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TMI Blog2010 (6) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the shares of Information Technology rose sharply and realizing that the company would be liable to pay 30% tax, the assessee started claiming the profits realized from sale of these shares as long term capital gains. - After going through the entire record the revenue authorities have come to the conclusion that the shares of Information Technology was purchased by the assessee not by way of assessment but by way of trading. This is a pure finding of fact and not of law. It is true that the principles of law have to be applied and the question as to whether certain shares had been purchased by way of trade or by way of investment may be a mixed question of fact and law but if the authorities have properly considered the legal position then the resultant finding is basically a finding of fact. - Decided in favor of revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in subsection (1). [(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.] 4. A bare reading of the aforesaid provision clearly shows that an appeal to the High Court under Section 260-A can only be filed if a substantial question of law is involved in the appeal. It is the duty of the High Court to frame the substantial questions of law at the time of the admission of the appeal. In terms of sub-section (4) of Section 260A, normally the appeal should only be heard on the question of law so formulated and the respondent would have a right to urge that the question so framed is not a substantial question of law or the question so framed does not arise in the appeal. However, the proviso to this subsectionclearly lays down that nothing in sub-section shall in any manner impinge on the right of the Court to hear, for the reasons to be recorded, the appeal on any other substantial question of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above view is not sound and does not lay down correct law. As stated above, at the stage of admission, the court looks at the matter from a bird's eye view and if prima facie satisfied, formulates a substantial question of law. Often such question is taken verbatim from the memorandum of appeal. Further, it is in very rare cases that such substantial question of law is apparent on the face of the record. In these circumstances, Parliament advisedly conferred power on the High Court to hear an appeal on any other substantial question of law, not formulated by it at the time of admission of appeal. The view taken in Krishanchand case (supra) would make the proviso to sub-section (5) nugatory and otiose. Unless compelled, the court will not interpret one provision of law which makes other provision redundant, ineffective and futile. On deeper scrutiny at the time of final hearing of appeal, the parties as well as the court may be able to come to a conclusion on a substantial question of law." 8. We are in respectful agreement with the view of Justice C.K.Thakker. This view is fortified by the pronouncement of the Apex Court in Kondiba Dagadu Kadam (supra). We are also of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and investment in shares. It is a company dealing in the sale and purchase of shares. We are of the considered view that in such a case, prima-facie the profit derived from the sale and purchase of shares would be treated to be business income of the assessee since the assessee is a trader in shares. This does not mean that a trading firm cannot make long term investment in shares and income from sale of such shares may fall under the head of capital gains but when a trading company is involved the onus would be heavily on such a company to show that this investment was actually a long term investment. 12. The Assessing Officer found that whenever loss of shares was declared the assessee would show the loss under the heading of income of business of profession but when it made a profit it would try and show the income under the head oflong term capital gains. The reason for this is obvious. Long term capital gains are taxable only @ 10% whereas income from business is taxable @ 30%. The Assessing Officer came to the conclusion that the main motive of the assessee was to avoid payment of tax and, therefore, held that the income derived from the sale of shares was business inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. xxx. xxx… xxx… xxx… 12. The powers of the Income-tax Officer to reopen assessment though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect." The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision finality about orders made in judicial and quasi judicial proceedings. It is, therefore essential that before such action is taken the requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 21. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a long term capital investment. We, therefore, upheld the notice issued under Section 148 and are of the opinion that the Assessing Officer was justified in reopening the assessment. Question No.1 is accordingly decided in favour of the revenue. 18. Coming to the main question of law. A number of authorities have been cited before us, including M/s Investment Ltd. vs. The Commissioner of Income-tax, Calcutta, (1970) 3 SCC 333, The Commissioner of Income-tax (Central), Calcutta vs. M/s Associated Industrial Development Co. (P) Ltd., Calcutta, (1972) 4 SCC 447, The Commissioner of Income-tax, Nagpur vs. M/s Sutlej Cotton Mills Supply Agency Ltd., (1975) 2 SCC 538 as well as Rajesh Jhaveri Stock Brokers Pvt. Ltd. cited above. 19. The law is very well settled that the onus is on the assessee to show that his investment is a long term investment. Whether a particular holding of shares is by way of long term investment or is a stock in trade is a matter solely within the knowledge of the assessee who holds the shares. Normally, it is the assessee alone who would be in a position to produce evidence whether he has maintained any distinction between those shares which are stock in tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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