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TMI Blog2012 (11) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... nits for Rs.7.00 crores from M/s. Kothari Pioneer Mutual Fund and sold the same for a sum of Rs.5,62,276,853/- to the same party on 12.3.2001. The source of investment in the shares came from the assessee's contribution of Rs.52.50 lakhs and the balance was arranged by M/s.Kotak Mahindra Finance Limited, Bombay. The units allotted to the assessee was given as a security for the above loan. Dividend of a sum of Rs.1,09,60,334/- was reinvested towards purchase of further units on 12.3.2001. On the very same day, all the units were transferred to M/s.Kothari Pioneer Limited by redemption for a total consideration of Rs.5,62,27,853/-. In this process, the assessee incurred a loss of Rs.1,30,57,575/-. After taking into account the interest element and the discount component, the assessee claimed this loss as a business loss to be set off against other business income. 3. Questioning the transaction as a colourable one, the assessee was asked to explain as to why the loss should not be treated as a capital loss. The assessee replied that as per the Mutual Fund Regulations, both sale of units as well as redemption of units would take place only with the company dealing in mutual f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the decision reported in (1985) 154 ITR 148 (Mc Dowell & Co. Ltd. V. CIT) holding that it was a colourable device adopted by the assessee. The Commissioner of Income Tax (Appeals) viewed that the transaction of purchasing the units, taking loan from Kotak Mahindra Finance Ltd., reinvestment of the dividend and redemption and ultimately the sale of the units was a structured pre-planned, pre-mediated transaction. Thus, the loss suffered by the assessee had a direct nexus to the earning of the dividend. Pointing out that Kotak Mahindra Finance Ltd., had entered into these kinds of transactions with number of assessees, the Commissioner of Income Tax (Appeals) rejected the claim of the assessee. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal. 7. The Tribunal, without adverting to the facts, simply followed the decision of the Special Bench of the Mumbai Tribunal rendered in the case of Wallfort Shares & Stock Brokers Ltd. V. ITO reported in 96 ITD 1 and set aside the assessment. Thus the assessee's appeal was allowed. Aggrieved by this, the Revenue has come before this Court. 8. Learned Standing Counsel appearing for the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indication of a fact that it was a business income available for adjustments in the event of a loss suffered as against other income. Hence, no exception could be taken to the course of conduct adopted by the assessee. Thus, placing reliance on the decision, in particular, the decision reported in (1965) 58 ITR 328 (Griffiths (Inspector of Taxes V. J.P.Harrison (Watford) Ltd.), learned counsel submitted that the fact that the assessee had been carrying on business is a strong point to show that the investment in shares were nothing other than for the purpose of business only and not an investment simpliciter. 11. Heard learned counsel appearing for the assessee and the learned Government Advocate appearing for the Revenue and perused the materials placed before this Court. 12. In the decision reported in (1965) 58 ITR 328 (Griffiths (Inspector of Taxes V. J.P.Harrison (Watford) Ltd.) the facts were that the assessee company sustained loss while carrying on its business; it sold the shares at a loss, which was sought to be set off as against other income. The Privy Council pointed out that the question as to whether the assessee was carrying on trade or not, could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... characterized by some of the essential features that make up trade or business but not only by all of them. Thus, even an isolated transaction can satisfy the description of an adventure in the nature of trade, provided, at least some of the essential features of trade are present in the isolated or single transaction. The Supreme Court pointed out that ultimately, it is the intention with which the person deals in the particular transaction, would be the decisive factor. The Supreme Court held that relevant facts and circumstances actually determines the character of the transaction. Thus, in deciding the character of the transaction, several factors are relevant, such as, "whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it; the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable; any act prior to the purchase showing a design or purpose; the incidents associated with the purchase and resale; the similarity of the transaction to operations usually assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax), which is a case of an individual purchasing shares and then selling it. In answering the question, the Calcutta High Court considered the effect of an isolated transaction and to what extent such transaction could be held to be in the nature of business or trade. The Calcutta High Court held that when the person concerned in an isolated transaction from which he makes a profit is a man carrying on business in certain other lines, the task of deciding whether the transaction is or is not a trade, is comparatively an easier one than in the case of a person, who is not a trader at all. Ultimately, the Calcutta High Court held that it is question of intention which has to be seen in the matter of considering the nature of trade. 15. In the decision reported in (2001) 251 ITR 487 (Commissioner of Income-tax Vs. Malabar Building Products Ltd.), the Kerala High Court also considered a similar question, but, however, after applying the decision reported in (1959) 35 ITR 594 (G.Venkataswami Naidu & Co. V. CIT), the Kerala High Court rejected the Revenue's contention. 16. A reading of the decisions of the Privy Council, Supreme Court as well as the Calcutta High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the transactions were for tax avoidance or evasion, could be considered only after the in-depth investigation and proper recording and marshalling of all relevant facts, so as to establish the motive of tax avoidance. 19. The said instruction was extracted in the Tribunal's decision reported in (2005) 96 ITD 1 (Wallfort Shares & Stock Brokers Ltd. V. Income Tax Officer, Ward 4(2)(1)). The decision of the Tribunal was a subject matter of consideration by the High Court, Mumbai and ultimately taken to the Apex Court, which resulted in favour of the assessee vide decision reported in 326 ITR 1 (Commissioner of Income-Tax V. Walfort Share and Stock Brokers P. Ltd.) 20. In the light of the law declared in the decisions reported in 326 ITR 1 (Commissioner of Income-Tax V. Walfort Share and Stock Brokers P. Ltd.), (1965) 58 ITR 328 (Griffiths (Inspector of Taxes V. J.P.Harrison (Watford) Ltd.), (1959) 35 ITR 594 (G.Venkataswami Naidu & Co. V. Commissioner of Income-Tax), (1978) 113 ITR 483 (Commissioner of Income-Tax, West Bengal-II, Calcutta V. Central Kurkhend Coal Co. Ltd.) and (2001) 251 ITR 487 (Commissioner of Income-tax V. Malabar Building Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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