.... remained investment still the gain will be treated as short term capital gain. The contention of the assessee remained that these shares were also purchased with intention to invest therein details of which has been made available at page No.142 to 146 of the paper book. In the details, the period of holding has been shown less than or equal to sixty days with all the other details as well as STT paid on the transaction. 26.1 Both the Ld AO and learned CIT(A) have erred in treating the income from sale of STT Paid listed equity shares from Short term capital gains to business income. It can be seen that the assessee is primarily an investor in shares. From the ratio of sale of income from shares, 84% of the income is determined from long term holding of STT paid listed equity shares. Only a small component 15% of income from shares is treated as short term. A look into the holding period of shares Appendix B would reveal that out of 560 scripts, the transactions pertained only to 60- 65 scripts which were sold in 27 at different times. 409 scripts out of 560 total scripts has a holding period of more than 60 days having a short term capital gain of Rs. 5.13 crores out of ....
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.... Nature of addition/issue Amount in (Rs.) Grounds of Appeal raised 1. Long Term Capital Gain treated as business income. 25,59,09,101 Ground No.2 2. Short Term Capital Gain Treated as business income 5,83,72,758 Ground Nos.2 and 5 3. Interest Expenses is allowed. 3,89,53,657 Ground No.7 4. Disallowance u/s.14A 24,57,661 Not contested 5. Disallowance u/s.94(7) 1,09,525 Not contested 36. The main issue involved in the appeals is regarding taxing the profits realized on sale of shares as business income against capital gain offered by the assessee either under long term capital gain or short term capital gain depending upon the period of holding of shares. 37. The assessee claimed Rs. 25,59,09,101 as long term capital gain which has been treated by the assessee as business income. The Learned CIT(Appeals) has, however, accepted the claimed long term capital gain against which the Revenue is in appeal raising ground Nos. 1 to 3 in this regard. 38. In support of the grounds, the Learned CIT(DR) has basically placed reliance on the assessment order. He submitted that the assessee was holding s....
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....a Investment Pvt. Ltd. vs. ITO (supra), Ram Narain & Sons Pvt. Ltd. (supra) and Raja Bahadur Kamakhya Narain Singh vs. CIT (supra). 39. Considering the above submission, we find that both the shares of MTNL and Punjab Tractors Ltd. have been shown as investment in the balance sheet as on 31.3.2007 and all the shares were sold and not many transactions are there in the scripts. As on 31.3.2008, no shares of MTNL and Punjab Tractors Ltd. are held. These shares were held for considerable long time and shares were being sold when there was appreciation in the market. Shares of ABN Amro Securities purchased in 1998-99 were sold on 14.7.2007 after a period of 7/8 years. In these shares, the assessee had not carried out the transactions on regular basis as evident from the numbers of shares and transactions. Besides, the investment in Punjab Tractors Ltd. was made by the assessee in order to enjoy the controlling shares in the said company and the profit on sale of shares enjoying managing control is always considered as capital gain as per the decision cited hereinabove in the cases of Accra Investment Pvt. Ltd. vs. ITO (supra), Ram Narain & Sons (P) Ltd. (supra) and Raja Bahadu....
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.... the assessee as long term capital gains to be taxed as special rates prescribed u/s. 112. The action of the A.O. in treating the gain as business income is not approved. Accordingly, Ground No.2 is allowed." 41. The above material findings of the Learned CIT(Appeals) on facts regarding showing of the shares as investment in the balance sheet, their holding period, and volume and frequencies of their transactions, have not been rebutted by the Revenue. We thus do not find reason to interfere with the First Appellate Order on the issue. The same is upheld. 42. In result, ground Nos.1 to 3 of the appeal of the Revenue are thus rejected. 43. In ground Nos. 1 to 4 of the appeal of the assessee, the assessee has basically questioned treatment given to the gain of Rs. 5,83,72,758 on disposal of shares by the authorities below as business income against the claim of the assessee as short term capital gain chargeable to tax under sec. 111 of the Act. 44. The relevant facts are that the Assessing Officer noted that during the assessment year under consideration, the assessee had shown short term capital gain of Rs. 5,83,72,785. In the computation of incom....
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....s income and brought it to tax on that count. The assessee succeeded in the appellate proceedings. Hon'ble High Court observed that the bulk of shares held by the assessee were for a substantial period and income was derived on account of liquidation of investment. It was held that there cannot be a single factor or criterion to determine whether the income falls under the head of short term capital gain or of business income. He referred page Nos. 13 to 18 of the paper book wherein details of short term capital gains STT paid (benefit claimed under sec. 111A) and without STT(no benefit claimed under sec. 111A) have been furnished. 46. Learned CIT(Appeals) on the other hand tried to justify the orders of the authorities below and he has also adopted similar arguments as advanced by him hereinabove in the appeal for the assessment year 2006-07 in opposition of ground Nos. 1 to 3 of the appeal preferred by the assessee. 47. Considering the above submission, we find that the authorities below have denied the claimed short term capital gain mainly on the basis that the assessee carried on the activities of purchase and sale of shares on regular basis, volume of pu....