TaxTMI 
TaxTMI 
2021 (11) TMI 562
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....he facts of the relevant year and ignoring the CBDT's circular. 3) That the CIT (Appeals)/AO has erred on facts and in law in increasing the disallowance u/s 14A by Rs. 77,82,133, without factoring the assessee himself had disallowed Rs. 24,38,508. 4) That both the Ld. CIT(A) and Ld. AO erred in law and in facts in appreciating that strategic investments in Dabur India Limited as the promoter shareholder, would not form part of disallowance u/s 14A. 5) That the CIT (Appeals)/ AO has erred on facts and in law in disallowing the business expenses of Rs. 9,44,390 on adhoc basis @ 10%. 6) That the above grounds of appeal are independent and without prejudice to one another. 2. Briefly stated facts of the case are that the assessee is engaged in the business of sale and purchase of shares and mutual funds. The assessee filed return of income for the year under consideration on 28.11.2014, declaring income of Rs. 9,49,46,119/-. The return filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short 'the Act') were issued and complied with. In the assessment completed under section 143(3) of the Act....
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....r taking benefit of provisions of sec. 111A of the Act applicable from the AY 2005-06, the assessee cannot be categorized as an investor, especially when the aforesaid facts speak otherwise and the ld. AR did not place any material, other than resolution dated 22.4.2005, before us while the auditor reports and facts for the years under consideration ,reflecting intention of the assessee, lead us to the conclusion that the assessee is continuing its activities as in earlier years of a trader in shares. .As observed in Sutlej Cotton Mills Supply Agency Ltd. (supra), it is a matter of first impression with the Court whether a particular transaction is in the nature of trade or not. , it is not even the assessee's case that they had held all the shares for a long duration. The facts and circumstances of the case before us, when viewed in the light of principles laid down in the various decisions referred to above, lead us to the conclusion that the voluminous share transactions were in the ordinary line of 24 ITA nos.1118,942&943/Del./2010 the assessee's business; purchase of shares by them was not for the purpose of earning dividend, but with the dominant intention of resale i....
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....in Rs. 1,85,41,338 Short Term Capital Gain With PMS (Net) Rs. 16,86,882 Total 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 EquitiesLTCG11,48,78,740 (85%) STCG2,02,28,220 (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 Tribun....
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....ys held as investment and since the stock was not a tradeable in the stock market, therefore it could 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 mos....
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.... of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme 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 assessee continually increased in the years under consideration. Accordingly, we vacate 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 ....
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....9/02/2016 Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order 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 stock- in-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....
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....of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. 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 characterization 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....
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.....) 5. CIT vs. Sahara India Housing Corporation 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. 3.8 Further, the Tribunal in the assessee's own case for assessment year 2010-11 (ITA No. 701/2015 in order dated 02/01/2019) following the order of the Tribunal for assessment year 2008-09, 2009-10 in 2011-12 upheld the activity of the parties on sale of the shares assessable under the head capital gain. The relevant finding of the Tribunal reproduced as under: "5. Thus, respectfully following the precedents of the earlier years and as a principle of consistency, we uphold the order of the CIT(A) that long term capital gain/capital loss cannot be treated as business income ....
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....ith Rule 8D of the Rules as under: Calculation of Expenses U/s 14A (i) Amount of expenditure directed relating to exempt income NIL (ii) Indirect Interest expenses Interest paid Average Value of investment/Average value of total assets NIL (iii) 0.5% of Average value of the investments 10220641 Closing Investments 2506291454 Opening Investments 1581876664 Average investments 2044128159 10220641 Gross disallowance u/s 14A Less: Expenses on account of income on which no activity has done in the previous year Total exempt Income Dividend received 312842907 Long Term gain u/s 10(38) 31901839 Tax free interest 52856859 397601605 Less: Dividend reed from DIL 302739200 % of DIL dividend in exempted income 76% 7782133 Disallowance u/s 14A 2438505 5.2 We find that the assessee firstly computed the disallowance....
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....ly covered against the assessee with the decision of the Tribunal in ITA No.3785/Del/2017 (supra). The relevant para is reproduced as under: "3.9 Regarding the second contention of the assessee that no dissatisfaction was recorded by the Assessing Officer on the claim of the assessee of expenses toward earning exempt income, we agree with the finding of the Ld. CIT(A), that when the assessee itself as computed the disallowance in terms of rule 8D and thereafter reducing the expenses corresponding to earning dividend income from shares of M/s Dabur India Ltd. was not justified. The Assessing Officer in para 4.3 to 4.5 of the assessment order has duly rejected the action of the assessee of reducing the expenses related to earning of the dividend income from the shares of M/s. Dabur India Ltd. Accordingly, we reject the contention of the assessee and upheld the finding of the Learned CIT(A) on the issue in dispute. The ground No. 2 of the appeal of the assessee is accordingly dismissed." 5.6 Hence, respectfully following the findings of the Tribunal (supra), the Grounds No. 3 of the appeal of the assessee is dismissed. 6. In the Ground No. 4, the assessee has contested ....