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TMI Blog2011 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The respondent-assessee is a limited company and engaged in the business of leasing, investment in shares and to act as Managers to issue and offers, to give financial assistance in order and abroad, to act administrator or manager of an investment, trust, of fund, to give guarantee or other financial assistance for development of new enterprise, etc. The assessee filed its return of income for the Assessment Year in question, i.e., 2004-05 and the same was assessed under the provisions of Section 143(3) of the Income Tax Act (hereinafter referred to as "the Act"). 3. During the assessment proceedings, the Assessing Officer (AO) noted from the Profit & Loss Account of the assessee that the assessee had debited loss on sale of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in-trade or as an investment. At the time of initial purchase the character of expenditure is determined by the intention of the assessee. The assessee may choose at its option to treat to purchase as investment or as stock in trade. The legal consequences of these alternatives are different. In the case it is stock in trade, the profit or loss arising from its transfer is treated as a business income or a business profit or loss arising there from has to be treated as a short term or a long term capital gains with indexation benefits. In short, if the contention of the assessee is accepted, the there cannot be any income on account of capital gains in the case of investment companies who purchase shares as investment. (ii) In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The memorandum and articles of association of the company shows investment in shares as the main objects. 5. The assessee preferred the appeal against the aforesaid assessment order passed by the Assessing Officer but was unsuccessful in the said appeal as the CIT (A) affirmed the order of the Assessing Officer and dismissed the appeal. However, on further appeal by the assessee to the ITAT, the assessee has succeeded and the ITAT while allowing the appeal has treated the gain from the sale of shares as income as business income. 6. The reading of the impugned order of the Tribunal would reflect that the Tribunal first discussed the legal position as stated by the Supreme Court in the case of Janki Ram Bahadur Ram Vs. Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinguishable. The conclusive part of discussion runs as follows:- "having considered the facts of the case and rival decided cases submitted by the both parties, we are of the view that the classification of the shares in the books of the assessee may be one of the factors but not the conclusive factor as the question has to be considered in totality of the circumstances, as held in the case of Janki Ram Bahadur Ram (supra). The decision of the case of Patiala Biscuits Manufacturers Pvt. Ltd., was in respect of preference shares, where there could not have been any possibility of increase or decrease in value because of fixed rate of dividend. However, the assessee held equity shares and incurred considerable loss in this year as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks by the auditors in the profit and loss account on the premise that these remarks do not represent true state of affairs. The two factors which had weighed with the ITAT in favour of the assessee are:- (i) The sale of shares in earlier assessment year had been credited in the Revenue account by the assessee. (ii) The revenue had accepted this position in the assessment year 2003-04 and no reason was shown to digress from the position. 8. We are of the view that the ITAT has taken a very myopic view of the entire matter. Only because some income from the shares sold in the assessment year 2003-04 were treated as business income is taken to be the conclusive factor ignoring and side tracking all other important fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale transaction was reflected in the profit and loss account and that was not deducted by the Assessing Officer, would not be a ground to upset the findings of the Assessing Officer and the CIT (A) based on over all appreciation of facts of the case in this year which is a separate and distinct assessment year. 10. The facts of this case resemble more with the facts of the case in Patiala Biscuits (supra). In that case the assessee was carrying in the business of manufacturing biscuits. It purchased preference shares of another company at the time of the expansion of that company. Both the companies belonged to one group, namely, the Dalmia Group. The assessee sold the shares leading to a loss of Rs. 4,80,985/- This was the only transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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