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TMI Blog2010 (10) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. In this appeal under section 260A of the Income Tax Act, 1961 (the Act), appellant-revenue has proposed the following questions : " [i] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in coming to the conclusion that profit of transaction of purchase and sale of shares in the sum of Rs.1,73,32,347/- is long term capital gain and not business income by treating the said transaction as "adventure in the nature of trade"? [ii] Whether, on the facts and in the circumstances of the case, the orders passed by the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) - II, Ahmedabad, are contrary to the evidence and material on the record of the case and hence, perverse or not?" 2. The respondent-assessee, filed return of income on 31.10.2001 declaring total income of Rs.58,69,534/- for the assessment year 2001-02. The assessee is a Chartered Accountant, has derived income from his profession and also from purchase and sale of shares shown as short term and long term capital gain and also interest income. He had also shown income from speculation business. After examination of the books of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed loan of Rs.12,50,000/- to the assessee. Maniram Consultants had purchased the said shares in its own name and, thereafter, when the said amount of Rs.12,50,000/- was repaid by the assessee with interest, the shares were given to the assessee and the assessee sold them immediately thereafter. The assessee had not deducted interest payment from the sale proceeds of the said shares but had deducted from the same from "business income". It was submitted that if the transaction was to be treated as a capital asset transaction, the interest payment for the borrowed capital should have been deducted from the sale proceeds. 4. Learned Counsel further pointed out that the Assessing Officer had issued summons directing M/s Maniram Consultants at three different addresses available on the record to produce necessary details regarding the transaction in question. However, the said summonses were returned by the postal authority with the remark "not known". Thereafter, the assessee was asked to produce representative of Maniram Consultants along with the information called for from them, but the assessee failed to produce the Director of the said Company and also did not furnish any inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of interest for the purpose of purchasing the said shares, it would not change the nature of the transaction to being an "adventure in the nature of trade". It was submitted that it was always the intention of the assessee to invest the moneys in the shares in order to derive income from such investment and not with a motive of earning profit by purchase and sale of shares. The assessee had also treated the investment in Home Trade Limited as an investment and had received dividend on those shares, which was utilized for the repayment of the loan. Even after the sale of the shares, the sale proceeds were invested in the bonds of NABARD for taking benefit under section 54EC of the Act, which clearly shows that the assessee had always treated the same as capital realization. That, had the transaction been an "adventure in the nature of trade", he would have invested the proceeds from the shares in other shares. Inviting attention to the order made by the Commissioner (Appeals) it was submitted that the Commissioner (Appeals) has considered the evidence in detail and has come to the conclusion that the transaction in question is not an "adventure in the nature of trade", but that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived on the shares by Maniram Consultants was used for repayment of loan by the assessee and was also considered in his income. That it was not unusual in the transactions with banks and financial institutions where the shares are held as securities against loans given by them in the names of the banks and the financial institutions. Hence, the transaction in question was not abnormal. It was submitted that in the facts of the present case, the purchase consideration for purchase of shares was paid and that the sale consideration was also received. It was explained that in the case of the assessee, share transactions were not voluminous and that the assessee not being a trader, shares had been shown as investment in the books of account. The assessee also produced a copy of the agreement with Maniram Consultants. The Assessing Officer issued summons to Maniram Consultants, but the same were received back unserved with the remarks "not known". Summonses were also issued to M/s Yatin Shah Co., the share broker, which was served, but no reply was received. 7. The Assessing Officer observed that the quantum of dealing, its frequency and its repetitive transactions tantamount to dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares as the investor acts with a sense of moderation and security. According to the Assessing Officer, the continuous, systematic, and organized manner in which the assessee was carrying out deals in shares in large quantum with repeated frequency, gave rise to the perception that the sole intention behind the purchase and sale of shares was to make profit. According to the Assessing Officer the factors for considering purchase and sale of shares of Home Trade Ltd. as an "adventure in the nature of trade" are borrowing at higher rate; entering into one sided agreement; disposing of the shares at the first available opportunity when the shares reached the highest in the terms of market price, (the shares were purchased at Rs.50/- and were sold at Rs.750/- within a period of 14 months). Therefore, looking from any angle, the whole transaction proves the profit making intention of the assessee. The Assessing Officer, ultimately, held that the transaction of purchase and sale of shares of Euro Asian Securities Ltd. (Home Trade) was an "adventure in the nature of trade" and as such, was required to be taxed under the head of "income from business or profession" and not as "long term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had offered the same as capital gain. 9. The Commissioner (Appeals), based upon findings of facts recorded after appreciation of the evidence on record, arrived at the following conclusions: " [22] [a] Merely because the appellant is a C.A. and has knowledge regarding share market, the transactions do not become "an adventure in the nature of trade". [b] Much of the shares held by the appellant have been disposed of after more than a year or 2 years. Thus, the A.O. has failed to prove its case of frequency of transactions. [c] The investment in shares of Home Trade Ltd. was also not very high. The investment of Rs.12,50,000/- in the present times, has to be held as normal and cannot be called high investment by any standards. [d] The fact that one share split into 5 shares and the share holding of the appellant swelled by 5 times, could not be attributed to the appellant. It was not an act of the appellant. Further, as held by the Hon'ble Supreme Court in the case of Rameshwar Prasad Bagla (87 ITR 421), the volume of the shares purchased and sold cannot be the sole reason for treating the transaction as "adventure in the nature of trade." [e] The transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the inquiries made by the undersigned have proved beyond doubt that the parties M/s Maniram Consultants Investment and M/s Yatin Shah Co. in question had entered into genuine transactions with the appellant. In view of the above discussion, it is held that surplus arising on the transactions of the shares of M/s Ho0me Trade Ltd. should be treated as capital gain and not adventure in the nature of trade." 10. The Tribunal, in the impugned order, has concurred with the findings of fact recorded by Commissioner (Appeals). The Tribunal upon appreciation of the evidence on record has found that the facts and circumstances of the present case satisfy all the tests laid down by the Supreme Court in P .M. Mohammed Meerakhan v. Commissioner of Income Tax, Kerala, [1969] 73 ITR 735 and Khan Bahadur Ahmed Alladin Sons v. Commissioner of Income Tax, Andhra Pradesh, [1968] 68 ITR 573, and that the issue involved in the present case is squarely covered in favour of the assessee and against the revenue by the said decisions. 11. From the facts noted hereinabove, it is apparent that both the Tribunal as well as Commissioner (Appeals) have recorded concurrent findings of fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an "adventure in the nature of trade". Moreover, in the light of the findings recorded by Commissioner (Appeals) that the assessee had held the shares in question for fourteen months, which is a long period for the purpose of long term capital gain; the intention of the assessee had always been that of making investment in shares and not dealing in shares, which was also apparent from the fact that the shares had not been treated as stock in trade by the assessee; even after the sale, the assessee had made investment in bonds of NABARD, indicating that he had treated the same as long term capital gain; as well as the fact that the assessee had not split the shares in lots but had sold the same in one lot; it is not possible to agree with the contention raised on behalf of the revenue that the transaction in question is an "adventure in the nature of trade" and therefore, the income derived by the assessee from the said transaction is a business income and cannot be treated as capital gain. Insofar as the second ground fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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