TaxTMI 
TaxTMI 
2018 (8) TMI 1961
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....1,96,869/- by treating long term capital gain and short-term capital gain as business income. 2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in restricting the addition made u/s. 14A from Rs. 57.64 lacs to Rs. 32.14 lacs. Ld. CIT (A) erred in giving relief to the assessee on the fact that the assessee has earned interest income and therefore he is entitled for set off. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that section 14A read with Rule 8D, takes into account only the interest component which can be attributed towards the income and not forming part of total income. It has nothing to do with the earning of interest income. 4. The Appellant craves to the allowed to amend, delete or add any other grounds of appeal during the course of hearing of this appeal" 3. The facts in brief qua the issue are that, assesseecompany has been stated to be in the business of sale and purchase of shares and mutual funds. During the year, the assessee had shown income from business and also income from Long Term and Short-Term Capital Gains in the ....
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....tual fund transactions under the head 'income from business'; and it is only from Assessment Year 2005-06 the assessee has segregated the income under the head 'Capital Gain and Business Income'. Out of the total transaction undertaken by the assessee under the head 'capital gain', the Assessing Officer held that in so far as shares invested in Dabur India Ltd. is concerned which was invested in the share capital of the group company, was has held as investment since beginning, therefore, tax on sale transaction on such shares i.e., Dabur India Ltd. can be held to be taxable under the head 'Long term Capital Gain. After excluding the share of Dabur India Ltd, he has combined the entire transaction of shares and mutual funds, both under the head 'business' and 'capital gain' in the following manner: - Opening Stock a. Mutual Fund (shown as stock in trade) = Rs. 30.24 crore b. Shares (shown as investment) (Excluding Dabur India Ltd. Stock of Rs. 60,054/- = Rs. 39.92 crore Total= Rs. 70.16 crore Closing Stock c. Mutual Fund (shown as stock in trade) = Rs. 53.35 crore d. Shares (shown as investment) (Excluding Dabur India Ltd. Stock of Rs. 41,774/-) &nb....
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....s. 10,60,079 Thus it can be seen that the dividend earned on so called investment is Rs. 10,60,079/- only, while the profit earned from above transactions is Rs. Rs. 15,41,96,869/-(para No. 14). Thus the ratio of dividend to profit is 1 : 145. This clearly and strongly indicate that the motive is to earn profit in regular and systematic manner. v) Holding period of securities bought and sold and frequency of transactions. Analysis of statement of capital gains filed by the assessee shows that the period of holding varies from few days to few months. Transactions have been carried out throughout the year almost on daily basis. It will not be out of place to mention even at the cost of repetition that taxability of transactions will not depend on presentation of accounts or by showing the shares as investment. It will depend on the facts of the case. The volume, frequency and regularity of share transactions done in organized manner indicate business activity [CIT vs. Motilal Hirabhai Spg. & Svg. Co. Ltd. (1978) 113 ITR 173 (guj)]." 6. Thereafter, he again referred to various decisions as discussed from pages 15 to 22 of his order including CBDT Circular....
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..... (xi) The assessee has paid consultancy charges for investment planning amounting to Rs. 13.08 lakhs. The hiring of service of experts clearly indicates that the motive of the assessee is to earn profit on such transaction and not merely to make investment and earn silent income. (xii) On combined examining the mutual fund and equity share transaction, there is huge turnover of Rs. 945.69 crore and average holding of Rs. 106.06 crore which is clearly the case of high transaction and low holding, which in turn indicates trading activity. (xiii) The ratio of dividend to profit is 1: 145. This clearly and strongly indicate that the motive is to earn profit in regular and systematic manner. (xiv) From the volume, frequency, continuity and regularity of transactions of purchase and sales in shares it can be inferred that these transactions must have been entered into by the assessee with a profit motive. (xv) Tests laid down under various judicial pronouncements confirms that the assessee has entered into share transaction with profit motive." 8. Before the ld. CIT (A), the assessee submitted that it has maintained two portfolios for the ....
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....sue, the matter has been decided by the Tribunal, then no different view can be taken. 11. On the other hand, learned counsel for the assessee, Mr. M.P. Rastogi after narrating the entire facts, submitted that one thing which heavily weighed the Tribunal was that assessee had earlier held the shares as 'stock-in-trade' which was later converted into investment and thus, it was held that the intention of the assessee was to do business. But conversion of stock into investment was done way back in the financial year 2004-05 and if one looks to the schedule of investment, appearing at pages 63 to 67 of the paper book which is scrip-wise detail, then it could be seen that none of the scrips which has been sold during the year were part of such conversion of stock. He had also filed a detail of transaction of shares undertaken under the head 'Long Term Capital Gain' and 'Short Term Capital Gain' and pointed out that all the shares which were held as investment have been acquired in the financial years 2005-06, 2006-07 and 2007-08. Only the shares of Dabur India Ltd. were purchased in the year 1987 which Assessing Officer himself has held that it was always held as investment a....
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....igh Court in the case of Pr.CIT vs. Bhanuprasad D. Trivedi (HUF) (2017) 87 taxmann.com 137 which was precisely on this issue that if the intention of the assessee at the time of purchase is of investor and held as investment then any action arising out of transfer of shares should be treated as capital gains. This judgment of Hon'ble Gujarat High Court has now been affirmed by the Hon'ble Supreme Court vide order dated 4th May, 2018, reported in (2018) 256 taxmann.com 66. Regarding balance sale of shares other than Punjab Tractor Ltd. and ABN Amro Securities Ltd., he submitted that looking to the transaction in the shares which was held for more than 365 days which constituted 98.34%, then it is clear that assessee's intention was always to treat the share as investment. He further pointed out that in the Assessment Year 2012-13, the Tribunal in the case of the assessee has held that transaction of shares held under the head 'investment' is to be taxed as capital gain and in support, he filed a copy of ITAT order dated 26.03.2018 passed in ITA No.4711/Del/2016. Thus, he submitted that now in the wake of various decisions of Hon'ble High Court and Hon'ble Supreme Cou....
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....nbsp;Rs. 15,41,96,869/- The assessee company is a NBFC, which was also in the business of sale and purchase of shares and mutual fund. In so far as transactions in mutual funds are concerned, the same has been offered under the head 'Profits and Gains of Business and Profession'. However, various shares which has been held under the investment portfolio on which assessee has been shown under the head Long-Term Capital Gain and Short-Term Capital Gain as per the details incorporated above. The income earned by the assessee from various sources was as under: - Particulars Asset Type Amount Income from Business (A) a)Trading in units of Mutual Funds; b) Income from Interest; c) Incentive and Miscellaneous Income 360,77,965 Income from Capital Gains (B) Income from Capital Assets - Investment in Equities LTCG- 11,48,78,740 (85%) STCG- 2,02,28,220 (15%) 13,51,06,960 Income from other Sources (C) Dividend earned from investment in equities 8,19,14,172 15. One of the main contentions of the Revenue which has been strongly harped by the Tribunal in the earlier years is that, assessee prior to 31st March, 2004 was holding shares as 'stock in t....
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.... have been held as stock for the purpose of trade. Thus, the shares of ABN Amro Bank can never be treated as acquired for trading purpose. Hence any gain arising from sake of these two shares has to be assessed as 'capital gain'. 16. Further, from the perusal of details shown under LTCG of other scrips also, we find that the same have been acquired in the years 2005, 2006 and 2007 and were treated as part of investment and the holding days of these shares are ranging from 372 days to 828 days. These shares were not converted from stock as on 01.04.2004, because they have been acquired in the later years and from the date of acquisition, always been kept as investment in the books and later on sold after more than a year on which gain has been shown under the head 'Long Term Capital Gain'. Nowhere it has been laid down that the assessee who is dealing in shares cannot maintain two separate portfolios, one for the trading purpose and other for the investment purpose and there is no provision that shares held in investment portfolio have to be treated as part of stock. The most paramount factor which needs to be examined in such cases is, whether the intention of the assessee while....
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.... of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of "trade"; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the assessee had not purchased the shares as an investment, but with the intention to trade in such scrips. In the light of view taken in the aforesaid decisions, including in Wallfort Financial Services Ltd.(supra) relied upon by the Id. DR, we are of the opinion that the Id. CIT(A) was not justified in accepting the claim of the assessee as investor in shares especially when the nature of transactions in the years under consideration was similar to what the assessee had undertaken hither to and turnover of the the findings of the Ld. CIT (A) and restore the order of the AO. Therefore, ground no.1 in these appeals is allowed." If the aforesaid ratio and principle of the Tribunal is to be followed as it is, then as observed in the earlier part of the order, in so far as the transaction of shares of Punjab Tractors Ltd. and ABN Amro are concerned, right from day one it was acquired as a part of investment only and was classified as suc....
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....rder to reduce litigation - reg.- Sub-section (14) of Section 2 of the Income-tax Act, 1961 (Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in- trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stockin-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the applicat....
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....es. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities." 17.1 Later on CBDT again clarified in the following manner:- F. No. 225/12/2016/ITA.II Government of India Ministry of Finance Department of Revenue (CBDT) North Block, New Delhi, dated the 2nd of May, 2016 To Principal Chief-Commissioners of Income-tax/ Principal Directors General of Income-tax Subject: - Consistency in taxability of income/loss arising from transfer of unlisted shares under Income-tax Act, 1961-regd, Regarding characterisation of income from transactions in listed shares and securities, Central Board of Direct Taxes ('CBDT) had issued a clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve months would be taxed under the head 'Capital Gain' unless the tax-payer itself treats these as its stock-....
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....n Ltd., ITA No.740/2009 (Del.) 18. In the light of the catena of decision Hon'ble Jurisdictional High Court and also some of the judgment affirmed by the Hon'ble Supreme Court and the facts as discussed above, the earlier years Tribunal order cannot be held to have any binding precedence and accordingly, we hold that in so far as transaction in sale of shares shown under the head 'Long Term Capital Gain' same cannot be taxed under the head business income especially in the light of the categorical clarification by the CBDT. 19. In so far as the allegation of the Assessing Officer that looking to the magnitude of the transaction and the volume so far as 'Short Term Capital Gain' is concerned, before us, the assessee has filed scrip wise details to show that in most of the cases period of holding was more than six months and there is no repetitive transaction. The volume and frequency may be one of the factors to gauge, whether the shares acquired were for trading purpose or for were for investment, but that alone is not a final test, because the shares may be acquired for a short period and whenever the assessee feels that either the scrip is giving immediate gain or t....
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....rpose of disallowance u/s.14A and as per the calculation under Rule 8D the disallowance only comes to Rs. 32,13,921/-, which is lesser than the figure added by the assessee. The learned Assessing Officer held that assessee is having common infrastructure and common personnel for earning income under various heads and also using the administrative, managerial and infrastructure set up for earning the income. Accordingly, he held that no doubt assessee has computed the disallowance under Rule 8D but it is only with regard to the indirect expenditure by taking 0.5% of the average investment. The assessee has not included the disallowance of interest expenses debited in the P&L account. Accordingly, he computed the disallowance at Rs. 95,39,000/- which constituted Rs. 63,25,000/- under Rule 8D(2)(ii) and Rule 8D(2)(iii) of Rs. 32,14,000/- since the assessee had suo-moto disallowed Rs. 37,74,438/-, he made further disallowance of Rs. 57,64,562/-. 22. Before the ld. CIT (A), assessee submitted that it had earned interest income of Rs. 395.23 lacs and made interest payment of Rs. 156.86 lacs which resulted into net income of interest of Rs. 328.37, which has been offered for tax for th....
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....ng of dividend income then that much of expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Even the shares held as stock in trade from which assessee has earned profit therefrom and also the dividend then also Section 14A is triggered. 24. On the other hand, learned counsel submitted that has a huge reserve and surplus of Rs. 19,199.85 lacs and also assessee has shown huge net interest income, therefore, disallowance under Rule 8D on account of interest cannot be made. 25. After considering the aforesaid submission and on perusal of the relevant findings given in the impugned orders, we find that in so far as disallowance under Rule 8D2(iii) is concerned, it is not in dispute, because already assessee has offered more than what is disallowable under the formula given under Rule 8D2(iii). The Assessing Officer has imputed the disallowance of interest without even analyzing the nature of accounts and the fact that assessee has a huge net surplus of interest income which has been offered for tax. The assessee is a NHBC and has earned interest income of Rs. 395.23 lacs on loan advances to the part....
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....ital loss and Rs. 57,05,498/- as short-term capital gain by following the earlier decision of CIT(A)'s principle of consistency. 2) On the facts and under circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 25,57,020/- by ignoring the mandatory procedure prescribed under Rule 8D of the IT Rules r.w.s 14A of the IT Act. 3) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 66,998/- by giving effect to CBDT's Notification No.56/2012 which is operative from 01.01.2013 and not applicable to the year under consideration. The Ld. CIT(A) also erred in holding that the payment of DEMAT charges does not qualify for deduction u/s 194H of the IT Act, 1961. 28. In so far as ground no.1 is concerned, again the issue is by and large the same as has been discussed in the earlier part of the order and even the ld. CIT (A) has followed the earlier years. Since we have already held that the transaction of the shares held by the assessee in the investment portfolio is assessable under the head 'capital gain' and therefore, the loss of Rs. 34,78,378/- has to be treated as Long Term Capital Loss. In s....