TaxTMI 
TaxTMI 
1996 (7) TMI 166
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....rts investing in some other new company. 2. The facts of the case are that during this particular year the assessee sold its shareholdings in as many as eight companies of the aforesaid type, either fully or partly. This resulted in loss to the assessee-company in the case of five companies, whereas the assessee stood to gain in respect of the sales of the shares of three companies. Even then, the assessee made a profit of Rs. 5 lakhs by selling 80,000 shares of M/s. Star Volkman Ltd., and also substantial profit of Rs. 4,16,00,000 in selling its entire holding of 10,40,000 shares in Karnataka Telecables Ltd. The assessee claimed that it was holding all the abovementioned shares under the investment portfolio and hence, the profit or loss arising to it on account of sale of all these shares were of the nature of capital gains or capital losses. Accordingly, the assessee returned a net capital loss of Rs. 21,11,096 after deducting a sum of Rs. 5,19,99,282 on investment of the sale proceeds of the shares in IDBI Bonds and UTI capital gains unit and a further amount of Rs. 9,14,785 under section 48(3) of the Income-tax Act. The Assessing Officer was, however, of the opinion that the ....
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.... Raja Bahadur Visheshwara Singh v. CIT [1961] 41 ITR 685. The Supreme Court held in the said case that when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than he originally acquired it at, the enhanced price is not a profit assessable to income-tax but where what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on of a business the amount recovered as appreciation will be assessable. The converse of this finding of the Supreme Court is that when an assessee does not carry on a regular business in investments, any profit arising to it out of terminal sale of such investments will not tantamount to business profit. 4(a). Thereafter reliance has been placed on another decision of the Supreme Court in the case of Dalhousie Investment Trust Co. v. CIT [1967] 66 ITR 473. It was held in this particular case that the mere fact that an investment company periodically varies its investment does not necessarily mean that the profits resulting from such variation is taxable under the Income-tax Act, at the relevant time there was no provision for taxing capital gains. It was furthermore he....
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....ce to the fact that the assessee had taken up shares in many other companies also and on developing the companies for some time, the assessee was always in the habit of disinvesting the shares. Thus, it is argued that the acquisition and disposal of the shares formed a part of the business process of the assessee and the dealings in this regard should, therefore, be considered as regular business dealings. It is, thus, finally argued that the profits or loss arising out of the sale of the shares should be considered as profits or loss on revenue account. In support of this contention, the learned Departmental Representative has relied on some decisions. He has pointed out that in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362, the Supreme Court found that whereas that assessee was a company formed with the objects, inter alia, of acquiring and disposing of under ground coal mining rights in certain coal fields and whereas the memorandum of association of the company enumerated other objects, such as coal raising, but the assessee restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing the....
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....ng on business in regular manner and earning profits. On the other hand, it is a Government undertaking, specially created by the Karnataka Government with the main purpose of developing industries in the State. Thus, the primary object of the assessee is development of industries and helping entrepreneurs in the process and not to earn profits for itself. Incidentally, it may make some gains which would help it in carrying on its activities. It is a well-acknowledged fact that the assessee does not deal in shares in a regular way and never goes to the secondary market for making purchases or sales of shares. On the other hand, it undertakes promotion of certain companies and invests in the equity of such companies either alone or in participation with others, simply for the purpose of helping that company to grow. Whenever therefore, the assessee invests in the shares of some company, the principal object behind the same is to nurse the company for the purpose of developing the industries in the State in general, Thereafter, when the assessee feels that the time has arisen for it no longer to back the company and either the company would be able to stand on its legs or the company....
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....ime does not become ipso facto a business operation. On the other hand, for the reasons as detailed by us above, we must come to the conclusion that the shares were held by the assessee under investment portfolio and, therefore, the profit/loss arising to it on sale of such shares is nothing but of the nature of capital gain/loss. We, therefore, reverse the decisions of the lower authorities in this regard and direct that the profits/loss in this regard be recomputed as capital gains/loss and after taking into consideration all the provisions relating to allowing deductions and exemptions in computing such capital gains/loss. 7. In the next ground, the assessee challenges the decision of the lower authorities in not allowing depreciation to it on the buildings which were under its possession but of which the assessee could not become full owners. The facts in this regard are that the properties were not acquired by the assessee by executing registered conveyance deeds. Therefore, in accordance with the decisions of the Karnataka High Court in the cases of Ramkumar Mills (P.) Ltd. v. CIT [1989] 180 ITR 464/47 Taxman 125 and CIT v. Bharath Gold Mines Ltd. [1991] 192 ITR 639, the ass....