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TMI Blog2013 (11) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... stances - Profit returned as ‘short term capital gain’ by the assessee-company for the year stands rightly assessed by the Revenue as business income – Decided against the Assessee. - ITA No.2236/Mum/2011 - - - Dated:- 22-3-2013 - B R Mittal and Sanjay Arora, JJ. For the Appellant : Shri A B Koli For the Respondent : Shri Girish Dawe ORDER:- Per: Sanjay Arora: This is an Appeal by the Assessee arising out of the Order by the Commissioner of Income Tax (Appeals)-2, Mumbai ( CIT(A) for short) dated 31.01.2011, dismissing the assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2007-08 vide order dated 16.11.2009. 2. Vide its first two grounds, the issue pressed is the disallowance of expenditure, at Rs. 5,74,703/-, by applying section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 ( the Rules hereinafter) even as the assessee s contends of no direct nexus of the relevant expenditure with the income claimed exempt. Before us, the assessee s prayer was for restoration of the matter back to the file of the Assessing Officer (A.O.) to examine the same in light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be required to be revisited for examining the same from this stand point. Is the said business run in a separate division and, if so, what are its expenses? Are the earmarked funds, borrowed or represent own capital? Put succinctly, the earning of dividend that arises in the course of investment activity cannot be considered at par with where it is earned on shares held as trading stock. Such shares are liable to be sold at any time, i.e., when a profit opportunity arises on the horizon, so that the earning of dividend becomes or is rendered incidental. This is as the dividend income arises not on the basis of the holding period, but on the accident of the holding of the stock as on the cut-off date, i.e., on which the dividend is declared. The return and risk attributes attending their holding in the short term perspective far out-weigh any consideration for holding the same for dividend, with the market in fact invariably discounting and factoring in the dividend information as well. The issue, under the circumstances, thus reduces to determining as to what could reasonably be considered as the actual income earned from dividend, i.e., as against assuming the entire rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, for, among others, the reason that even shares held as investments would only be purchased and sold. In fact, the assessee has categorized the corresponding investment in shares in its accounts as investment , since inception, and which, though not conclusive of the matter, ought to be accorded due weight. Coming to the facts specific to the current year, the total number of purchase sale transactions is only 89, which cannot be regarded as large by any standard. Further, the bulk of the profit under reference, i.e., Rs. 43.70 lacs, arises on shares with a holding period of over 3 months. There are no multiple entry points or exits, as would be apparent from the statement of share transactions enclosed. Under the circumstances, the income ought to be regarded as short term capital gain, the principle of res judicata being not applicable to the proceedings under the Act. 5.2 The ld. DR, on the other hand, would submit that minor variations apart, and which are bound to be there from year to year, there is nothing much to distinguish the transactions for the current year from that for the preceding year, and which have been found by the tribunal, as a matter of fact, to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volume of transactions, on which the assessee before us seeks to rest its case, emphasizing on a lower volume with reference to the immediately preceding year, may, thus, not be of much consequence. Likewise, would be the impact of the holding period on the categorization of these shares and units as investments or as trading stock . Further, it may also be relevant to state, though a final conclusion could be given only on an examination of the scope of activities in detail, that investment as a business is what an investment company or a mutual fund engages in, employing experts in the field, who as a part of their job engage in the in-depth study and research of investments on the touchstone of risk (viz. sovereign risk, industry risk, business risk, financial risk, etc.) and return, i.e., the growth potential over the short and long term, on the basis of the various parameters attendant thereon. It is for this reason, i.e., the change in the profile and the scope of the activity, that the investment activity in the case of an individual is vastly different from that of a company, where it is adopted as a business or as a part of its business. Why, a venture capital, a mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention referred to by us earlier (para # 6.1). Further, this (resolution) was followed by, and coupled with, purchase and sale transactions in shares on a regular, systematic basis, carried out with profit intent or motive, and which only constitutes business , i.e., by definition. We are thus unable to see as to how the finding as to the same - the said conduct - as constituting a business for the preceding year as not either well founded, as being alleged, or as not applicable for the current year, for which the concurrent finding of the Revenue is of like behaviour/conduct. The assessee claims to have executed only 89 transactions during the year. We have already stated that the said number would not; the transactions being carried out as a part of business, be of much consequence or import. A business would not be rendered as not so, where it is done on a lower scale, even as a lower number of transactions does not imply a lower volume, as one could have entered into a lower number, though larger, transactions. These are essentially business decisions, i.e., when and how much to buy, and likewise for the sale. In fact, it may well be that the company considers the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter being factual, we have not referred specifically to the decisions cited by the parties before us - none of which though is in relation to a company, though have gone through by us, to find the same as not applicable. We decide accordingly. 6.6 Finally, the assessee, during hearing, clarified that the figure of Rs. 51,07,700/- is wrongly mentioned in its ground of appeal (# 3), and that it disputes the gain/profit only to the extent of Rs. 43,69,929/-. This is as securities transaction tax stands paid on share transactions yielding profit to the extent of Rs. 7,37,771/-, so that it is in any case liable to be taxed at the concessional rate of 10% on such profit. Subject to the said contention made before us by the A.O., our observations, though based on the assessee s overall conduct, so that the same is considered to constitute business , our decision shall be restricted to the gain being disputed by the assessee, i.e., Rs.43,69,929/-. 7. The assessee s last and sixth ground is in respect of disallowance of Rs. 8,81,800/- u/s. 40(a)(ia) of the Act. The same was not pressed at the time of hearing, so that the same is being dismissed as not pressed. We decide accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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