9911796707
Advanced Search 
TMI Blog2014 (1) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... ddl. CIT, Range-31, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2006-07 vide his order dated 23.12.2008. ITA No. 1180/Kol/2011 by revenue and C.O. No. 07/Kol/2012 by assessee are arising out of order of CIT(A)-XIX, Kolkata in appeal No. 101/CIT(A)- XIX/ACIT,Cir-31/Kol/10-11 dated 24.06.2011. Assessment was framed by ACIT, Circle-31, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2008-09 vide his order dated 24.12.2010. 2. First we will take up ITA No. 1217/Kol/2009 and ITA No. 1139/Kol/2009. The first issue in this appeal of revenue is against the order of CIT(A) in treating the income disclosed from sale of shares as capital gains as against assessed by AO as business income. For this, revenue has raised following ground no.1: "1. The AO in his order u/s. 143(3), treated the profit as "Business Income" which the assessee disclosed as Short Term Capital Gain on the basis of facts and material available on record. The Ld. CIT(A) has allowed the appeal on this point. It appears that the Ld. CIT(A) has erred in both law as well as in fact on the basis of facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim that he has earned short term capital gain because the definition of short term capital asset u/s. 2(42A) of the Act and the rate of tax on short term capital gain as per section 111A of the Act are still very much part of the I.T. Act, 1 961. Thus, in my opinion, the claim of appellant with respect to short term capital gain could not be rejected outrightly for the inferences drawn by the A.O. On perusal of financial statements of the appellant for the relevant previous year, earlier years and the subsequent years, it was observed that the appellant has regularly made the investment in shares which were duly reflected in his balance sheet. During the relevant previous year there was no change in the character of transactions and in earlier years the income arising on sale of shares has been accepted by the A.O. as capital gain. Though the principle of res judicata is not applicable to the income tax proceedings, still there must be some reason or change in the facts to take a divergent view. On purchase of shares, the appellant has recorded them as investment in his financial statements and the delivery of the shares was taken in his demat account. There is no evidence that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment years. The income computed by the appellant under the head capital gain was accepted by the A.O. It proves that the appellant was holding the shares for the purpose of investment. (5.3) The A.O. has placed heavy reliance on circular No.4 of 2007 issued by the CBDT. However, para 10 of the circular supported appellant's case which reads as under: "CBDT also wishes to emphasize that it is possible for a tax payer to have two portfolios i.e an investment portfolio comprising of securities which are to be treated as capital assets and trading portfolio comprising of stock-in-trade which are 10 be treated as trading assets. Where an assessee has two portfolios the assessee may have income under both heads i.e. capital gain as well as business income." Thus, even the Board has clarified that an assessee may have portfolio under the investment account and may have income under the head capital gains. In the case of CIT vs. Madan Gopal Radheylal, 73 ITR 652, the Hon'ble Supreme Court has observed "a trader may acquire a commodity in which he is dealing for his own purpose and hold it apart from stock in trade of his business. There is no presumption that every acquisition b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd intention of the applicants was to earn return in the form of capital gains rather than earn business profits. The AAR held that in the case of trading, the securities which were purchased and sold, would be termed in the books of the person acquiring it as stock in trade and not Investments. The intention of the foreign institution, as was evident at the time of purchase of securities, was a relevant factor and often the conclusive factor in determining whether the transaction was in the nature of trade or in the nature of investment. The authority then at Page 649 observed that the germane question in all these application was whether securities which were subject matter of purchase and sale by the applicants were held by them was of stock in trade so as to give rise to business income or investment in capital assets so as to yield capital gain. While deciding the germane question the authority considered the submissions of the applicants wherein it was argued that the use of the term investment in SEBI regulations or applications made was not determinative of nature of income arising from the transaction and it was to be determined on the basis of intention and circumstances. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign entities were not allowed free access to Indian capital markets The FIIs brought in huge foreign capital and they acquired substantial holdings in the shares of Indian companies. The investments by the foreign institutional investors were several times more than the institutional investment by India companies. The volume of business undertaken by FIIs is several times than investments made by Indian companies and institutions. According to the AAR the question whether the acquisition of securities is for business purpose or by way of investment; can be decided with reference to the intention of the purchaser at the time of acquisition of security itself. For this purpose the authority held that the entries made in the books of the purchaser are relevant because in case of purchase of securities for business purposes; they are shown by way of stock in trade whereas in the case of investment; shares are disclosed in the accounts as investments. If in case of foreign institutional investors who regularly carried on the transactions of purchase and sale of shares at regular intervals and in large volume, the said activity is considered as Investment activity then by the same m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alter its status from investment to trading. Profit on sale of such investment shares held as capital assets are assessable under the head capital gain. The period of holding such assets cannot determine its status or change it from investment (capital) to trading (stock-in- trade). The audited a/cs. for the A.Y. 2004-05 and the earlier years placed in the Paper Book made it clear that every year the assessee had acquired shares for trading purpose and separately also for investment purpose with an intention to earn dividend income in addition to the prospect of making profit on sale of such investment shares at an appropriate opportune moment without making any hurry for sale ignoring dividend. The investment shares and securities purchased and held till their sale had dual purpose i.e. for earning dividend as an incidental income as well as to make profit on sale at appropriate time. The conclusions drawn by the A.O. by treating the investment shares as trading shares was based purely on assumptions and presumptions without bringing on record any material or evidence in support thereof. The A.O. did not reject the books of a/c. vis-a-vis the audited accounts u/s 145 of the I. T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the present case I hold that the profit of Rs.1,17,50,160/- was assessable as Short Term Capital Gain and not as profit and gain of business. The AO is accordingly directed to assess the said income under the head Short Term Capital Gain and levy tax in accordance with Section 111A of the Act. The ground Nos. 2 to 5 are allowed." Aggrieved, revenue came in second appeal before tribunal. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has invested in the shares and the transactions carried out are exactly similar to the transactions carried out in earlier years. In earlier years the revenue has accepted the income arising from sale of shares, declared by assessee in its books of account as investments, as income from capital gains. As per the copy of account of demat of assessee filed before the lower authorities and now the detailed filed before us, which suggests the analysis of frequency of transactions of purchase and sale of shares resulting in short term capital gains or the long term capital gains, as the case may be. During the year the assessee has earned dividend income to the extent of Rs.13,14,439/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961. 5. Further, in the similar circumstances, in the sister concern's case of the assessee namely, Shri Surya Kant Dalmia "A" Bench of Kolkata Benches in ITA No. 1140/Kol/2009 for AY 2006-07 vide order dated 21.05.2013, exactly on similar facts has held as under: "6. We have considered the rival submissions. At the outset, a perusal of the facts of the present case clearly shows that no borrowed funds had been used by the assessee for the purchase and sale of shares. Further, a perusal of the list of shares as also the details of the short-term capital gains clearly shows that the assessee is not regularly purchasing and selling shares in a systematic manner to be termed as 'business'. Substantial portion of the gains as disclosed by the assessee is admittedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e magnitude and frequency of transactions, purchase to sell ratio, dividend to investment ratio and paying off interest on borrowed capital which was utilised for purchasing of shares." 9. In both the years, the facts and circumstances are exactly similar to what was in AY 2006-07, hence taking a consistent view, we following the same decision, confirm the order of CIT(A). This common issue of all the three appeals of revenue is dismissed. 10. The next issue in ITA No. 1217/K/2009 for AY 2006-07 is as regards to the order of CIT(A) in treating the interest income as income from business instead of treating the same as income from other sources as treated by the AO. For this revenue has raised following ground no.2: "The Ld. CIT(A) , in his order, allowed the appeal of treating the interest income disclosed by the assessee as "Income from Business" which the AO in his order u/s. 143(3) treated as Income from Other Sources. It appears that the Ld. CIT(A) has offered keeping the circumstances of the case in view as well as the materials available on record." 11. The AO during the course of assessment proceedings treated the interest income as income from other sources by stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the preceding years and hence it was not open to the A.O. to change the head of the income without differentiating the facts or bringing anything fresh on record. The Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT reported in 193 ITR 321 has held that: "We are aware of the fact that, strictly speaking res-judicata does not apply to Income Tax proceeding. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning, in absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee. We do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contrary stand should have been taken. We are, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 14, items A to E" (2) In particular, and without prejudice to the generality of the provisions of sub- section (i), the fo1owing incomes, shall be chargeable to income-tax under the had income from other sources, namely:- (id) income by way of interest on securities, if the income is not chargeable to income- tax under the head Profits and gains of business or profession." It can be observed that the section 56 of the Act contain provisions about the residuary head, viz, F-income from other sources and it does not come into operation until the preceding heads A,B,C,D and E of section 14 are excluded. Wherein income appropriately fall under section 28 as business income, or any other specific head of income, no resort can be made to section 56 [S.G. Mercantile Corporation P. Ltd. vs. CIT, 83 ITR 700 (SC)]. The words if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E in section 56 refer to income and not a head of income. Section 56, therefore, deals with income which is not included under any of the preceding heads. Whether an income is included under any of the preceding heads would depend on what kind of income it was. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income for the relevant assessment year. In these circumstances, we are of the view that the finding of ld. CIT(Appeals) on this issue is on right footing and does not call for any interference." In these facts and circumstances, we are of the considered view that the CIT(A) has rightly treated the interest income as business income and we confirm the same. This issue of revenue's appeal is dismissed. 13. The next common issue in ITA No. 1139/K/2009 for AY 2006-07 and in ITA No.1246/K/2010 for AY 2007-08 is as regards to the order of CIT(A) confirming the disallowance made by AO regarding the expenses incurred for earning exempt income invoking the provisions of section 14A of the Act read with Rule 8D of I. T. Rules, 1962 (hereinafter referred to as the 'Rules"). For this, assessee has raised following ground in ITA No. 1246/K/2010 for AY 2007-08: "For that on the facts and in the circumstances of the case the Ld. CIT(A)-XIX, Kolkata erred in confirming the disallowance of Rs.5,76,407 made by the Assessing Officer u/s. 14A of the I. T. Act, 1961 read with Rule 8D of the I. T. Rules." Similar are the grounds in AY 2006-07 and facts are exactly identical. 14. We will take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t read with Rule 8D of the Rules. For this, revenue has raised following ground No. 2: "That the Ld. CIT(A) erred in allowing relief of Rs.55,47,700/- u/s. 14A of the I. T. Act by not directing the AO to bifurcate and to consider the interest borrowed for the purposes of computing expenditure for earning of exempted income." And assessee has raised following grounds: "1. For that the CIT(A) erred in confirming the disallowance of interest amounting to Rs.2,58,282/-. The CIT(A) failed to appreciate the fact that the appellant has advanced substantial amount as loans and advances in respect of which it derived substantial amount of interest income which was chargeable to tax and no disallowance of interest could be made under section 14A of the Act. 2. For that the CIT(A) erred in confirming disallowance of Rs.434745/- under Rule 8D(2)(iii) of the Income Tax Rules read with section 14A of the Act. The CIT(A) failed to appreciate the fact that the said disallowance was made on a percentage basis with reference to the value of investment held by the appellant and was not with relation to any expenditure incurred directly or indirectly in relation to earning of any income. 3. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,700/-. As per the Profit & Loss Account, the total amount of interest payment was Rs.97,22,656/-. The average value of the investment was arrived by the A.O. at Rs.8,69,49,056/- and the average of total assets was calculated at Rs.15,23,83,094/-. By applying the formula as per Rule 8D(2)(ii), the A.O. has computed the disallowance at Rs.55,47,700/-. From the working of disallowance under rule 8D(2)(ii), it is observed that the A.O. has considered entire amount of interest payment of Rs.97,22,656/- being the amount of interest not attributable to any particular income. However, on the other hand, it was contended by the appellant that out of the total interest payment of Rs.97,22,656/-, the interest aggregating to Rs.92,69,529/- which was paid to Birla Global Finance Co. Ltd., DSP Merrill Lynch Capital Ltd. and J.M. Financial Products Pvt. Ltd. relates to loans taken for making application in IPOs and the shares of these IPOs were taken in his stock-in-trade. The part of the shares which were allotted in this IPOs were sold during the year under appeal and profit of Rs.87,42,284/- was earned by the appellant. The balance shares were carried forward to the Balance Sheet as stock-in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions ís directly attributed to the appellant's business income. The provisions of Rule 8D(2)(ií) are very clear that the expenditure on account of payment of interest would be covered in the said Rule only if it ís not directly attributable to any particular income or receipt. In the case of appellant, he is able to demonstrate that the payment of interest amounting to Rs.92,69,529/- is directly attributable to appellant's business income and hence same cannot be considered under Rule 8D(2)(íi) of the I.T. Rules. In view of above, the A.O. is directed to recomputed the disallowance under Rule 8D(2)(ii) on the interest amounting to Rs.4,53,127/- i.e. (Rs.97,22,656--Rs.92,69,529). The disallowance under Rule 8D(2)(ii) would be worked out at Rs.2,58,282/-. The A.O. is directed to restrict the disallowance under Rule 8D(2)(ii) at Rs.2,58,282/-. Further, under Rule 8D(2)(iìi), the A.O. has computed the disallowance at Rs.4,34,745/- . The appellant has contended that the A.O. was not justified in making the aforesaid disallowance because the disallowance under Rule 8D(2)(iii) is in the nature of cess/levy. However, I am not inclined to agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
