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TMI Blog2017 (3) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... e has further observed that the same income would have been assessed as business profits, had it purchased the shares of M/s Assam Company Ltd on its account. The Ld A.R furnished copies of Profit and Loss account as well as the assessment order of M/s Reliance capital Ltd to show that M/s Reliance capital Ltd has declared Short term capital gains and also Long term capital gains in purchase and sale of shares, meaning thereby, the presumption entertained by the AO has been proved to be wrong. Accordingly the Ld A.R submitted that there was no restriction for M/s Reliance Capital Ltd to hold the shares as its Investment. Regarding the observation made by the AO that the assessee was the major share holder in “Public shareholding” category and further the assessee has invested in shares of M/s Assam company Ltd, the assessee has submitted that it did not get any controlling interest in the above said company and further the shares have actually been sold within 15 months. Hence, in our view, the above said factual position cannot change the character of the shares. On the contrary, in our view, it may support the case of the assessee that it had actually made investment in the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Assessing Officer had taken the view that profit sharing ratio stood at 100%, 0% 0% in A.Y. 2007-08 between three partners and hence M/s. Reliance Capital Ltd. should be considered as sole proprietor of the business. Since the profit sharing ratio for the year under consideration stood at 99.98%, 0.1% and 0.1%, the partnership firm should be recognized for AY 2008-09 only, i.e., from 1.4.2007 onwards, in which case, the purchase date of shares of M/s Assam Company Ltd by the partnership firm should be taken as 1.4.2007 and hence profit arising on sale of shares of M/s. Assam Company Ltd. cannot be considered as long term capital gains since the period of holding of shares by partnership firm shall work out to less than one year. The Assessing Officer also expressed the view that the detailed examination of the case is required for the purpose of concluding whether profit on sale of shares is business income or short term capital gains . With these reasoning, the Assessing Officer reopened the assessment. 6. In the reopened assessment, the Assessing Officer took the view that M/s. Reliance Capital Ltd. has formed this partnership firm in order to generate long term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the asst. year 2007-08, i.e. in the preceding asst. year was formed by three partners, viz. (i) Reliance Capital Ltd. , (ii) Reliance Land Pvt. Ltd. (iii) Shri Surendra Pipara in the profit sharing ratio of 100%, 0%, 0% and, since M/s. Reliance Capital Ltd. held 100% of profit sharing ratio, as per the provisions of partnership deed, it could not be considered as a partnership firm, but a proprietary concern of M/s. Reliance Capital gains and during the year the profit sharing ratio, amongst the three partners though is 99.98%, 0.01% and 0.01%, the same has been arranged in such a way that the primary condition of being a partnership firm, as stipulated in the partnership deed and Income tax Act, is fulfilled. 6.2 In the above background of the profit sharing ratio of the partners in the asst. year 2007-08 and year under consideration, i.e. 2008-09, the Assessing Officer also found that since the partnership firm was not in existence during the period relevant to asst. year 2007-08, the capital gain arising out of sale of shares of Assam Co. Ltd. purchased on 19.05.06 for a c.ost of ₹ 30.84 crore and sold on 08.01.08 for a consideration amount of ₹ 57.72 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has been mentioned as 'Trading in Commodities and Articles other than shares, securities and like investments. The appellant had filed 'Nil' return of income for Asst. Year 2007-08 and the assessment was completed at the said income declared by the appellant. It is, therefore, apparent from the above assessment order that the constitution of the partnership, as per the partnership deed dtd. 19.04.06 and deed of retirement and introduction dtd.21.04.06, was accepted by the AO. Similarly, profit sharing ratio as per the Deed has also been accepted. Further, the nature of business carried on by the appellant, that has been accepted by the AO, is of trading in commodities and articles other than share securities and like investments. In other words, declaration of the shares of M/s. Assam Co. Ltd. purchased by the appellant on 19.05.06, under the head 'Investments' has also been accepted in the above year. Since the AO has not disturbed the position of above facts in asst. year 2007-08, the position remains the same as at the beginning of the financial year relating to asst. year under consideration. 6.5 The AO has also examined the transaction of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not part of the promoters group, neither any particular partner of the appellant firm was nominated on the Board of Directors of Assam Co. Ltd. 7. On due consideration of the above facts, I am of the considered view that since 01.04.07, the shares of M/s. Assam Co. Ltd. were held as investment, the same has, therefore, to be examined accordingly. The facts further show that the entire shares held as investments were partially sold vide broker's note da-1.19.05.06 29.08.06. The AO has also not found any repetitive transaction of sale and purchase of shares of M/s. Assam Co. Ltd. during the year. On the contrary, there has been no purchase of shares during the year and there has been sale of shares of Assam Co. Ltd. only. Therefore, the above facts do not lead to any conclusion that the appellant has been trading in shares of Assam Co. Ltd. In so far as the other finding given by the AO that the appellant had acquired the shares of Assam Co. Ltd. so as to be a part of the business of said company and share profits, being the largest public shareholder of the said company, is concerned, from the details filed during the course of assessment proceedings, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of M/s Assam Company Ltd on its account. The Ld A.R furnished copies of Profit and Loss account as well as the assessment order of M/s Reliance capital Ltd to show that M/s Reliance capital Ltd has declared Short term capital gains and also Long term capital gains in purchase and sale of shares, meaning thereby, the presumption entertained by the AO has been proved to be wrong. Accordingly the Ld A.R submitted that there was no restriction for M/s Reliance Capital Ltd to hold the shares as its Investment. 11. Regarding the observation made by the AO that the assessee was the major share holder in Public shareholding category and further the assessee has invested in shares of M/s Assam company Ltd, the assessee has submitted that it did not get any controlling interest in the above said company and further the shares have actually been sold within 15 months. Hence, in our view, the above said factual position cannot change the character of the shares. On the contrary, in our view, it may support the case of the assessee that it had actually made investment in the shares of M/s Assam Company Ltd. 12. In view of the foregoing discussions, we are of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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