TMI Blog2018 (8) TMI 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... epetitive transaction; or whether similar scrips have been shown by the assessee in its trading portfolio; or there is frequent switching of same shares. AO will examine these aspects and will also examine it in the light of the clarification issued by the CBDT vide circular dated 2nd May, 2016. Thus, with this direction this issue is remanded back for limited purpose; and in so far as transaction of Long Term Capital Gain is concern, we hold that same is assessable as Long-Term Capital Gain and not business income. Coming to the objection raised by the ld. CIT-DR that the new plea has been raised with regard to the transaction of Punjab Tractor Ltd., we do not find any merits in such objection, because the acquisition of sale of Punjab Tractor Ltd. has been discussed by the Assessing Officer also and moreover if the entire issue of Long-Term Capital Gain, whether assessable under the head capital gain or business income is in dispute and if certain facts are being pointed out from the material already on record, then the same can always be examined to see, whether it was acquired for the purpose of investment or for the purpose of trading. Thus, objection raised by the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the balance-sheet in the form of huge reserves and surplus and therefore, no disallowance of interest could have been made. This contention of the assessee has not been rebutted by the Assessing Officer. Apart from that, assessee has also categorically stated that none of its borrowed funds was applied for the purpose of the investment and it has earned interest income of ₹ 19.84 crore from the loan advanced by it and has paid interest on loans of ₹ 1.98 crores only. Thus, there is a net interest income. We have already given a finding while deciding the appeal for Assessment Years 2008-09 that if there is net interest income then no disallowance of interest can be made. Under these circumstances and facts, we hold that no disallowance of interest can be made. Accordingly, the disallowance made by the Assessing Officer under Rule 8D(2)(iii) is directed to be deleted. TDS u/s 194H on DEMAT charge - Whether no principle agent relationship? - HELD THAT:- We find that the only reason for disallowing the payment of DEMAT charges by AO is that the CBDT Notification No.56/2012 has come into effect from 01.01.2013 and therefore, for the earlier period TDS is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 following manner: - Heads of Income Rs. Capital gains i) Long term capital gains exempt u/s 10(38) 106,78,21,147 ii) Long-term capital gain without indexation 10,13,29,232 iii) Long-term capital gain with indexation 1,35,49,508 iv) Short-term capital gain u/s 111A 1,85,41,338 v) Short-term capital gain Others 29,95,242 Profit and gains of Business or profession Trading in mutual funds 3,60,77,965 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) = ₹ 30.24 crore b. Shares (shown as investment) (Excluding Dabur India Ltd. Stock of ₹ 60,054/- = ₹ 39.92 crore Total= ₹ 70.16 crore Closing Stock c. Mutual Fund (shown as stock in trade) = ₹ 53.35 crore d. Shares (shown as investment) (Excluding Dabur India Ltd. Stock of ₹ 41,774/-) = ₹ 88.62 crore Total Turnover = ₹ 141.97 crore e. Mutual Fund (shown as stock in trade) = ₹ 907.91 crore f. Shares (shown as inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 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 No.4 of 2007 dated 15th June, 2007 and concluded that assessee was dealing in sale and purchase of shares for earning profit and tax them under the head business income in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has paid consultancy charges for investment planning amounting to ₹ 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 ₹ 945.69 crore and average holding of ₹ 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 shares in the balance-sheet; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 and he has excluded it from the computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 Court which has been rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85,41,338 Short Term Capital Gain With PMS (Net) Rs. 16,86,882 Total ₹ 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition cannot be held to be for trading purpose. The transfer of such shares on a takeover of Punjab Tractors Ltd. by Mahindra Mahindra also goes to prove that this was an investment held by the assessee. Similarly, in the case of ABN Amro Bank they were always 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luminous share transactions were in the ordinary line of the assessee s business; purchase of shares by them was not for the purpose of earning dividend, but with the dominant intention of resale in order to earn profits; the profit made by them is not 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 the findings of the Ld. CIT (A) and restore the order of the AO. Therefore, ground no.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. Long Term Capital Gain claimed exempt u/s.10(38) 1,06,78,21,147 Long Term Capital Gain on sale of shares of Punjab Tractors ltd. 10,13,29,232 Long Term Capital Gain on sale of shares of ABN Amro Securities Pvt. Ltd. 2,93,99,990 Short Term Capital Gain 2,02,28,140 Total 1,21,87,78,509 17. Now, it has been well settled that if the shares which has been acquired and treated as investment from day one and held for more than a year, then sale of such shares has to be taxed under the head Long Term Capital Gain . This has been clarified by the CBDT in its following two circulars: - Circular No.6/2016; dated 29/02/2016 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain / Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.Y. 2011-12 has decided the issue in favour. Apart from that, there are many judgments now including that of Hon ble Jurisdictional High Court rendered after the judgment of Tribunal order for the earlier years (supra), wherein it has been consistently held that if the shares have been held under the portfolio of investment which is separate from the shares then same cannot be brought to tax under the head capital gain. Some of the judgments are as under: - 1. CIT vs. Gopal Purohit, 336 ITR 287 (Bom.) [Also confirmed by Hon ble Supreme Court] 2. CIT vs. Vinay Mittal, 208 taxman 106 (Del. HC) 3. ITO vs. Rohit Anand, (2009) 34 SOT 42 (Del.) 4. CIT vs. Amit Jain, 374 ITR 550 (Del.) 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain, whether assessable under the head capital gain or business income is in dispute and if certain facts are being pointed out from the material already on record, then the same can always be examined to see, whether it was acquired for the purpose of investment or for the purpose of trading. Thus, objection raised by the ld. CIT-DR is rejected. 21. The next issue relates to restricting the addition made u/s.14A from ₹ 57.64 lacs to ₹ 32.12 lacs. The Assessing Officer noted that assessee has earned dividend income of ₹ 8,19,14,172/- and hence he observed that provisions of Section 14A are applicable. In response to the show cause notice, the assessee submitted that it had already added back the sum of ₹ 37,74,438/- for the purpose of disallowance u/s.14A and as per the calculation under Rule 8D the disallowance only comes to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same principle is adopted by the appellant and it has correctly sett of the interest payment with its interest income. It is also observed from the balance sheet of the appellant company that the appellant is holding Reserves of ₹ 19199.85 lakhs. So considering the interest payment of ₹ 156.86 lakhs for sub point D of point no. ii of the table of Rule 8D is not correct and the disallowance of expenses should be restricted to ₹ 32.14 lakhs only as mentioned by the AO in point no. iii of the table of rule 8D. Hence the ground no. 8 of the appeal is allowed. 23. Learned Department Representative has strongly relied upon the judgment of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (2018) 91 taxmann.com 154; and submitted that if the expenditure has been incurred in earning 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital Gain the same cannot be held to be for the purpose of trading activity and consequently it cannot be assessed under the head Business Income , following the CBDT Circular (supra). On this issue and various judgment of the Hon'ble High Court have been followed. In so far as Short-Term Capital Gain is concerned, we have given certain directions to the Assessing Officer for examination of certain aspects; therefore, for this year also same direction is given to the Assessing Officer. Accordingly, appeal for the Assessment Year 2009-10 is treated partly allowed for statistical purposes. 27. In the appeal for the Assessment Year 2011-12, the Revenue has raised the following grounds; - 1) The Ld. CIT(A) erred on the facts and under the circumstances of the case in treating the loss of ₹ 34,78,378/- as long-term capital loss and ₹ 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 ₹ 25,57,020/- by ignoring the mandatory procedure prescribed under Rule 8D of the IT Rules r.w.s 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plus and therefore, no disallowance of interest could have been made. This contention of the assessee has not been rebutted by the Assessing Officer. Apart from that, assessee has also categorically stated that none of its borrowed funds was applied for the purpose of the investment and it has earned interest income of ₹ 19.84 crore from the loan advanced by it and has paid interest on loans of ₹ 1.98 crores only. Thus, there is a net interest income. We have already given a finding while deciding the appeal for Assessment Years 2008-09 that if there is net interest income then no disallowance of interest can be made. Under these circumstances and facts, we hold that no disallowance of interest can be made. Accordingly, the disallowance made by the Assessing Officer under Rule 8D(2)(iii) is directed to be deleted and hence, the order of the ld. CIT(A) on this score is confirmed. 31. Lastly, coming to the issue of deleting the addition of ₹ 66,998/- we find that Assessing Officer has held that assessee has not deducted TDS on Demat Charges of ₹ 66,998/- paid Deutche Bank and HDFC Bank. The reliance placed by the assessee on the CBDT notification no.56/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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