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TMI Blog2012 (9) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... profit arising from the resale is an accretion to the capital - Thus the solitary sale of shares by the assessee cannot be treated as trade or business in the shares - in favour of assessee. - ITA No.1400/2006 - - - Dated:- 23-8-2012 - K Sreedhar Rao And B Manohar, JJ. For Appellant: Shri M Thirumalesh, Adv. For Respondent: Shri K S Ramabhadran, Adv. JUDGEMENT Appeal by the Revenue under Section 260A of the Income Tax Act (in short 'the Act') being aggrieved by the order dated 17-03-2006 made in ITA No.871/Bang/2004 passed by the Income Tax Appellate Tribunal, Bangalore Bench-B dismissing the appeal and confirming the order dated 27-01-2004 made in ITA No.143/C-12(1)/CIT(A)-III/2002-03 passed by the Commissioner of Income Tax (Appeals)-III, Bangalore (in short 'CIT (Appeals)) modifying the assessment order dated 24-02-2003 passed by the Assessing Authority for the assessment year 1999-2000. 2. The respondent-assessee is a company incorporated under the Companies Act, 1956. The returns of income for the assessment year 1999-2000 was filed on 23-11-2000 showing the total income of Rs.6,41,54,692/- out of which, Rs.6,41,50,338/- as a long term capital gain and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc., and the profit from the sale of shares should be assessed as business income. The Assessing Officer by his order dated 24-2-2003 has assessed the same as income from profit and gain of business and issued demand notice for a sum of Rs.2,65,29,360/- including interest. 5. Being aggrieved by the order dated 24-2-2003 passed by the Assessing Officer the assessee preferred an appeal before the CIT (Appeals) interalia contending that the respondent-company is only an investment company and its intention is to buy, invest, acquire and hold the shares, stocks and debentures. For the purpose of purchase of shares, 5000 equity shares gifted by the Directors have been sold for Rs.6,41,50,690/-. It is only a long term capital gain, for which, income tax has been paid. The gift is in accordance with law and there is no bar for the Directors gifting their holdings in favour of the Company. The finding of the Assessing Authority that the gift is not genuine is totally contrary to law. Selling of shares was not the business of the respondent-company. The Appellate Authority after examining the matter in detail allowed the appeal in part, setting aside the order passed by the Assessing Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The profit arising from the sale of 5000 shares should be assessed as business income. In support of his case, he relied upon the judgment of Hon'ble Supreme Court in COMMISSIONER OF INCOME TAX, NAGPUR v/s SUTLEJ COTTON MILLS SUPPLY AGENCY LIMITED, reported in (1975)110 ITR 706 and relied upon the relevant paragraphs which reads as under: "It is not necessary to constitute trade that there should be a series of transaction, both of purchase and of sale. A single transaction of purchase and sale outside the assessee's line of business may constitute an adventure in the nature trade. Neither repetition nor continuity of similar transaction is necessary to constitute a transaction an adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on a business and the question whether the activity is an adventure in the nature of trade can hardly arise. A transaction may be regarded as a isolated although a similar transaction may have taken place a fairly long time before." He contended that a single transaction constitute a trade. Hence, the amount realized from the sale of 5000 shares should be assessed as business incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that the transaction of gift cannot be believed. The company being an artificial, juridical person cannot receive the gift. The gift made by the Directors of the Company, in which they themselves are the shareholders amounts to making gift to oneself. Hence, the gift transaction is not a genuine one. 12. The question that arose for consideration is whether the shares held by the company is a capital gain and the profit earned by the assessee on sale of 5000 shares should be assessed as an income from the capital gain or income from the business. To examine the said issue, the dominant intention of incorporation of the company has to be taken into consideration. As could be seen from the Memorandum of Association, the main object of the company to be pursued by it on its incorporation is as under: (i) To function as an investment company and to buy, invest, acquire and hold shares, stocks, debenture, bonds, obligation and securities issued or guaranteed by companies constituted or carrying on business in India or elsewhere and debentures, bonds, obligations and securities issued or guaranteed by a Government, Public Body or Authority, Municipal, Local or otherwise Firm or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court has held. "The character of transaction cannot be determined solely on application of any abstract Rule, principle of test must depend upon all the facts and circumstances of the case. Ultimately, it is a matter of first impression with the court whether a particular transaction is in the nature of trade or not? It has been said that a single plunge may be enough provided, it is shown to the satisfaction of the court that the plunge is made in the water of trade; but mere purchase/sale of a share - if that is all that is involved in a plunge-may fall short of anything in the nature of trade. Whether it is in the nature of trade will depend upon the facts and circumstances. Where the purchase of any article or of any capital investment for instance, share, is made with the intention to resale at profit, a resale under the changed circumstances would only be realization of capital and would not stamp the transaction with a business character. Where a purchase is made with the intention of resale, it depends upon the conduct of assessee and circumstances of the case, whether the venture is a capital account or in the nature of trade. A transaction is not neces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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