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TMI Blog2017 (1) TMI 1046X X X X Extracts X X X X X X X X Extracts X X X X ..... that it has been maintaining separate ledger accounts, which was duly certified. This was for the DSIR to consider before grant of approval. DSIR has not disputed it, and therefore, granted approval. Whether after satisfying itself for grant of approval, DSIR can grant approval for specific period on the strength of some policy formulated by it? - Held that:- The Act nowhere authorizes DSIR to grant approval for specific period. The job of DSIR was not find out whether R&D activity was carried out by the assessee or not, and the expenditure were incurred or not. Respectfully following the decision in the case of Claris Life Sciences Ltd [2008 (8) TMI 579 - Gujarat High Court ], we allow this ground of appeal and direct the ld.AO to grant weighted deduction under section 35(2AB) of the Income Tax Act, 1961. - ITA.No.2551/Ahd/2013 - - - Dated:- 18-1-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Assessee : Shri Surendra Modiani For The Revenue : Shri Prasoon Kabra, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Assessee is in appeal before the Tribunal against the order of the ld.CIT(A)-I, Baroda date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He contended that ld.AO has rejected contentions because there was large number of transactions which have been undertaken by the assessee. 6. We have duly considered rival contentions and gone through the record carefully. The issue, whether gain from sale of shares is to be assessed as a business income or short term capital gain/long term capital gain, is a highly debatable issue. It always puzzled the adjudicator even after availability of large numbers of authoritative pronouncements by the Hon ble Supreme Court/Hon ble High Court. The reason for the puzzle is, one has to gather the intention of an assessee while he entered into the transaction. The expression intention as defined in Meriam Webster Dictionary means, what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation. Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This would give rise a debate. Nevertheless, we have to look into the curious features of this case which will goad us on just con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. 7. It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 8. The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. 9. One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business. 9. In the light of the above, let us examine facts of the present case. In order to appreciate the facts and circumstances of the case, we would like to take note of written submissions made by the assessee before the ld.CIT(A). Relevant part of the submission reads as under: 2. Our submissions on considering gain from sale of shares as business income rather than Capital Gain The assessee humbly submits that it earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular No. 4/2007 dated June 15, 2007 and various judicial pronouncements made it clear that combination of various test/factors are to be applied for determination whether income from sale of shares should be considered as Capital Gain or Business income and not on any particular or single criterion. Relevant extracts from CBDT circular No. 4/2007 is reproduced here. The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade . The assessee further submits that in spite of providing all the details and fact that the Assessing Officer did not dispute any of our submission, relevant judicial pronouncements and meeting various criterions mentioned above, the assessing order arbitratorily decided to treat the income from sale of listed equity shares as business income rather than Short Term Capital Gain. We have provided complete details of Short Term Capital Gain of ₹ 2,824,217/- vide our submission dated Nov. 21, 2102 and it can be summarised as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while accepting in the matter of COMMISSIONER OF INCOME TAX-HI - Vs VAIBHAVJ SHAH (HUF) -Tax appeal no. 77 78 of 2010 that Gain from sale of shares is Capital Gain and it was base on its own case law of Commissioner of Income Tax v/s. Rewashanker.A. Kothari 2006(283) ITR 338 (Guj.) therefore, even in the fact of our case, these judgments are in our favor. 2. The Assessing Officer did not rebut that, case laws cited by us and included in the assessment order, were not relevant at all These case laws are clearly applicable to our case and should have been considered/accepted by the Assessing Officer or reasons should have been given for not accepting the same. Following are the additional judicial pronouncements which support our view that considering the facts of our case, gain from sale of listed equity shares of ₹ 2,824,217/-can be assessed only as Short Term Capital Gain and not as income from business. Same are also attached with letter as named as complete text on case laws: 10. Apart from the above submission, the assessee has explained that even in the Asstt.Year 2010-11, there were tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of cases in its submission before ld.Revenue authorities. We do not deem it necessary to recite and recapitulate all these decisions because most of the decisions have been considered in the case of Sarnath Infrastructure Pvt. Ltd. One of the cases referred by the assessee is Gopal Purohit by ITAT, Mumbai. It is observed that this order has been upheld by Hon ble Bombay High Court in 35 DTR 52. In this case, transactions were more than 150 and in that case it was observed that if delivery based transactions are available, then, profit received from such transaction is to be treated as short term capital gain or long term capital gain. Thus, taking into consideration overall facts, we are of the view that the ld.Revenue authorities below are not justified in treating the assessee as trader in the shares, therefore, we allow the first fold of grievance and set aside assessment of ₹ 28,24,217/- as a business income. We direct the AO to accept the claim of the assessee, and assess this amount as a short term capital gain. 11. In the next fold of grievance, the assessee has pleaded that it has claimed weighted deduction of ₹ 13,48,732/- under section 35(2AB) of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Our Submission 1. DSIR (approving authority) has given approval in form 3 CM from April 1, 2010 and same is applicable only from A.Y. 2011-12 and not from A.Y. 2010-11. We would to bring on record that basic approval for this unit as approved R D Centre has been since 1990 and renewed for the period from 01.04.2009 to 31.03.2012 vide DSIR letter dated 09.04.2009. Though DSIR (approving authority) has mentioned in form 3CM that weightage deduction is available from April 1, 2010 but it It has been decided by Jurisdictional High Court that what is important and relevant is that In- House R D lab is approved and recognized by DSIR and the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was indulging in R D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions and eligible for weighted deduction. In our case, we have been approved recognised by DSIR and therefore, eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order that separate ledger account has been maintained for R D expenses The Assessing Officer is referring to the part remuneration of M.D. included in R D expenses. It is to be noted that since Managing Director of the company is a high End technical person, his part remuneration has been included as part of R D expenses only in books of accounts as it is as per accounting norms. This has not been claimed as R D expenses and easily verifiable from table given on page 5 of the assessment order and therefore, totally irrelevant for making a ground for disallowance of weightage deduction of other eligible R D expenses. In addition to the facts mentioned above, we draw support from the following judicial pronouncements which states that what is important and relevant is that In-House R D lab is approved and recognised by DSIR and the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assesses was indulging in R D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Claris Life Sciences Ltd. (supra) and the finding of the Hon ble High Court in this regard read as under: We have considered the submissions made by the learned Standing Counsel appearing for the revenue and we have also perused the orders passed by the authorities below. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in-house R D facility approved by the prescribed authorities has to be allowed by deduction of expenditure so incurred. Meaning of these words is plain and clear that the facility is to be established first and on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction. Form No. 3CM, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment of facility, if approved, has to be allowed for the purpose of weighted deduction. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. 16. If, in the light of the above, we examine the order of the ld.CIT(A), then it would reveal that the ld.CIT(A) has failed to adhere to conditions contemplated in section 35(2AB) of the Income Tax Act and Rule 6(7A) of the Income Tax Rules.. The finding of the ld.CIT(A) that the assessee was not maintaining separate accounts is factually incorrect. As duly pleaded before the ld.CIT(A) that it has been maintaining separate ledger accounts, which was duly certified. This was for the DSIR to consider before grant of approval. DSIR has not disputed it, and therefore, granted approval. The second question is whether after satisfying itself for grant of approval, DSIR can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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