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TMI Blog2016 (6) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... is taking a stand that the sale of shares held as investment gives rise to income from business. The facts in the present A.Y. are identical to the facts in the other assessment years referred to above. In such circumstances we are of the view that taking a different stand in the present A.Y. would be violation of principles of consistency and the revenue should not be permitted to take such a stand. We are therefore of the view that the gain on sale of shares held as investments will give raise to “capital gain” and has to be assessed as such. As far as disallowance of interest in computing the short term capital gain is concerned, we are of the view that income of an assessee has to be computed under various heads specified under Section 14 of the Act. Deductions are to be allowed in computing the income under various heads only to the extent it is provided by the Legislature under that very head. The computation of capital gain is provided in Section 48 of the Act. According to Section-48, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have directed the allowance of the interest claimed in computing the Short Term Capital Gain. 4. FOR that the appellant craves leave to alter, amend, modify any of the grounds and/or take additional grounds before or at the time of hearing of this appeal. 3. The Assessee is a company. It is a non-banking finance company mainly engaged in granting and taking of loans. The assessee filed return of income for A.Y.2005-06 on 31.10.2005 declaring a total income of ₹ 95,03,100/-. The assessee declared short term capital gain on sale of shares held as investments of ₹ 95,22,232/- in arriving at the aforesaid short term capital gain. The assessee had reduced from the full value of consideration received on sale of shares interest expenditure of ₹ 7,09,614/-as expenses incurred in connection with transfer of shares. In the order of assessment passed on 25.05.2007 u/s 143(3) of the Income Tax Act, 1961 (Act), the AO computed the capital gain by attributing the interest expenses of ₹ 20,07,292/-. The taxable short term capital gain was determined by AO at ₹ 95,22,232/-. 4. The CIT in exercise of his powers u/s 263 of the Act was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow interest on borrowed capital as deduction while computing capital gain. The AO accordingly re-computed the short term capital gain of the assessee at ₹ 1,16,05,085/- which was originally determined at a sum of ₹ 95,22,232/. The total interest expenditure claimed in the profit and loss account by the assessee was ₹ 35,94,527/-. 7. Aggrieved by the order of AO the assessee preferred appeal before CIT(A). The CIT(A) in exercise of his power of enhancement was of the view that the gain on sale of shares ought to have been assessed by the AO under the head income from business and not under the head short term capital gain. He accordingly called for the required details of purchase and sale of shares from the assessee and concluded as follows :- 7.5 During the appellate proceedings Ld. A.R. of the assessee was asked to provide the details of the shares on which the short term capital gain was claimed to be earned by the assessee Ld..A.R. submitted these details. These details are enclosed with this order in Annexure-' A'. From the above details it can be seen that during the previous year under consideration the assessee has shown two types of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being held as investments. iii) In the balance sheet the book value of quoted investment was ₹ 4, 15,60, 190/- and their market value was ₹ 5,35,02~693/-. Despite the gain of about Rs.l.2 crore in the investment shares the assessee preferred to hold these shares. iv) The assessee has also received the delivery of the shares purchased as investment. This clearly shows the nature of holdings by the assessee as investor. v) The assessee has been showing investment and capital gain in earlier years also which has been accepted by the Assessing Officer. Simply because some of the shares held as investments were sold within a short period of 15 days, it will not alter the character of the shares as sale of investments. Ld A.R. has cited two High Court decisions and has claimed that under similar circumstances in these decisions Hon ble High Court held that sale of shares was capital gain and not business income. 7.6 On this issue I find that there are no fixed, criteria to decide whether any transaction of purchase and sale of shares by an assessee should be treated as investment transaction or business transaction. The Income Tax Law has not pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 2.72 crore against which the investment in shares was 1.86 crore. This shows that till last year the investment in shares was made out of surplus funds of the assessee. On the other hand at the end of the current year as on 31.03.2005 the capital and reserve and surplus was about 4.15 crore but the investment in shares was ₹ 6.49 crore. It is also seen that from 31.03.2004 to 31.03.2005 the borrowed funds of the assessee increased from ₹ 2.29 crore to ₹ 6.39 crore. Thus during the previous year the borrowed funds of the assessee increased by about ₹ 4.1 cr. and the investment in shares also increased by about ₹ 4.63 cr.(6.49 1.86). These figures show that during the previous year under consideration the borrowed funds of the assessee were used to deal in purchase and sale of shares. Generally it can be said that a business man will make investment only when he has surplus funds. When borrowed funds are used by a business entity it can be said that they are used for carrying on the normal business activity. In view of this discussion I am of the view that the purchase and sale of shares done by the assessee and shown as STCG with STT payment is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items forming part of assessment record and substitute his opinion in place of the opinion of the CIT. c) ACIT vs M/s. Royal Western India Turf Club Ltd. In ITA NO.1654 6333/Mum/2012 dated 22.07.2015. In the aforesaid decision the Hon ble Mumbai Tribunal held that We have heard the rival submissions and carefully perused the record. When the Revisional Authority calls for the assessment records and proceeds to set aside the assessment the standard language employed, in the revisional orders, is to direct the AO to make de novo assessment; but one should not go by the language employed therein if it comes in conflict with the powers vested in the Commissioner while passing the order under section 263 of the Act, which were considered in detail by the Hon'ble Gujarat High Court (supra). The direction given by the Commissioner has to be understood in the context/ setting in which such direction is given; in the instant case the show cause notice was issued on specific items and upon calling for the details the Commissioner was satisfied that the AO has not made proper enquiries with regard to certain items which were specifically listed out in the order passed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is cancelled to be re-framed denovo. But these observations are followed by the following words for making the required disallowances . It is not in dispute before us that the disallowance that were discussed in the order u/s 263 were whether interest expenditure should be allowed as deduction while computing the short term capital gain and disallowance of expenses u/s 14A of the Act. Thus on a reading of the order u/s 263 of the Act it is clear that the scope of the proceedings before the AO pursuant to the order u/s 263 of the Act was limited. The AO could not have gone into the question as to whether the short term capital gain declared by the assessee was income from business. If that be so, the CIT(A) in exercise of his powers of enhancement could not have gone into an issue on which the AO could not have made any enquiry. We therefore agree with the contentions raised by the assessee in ground no. 1 and 2 raised before us. 12. On the question whether the income in question has to be assessed under the head income from capital gain or income from business, the following are the particulars of the short term capital gain declared by the assessee. Annexure to this order give ..... X X X X Extracts X X X X X X X X Extracts X X X X
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