2015 (5) TMI 266 - HC - Income Tax

Transaction in shares - business transaction or investment - Tribunal held that transaction was really in the nature of an investment - Held that - As relying on CIT v. Sutlej Cotton Mills Supply Agency Ltd. 1975 (7) TMI 2 - SUPREME Court the view formed by the Tribunal was a possible view in the facts and circumstances of the case. The judgment is not, however, an authority for the proposition that since purchase was made by borrowed funds, it is bound to become a business transaction. The Tribunal in that case had taken a possible view. Therefore, the apex court did not interfere. The view taken by the learned Tribunal in this case is also based on evidence and is a possible view as submission of revenue that the Tribunal ignored the fact that the shares allegedly purchased in July were not taken delivery of till December nor was any payment made when the purchase was allegedly made in the month of July evidently is based on misreading of the evidence as it would appear from the assessment order that payment was made for the shares in the month of July itself through bill accommodation facility. - Decided against revenue.

Summary

Issues:
1. Nature of transaction in shares - business or investment?
2. Appeal against the order of Assessing Officer.
3. Appeal allowed by Commissioner of Income-tax (Appeals).
4. Appeal dismissed by Income-tax Appellate Tribunal.
5. Appeal by Revenue against Tribunal's decision.
6. Argument regarding payment for shares and delivery timeline.
7. Reference to judgment in the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd.
8. Tribunal's view on borrowed funds for share purchase.
9. Apex court's opinion on Tribunal's view.
10. High Court's decision on the appeal.

1. Nature of transaction in shares - business or investment?
The Assessing Officer initially categorized the shares transaction as a business activity, but the Commissioner of Income-tax (Appeals) considered it an investment. The Revenue appealed against this decision, leading to the Income-tax Appellate Tribunal dismissing the appeal. The High Court was now considering the matter.

2. Appeal against the order of Assessing Officer:
The appeal was directed against a judgment where the Assessing Officer's decision on the nature of the shares transaction was challenged.

3. Appeal allowed by Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) allowed the appeal by holding that the transaction was indeed an investment, contrary to the Assessing Officer's view.

4. Appeal dismissed by Income-tax Appellate Tribunal:
The Income-tax Appellate Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) and dismissed the appeal by the Revenue.

5. Appeal by Revenue against Tribunal's decision:
The Revenue, dissatisfied with the Tribunal's decision, filed an appeal before the High Court.

6. Argument regarding payment for shares and delivery timeline:
The Revenue's advocate argued that the shares were not delivered until December despite the alleged purchase in July, questioning the payment timeline. However, evidence showed payment through bill accommodation facility in July itself.

7. Reference to judgment in the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd.:
The advocate for the Revenue cited a judgment highlighting the relevance of borrowed funds for share purchase and the commercial spirit of dealing in shares.

8. Tribunal's view on borrowed funds for share purchase:
The Tribunal noted that the shares were purchased using borrowed funds, leading to the conclusion that it was an adventure in the nature of business.

9. Apex court's opinion on Tribunal's view:
The apex court's judgment emphasized that the Tribunal's view on purchased with borrowed funds was a possible perspective based on evidence, not a definitive rule that all such transactions are business-related.

10. High Court's decision on the appeal:
The High Court refused to admit the appeal, stating that the Tribunal's decision was based on evidence and constituted a possible view, thereby dismissing the appeal by the Revenue.