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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 ..... iness income. The return was accompanied by the audited balance sheet and profit and loss account. The case was processed u/s 143(1) of the Act, Subsequently, the case was selected for scrutiny, notice under Section 143(2) was issued. Pursuant to the notice, the authorised representative of the assessee appeared and produced some documents. It was contended that the assessee-company was incorporated on 16-02-2000 consisting of three share holders, Sri.N.S.Raghavan and his wife, Jamna Raghavan and their relative V.Sarangarajan, with a share capital of Rs.3,000/-. Each one of them is holding 100 shares of Rs.10/- each. Apart from the three shareholders, their family members, Sriram, Nadathur and Sri. Anand Nadathur are the Directors of the company. The main object of the company is disclosed in the Memorandum of Association and it is an investment company. 3. Two Directors of the Company, i.e. N.S.Raghavan and his wife Jamna Raghavan gifted 25000 shares of Infosys Technologies Limited, i.e. 12500 shares from each them who were originally holding the shares of M/s. Infosys System for a long time through a separate Gift Deed dated 23-02-2000 which was accepted by V.Sarangarajan on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of 5000 shares has to be assessed under the head 'capital gain'. 6. The Revenue being aggrieved by the order passed by the CIT(Appeals) preferred an appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal by its order dated 17-03-2006 dismissed the appeal confirming the order passed by the CIT (Appeals). The Revenue being aggrieved by the order passed by the authorities below preferred this appeal. 7. The appeal was admitted on 22-08-2007 to consider the following substantial questions of law: i) Whether the Appellate Authorities were correct in holding that the profits earned by the assessee on the sale of 5000 shares of Rs.6,41,79,500/- should be assessed as 'income from capital gains' and not under the head 'income from business' when the assessee was carrying on the business in trading shares as is evident from the memorandum of association of the assessee-company. ii) Whether the Appellate Authorities committed an error in failing to take into consideration, that the assessee has sold 19500 shares during the subsequent assessment year which clearly demonstrates that the assessee was engaged in the business of trading shares." 8. Sri.M.Thirumalesh, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities below is contrary to law and sought for setting aside the same by allowing this appeal. 9. Sri.Sarangan, learned Senior Counsel appearing for the respondent contended that there is no infirmity or irregularity in the order passed by both the authorities below. The concurrent finding recorded by both the authorities below is purely a question of fact and the same is not liable to be interfered with by this Court. He further contended that as per the Memorandum of Association, the main object of the Company is to function as an investment company and to buy, invest, acquire and hold shares, stocks, debentures and bonds. Two of the shareholders of the respondent-company gifted 25000 shares of M/s. Infosys Technologies Limited who are the founder Director of M/s Infosys Technologies by two separate gift deeds and the same was accepted on behalf of the assessee-company. Out of that, 5000 shares were sold and the remaining 20000 shares have been invested in the Company. The profit earned by sale of shares was disclosed by the assessee as capital gain. The cost of acquisition of shares was treated as the cost at which the previous owner acquired the shares under Section 41(ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal with and turn to account the same. To implement the objects of the company, two of the shareholders gifted 25000 shares of M/s. Infosys Technologies Limited. The said shares were shown as investment. Merely because the company has earned profits by selling some of the shares, that doesn't mean that the company is engaged in shares trading. There is no bar for gifting the equity shares to its company. As per the definition of gift, the gift means transfer by one person to another of existing moveable or immoveable property made voluntarily and without consideration and includes deemed transfer or conversion of any property. The company being a separate entity in law, the Shareholders of the company can gift their shares in favour of the company. We find nothing wrong in gifting the shares in favour of the company by its shareholders. Admittedly the company was incorporated on 16-2-2000 and shares have been sold on 07-3-2000, the account was prepared for a limited period of one and half months for the assessment year 1999-2000. For the solitary sale of shares, it cannot be said that the assessee is doing the business in shares. The assessee-company is only an investment compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made with the intention to resale. A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility for the enhanced value motivated the investment". 14. The Hon'ble Supreme Court has clearly held that an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would raise value. The Hon'ble Supreme Court clearly held that the dominant or even sole intention to resale is a relevant factor and raises a strong presumption but by itself is not conclusive proof of an adventure in the nature of a trade. The issue raised in this appeal is covered by the Judgment of Supreme Court reported in Sutlej Cotton Mills' case. 15. In view of the judgment of the Hon'ble Supreme Court and facts and circumstances of the case, we hold that the solitary sale of shares by the assessee cannot be treated as trade or business in the shares. Insofar as second substantial question of law is concerned, if the respondent-company has alienated any shares gifted by its shareholders and dealing with the selling and purchasing of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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