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TMI Blog2020 (2) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... Rastogi, Adv. For the Revenue : Sh. H. K. Choudhary, CIT DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the revenue against the order of ld. CIT(A)-33, New Delhi dated 19.01.2017. 2. Following grounds have been raised by the revenue: 1. On the facts and in the circumstances of the case and law, the ld. CIT (A) has erred in deleting the addition of ₹ 4,01,26,422/- on account of Long Term Capital Gains treating as business income. 2. On the facts and in the circumstances of the case and law, the ld. CIT (A) has erred in deleting the addition of ₹ 1,04,43,140/- on account of Short Term Capital Gains treating as business income. 3. The issue relates to deletion of the addition by the ld. CIT (A) on account of capital gains (long term/short term) treating it as business income. 4. The similar issue in the assessee s own case stands adjudicated by the Co-ordinate Bench of the Tribunal for the assessment years 2006-07, 2008-09 and 2010-11 in ITA Nos. 2863/Del/2010, 3911/Del/2011 and 3635/Del/2011. 5. At the outset, both the parties accepted to the preposition that there has been no change i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and units. In support, he also noted the frequency of trading in different scripts except Dowar India Ltd. s shares done on regular basis. The Assessing Officer tried to distinguish the case laws relied upon by the assessee and held that all the alleged long term capital gain of ₹ 34,61,63,879 shown by the assessee in its return of income is business income and taxed the same accordingly. On the submission of the assessee regarding the principles of consistency, the Assessing Officer rejected the same with this finding that each assessment year is a different unit. 7. The Assessing Officer also treated the short term capital gain claimed by the assessee at ₹ 6,71,16,180 as business income adopting the same observation as made by him hereinabove in relation to the claimed long term capital gain. 8. The Learned CIT(Appeals) did not agree with the Assessing Officer regarding treatment given by the Assessing Officer to the claimed long term capital gain of ₹ 34,61,63,879 as business income and allowed the claim of the assessee with this finding that the assessee has rightly treated the amount as long term capital gain and thus is eligible for exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were lot of frequency and volumes of transaction. The 8 assessee had also not paid security transaction tax on the sale of shares. He submitted that before the Assessing Officer, the assessee had not pointed out that it is promoter of Dawar India. The Learned CIT(DR) submitted that finding of the Learned CIT(Appeals) on the payment of security transaction tax (STT) is misleading. He submitted that the assessee had not maintained two portfolios to support its submission that it was trading in shares as well besides making investment in shares. The assessee is in the business of nonbanking finance, hence the shares transaction was part of its business. The Learned CIT(Appeals) on general findings has given the relief to the assessee by accepting the claimed long term capital gain as such. 11. The Learned AR on the other hand placed reliance on the First Appellate Order on the issue. He submitted that the assessee is one of the holding company of Dawar India. He submitted that investment therein was made 20 years back and the same are being shown as investment in the books of account. He submitted that during the year, the assessee had sold 23,55,000 shares of Dabur In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining two portfolios. Since assessment year 2005-06, the assessee is dealing only in investment and major component is shares of Dawar India Ltd. There is no prohibition in law to convert stock in trade to investment account. In this regard, he placed reliance on the decision of Hon'ble High Court of Delhi in the case of CIT vs. Express Security Pvt. Ltd. - 364 ITR 488 (Del.). The Learned AR submitted further that the contents of memorandum cannot be a sole basis but entirety of facts relating to the transaction is to be examined to find out the nature of the transaction as to whether it is investment or trade. The Learned AR submitted that STT was very much paid on the said transaction and referred page No. 236 (Schedule K) of the paper book. The learned AR submitted further that so far shares of Dabur India Ltd. are concerned, the assessee is also enjoying the managing/majority control on the group and in the books, its shares have been valued on cost price as investment. In this regard, he placed reliance on the following decisions: Felspar Credit and Investment Pvt. Ltd. vs. CIT - 346 ITR 121 (Madras); ii) Raja Bahadur Kamakhya Narain Singh vs. CIT - 77 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of surrounding circumstances including the factors like period of holdings, volume and frequency of transactions in shares. What was the intention of the assessee at the time of purchase of these shares can be found out from the treatment it gives to such purchase in its books of account whether the assessee has borrowed money to purchase and paid interest thereon as normally money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. What is the frequency of such purchases and disposal in that particular item. Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value. How the value of items has been taken in the balance sheet and how the assessee is authorized in memorandum of association/article of association. These are the main factors to draw an inference that the transaction in question is with intention to invest or to trade. When we examine facts of the present case in view of these tests, we find that the assessee, a non-banking finance company registered with Reserve Bank of India, is one of the promoter company of Dawar India Ltd. 15.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort Term Capital Gains (STCG) - since the period of holding is less than one year - and applied special rate of taxation as prescribed u/s. 111A as 15 detailed vide Annexure-B. 10.1 The main contentions of the AO as seen from the assessment order are as under: One of the main objects of the assessee company is to do business in shares, stocks, debenture stocks, bonds, obligations, units, securities etc as per the Memorandum of the Association of the appellant company. The assessee carried on the activity of purchase and sale of shares on regular basis. The volume of purchase and sale of share (volume of business) is huge. Frequency of transactions is very high except in shares of Dabur India Ltd. Conduct of the assessee is that of a trader in shares. No proper records are maintained as per report u/s 142(A) issued by the special auditor. Certain Shares are held as investment to get tax exemption u/s. 10(38). 10.2 The AO relied on the following case laws: CIT vs. Associated Industrial Development Co. Ltd. 82 ITR 586 (Se) Karampura Development Co. Ltd. Vs. CIT 44 ITR 362 (Se) Dalmiya cements Ltd. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. 3) What is the frequency of such purchases and disposal in that particulars item? If purchase and sale are frequent, or there are substantial transactions in that item, it would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investment (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). 4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and later, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares? A commercial motive is an essential ingredient of trade. 16. The assessee has been holding shares of Dawar India Ltd. for almost two decades and the same were shown as investment in the books of account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Order was upheld by the ITAT vide its order dated 12.1.2004 in ITA No. 2160/Del/1990 for assessment year 1990-91. 18. The details of number of shares of Dabur India Ltd. held by the assessee over a period of time and the transaction/changes are follows: Date as on No. of shares (in lakhs) Remarks 31.03.1996 37.15 No change in holding 31.03.1997 37.51 No change in holding 31.03.1998 37.41 Sold 1000 shares 31.03.1999 37.41 No change in holding 31.03.2000 37.41 No change in holding 31.03.2001 37.41 No change in holding 31.03.2002 37.41 No change in holding 31.03.2003 37.41 No change in holding 31.03.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it lays down how the treatment of various classes of assets is measured. 19.3 Schedule L (on Investments) to the Balance Sheet enclosed along with return that long term investments are stated at cost less permanent diminution in value of investments only. The Investments (Other than Trade) of ₹ 44.71 crores as on 31 March 2006 are detailed in Schedule F of the Balance Sheet. The aforesaid investments are made upon the decision made by Board of Directors and with clear intention to hold the aforesaid Capital Assets as investment. The intention of the assessee is therefore never to make profit from sales as in the case of trading activities. The intention is to have steady and substantial capital appreciation and earn dividends if any from such investment. 19.4 As regards, trading stock where the assessee intends to make profits, such stock has been disclosed in Schedule I of the Balance sheet showing a closing value of ₹ 30.85 crores on 31 March 2006. The accounting policy for trading of shares is disclosed in Schedule L of the Balance sheet which states that closing stock of securities is valued at cost of market price whichever is lower. 19.5 Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not shown interest income of ₹ 9 lacs received from Dawar Foods Ltd. as the assessee had advanced ICD of ₹ 6 crores to M/s. Dawar Foods Ltd. at the interest rate of 10%. The submission of the assessee remained that assessee had advanced an amount of ₹ 6 crores to Dawar Foods Ltd. initially at the interest rate of 10%, however, during the year on mutual consents the rate was reduced from 10% to 8.5%. The Assessing Officer had not accepted this explanation of the assessee but the Learned CIT(Appeals) has accepted the same with this finding that it is a settled principle of law that only real income is to be taxed. In this regard, he has followed the ratios laid down in the case of CIT vs. Shoorji Ballabdass Co., 46 ITR 144 (S.C). We thus do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No. 3 is accordingly rejected. 23. In result, the appeal preferred by the Revenue is dismissed. 24. The assessee (ITA No. 2240/Del/2010) on the other hand has basically questioned the First Appellate Order mainly on two grounds. Firstly, upholding of ₹ 6,23,34,129 claimed by the assessee as short term 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the ratio of sale of income from shares, 84% of the income is determined from long term holding of STT paid listed equity shares. Only a small component 15% of income from shares is treated as short term. A look into the holding period of shares Appendix B would reveal that out of 560 scripts, the transactions pertained only to 60- 65 scripts which were sold in 27 at different times. 409 scripts out of 560 total scripts has a holding period of more than 60 days having a short term capital gain of ₹ 5.13 crores out of ₹ 6.23crores, only ₹ 1.09 crores were earned from 151 scripts having a holding period of 15-60 days barring few which are than 10 days. Thus, the Appellant states that when shares are acquired after paying STT and taking complete delivery of shares keeping a long term in view as 84% of shares are held for more than one year, transacting in some shares in short term to alter its investment vision and goal cannot be considered as an action borne out to do trade. It happens when the vision is long term, some shares thought purchased are dropped out from portfolio either because sufficient funds are not available to make them reach to a level to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,57,661 Not contested 5. Disallowance u/s.94(7) 1,09,525 Not contested 36. The main issue involved in the appeals is regarding taxing the profits realized on sale of shares as business income against capital gain offered by the assessee either under long term capital gain or short term capital gain depending upon the period of holding of shares. 37. The assessee claimed ₹ 25,59,09,101 as long term capital gain which has been treated by the assessee as business income. The Learned CIT(Appeals) has, however, accepted the claimed long term capital gain against which the Revenue is in appeal raising ground Nos. 1 to 3 in this regard. 38. In support of the grounds, the Learned CIT(DR) has basically placed reliance on the assessment order. He submitted that the assessee was holding shares mainly of group company including Dabur India Ltd. as investment since long back. The assessee was also engaged in the purchase and sale of shares and mutual funds mostly of Blue Chip Companies as stock in trade. Shares held as stock in trade were transferred from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the balance sheet as on 31.3.2007 and all the shares were sold and not many transactions are there in the scripts. As on 31.3.2008, no shares of MTNL and Punjab Tractors Ltd. are held. These shares were held for considerable long time and shares were being sold when there was appreciation in the market. Shares of ABN Amro Securities purchased in 1998-99 were sold on 14.7.2007 after a period of 7/8 years. In these shares, the assessee had not carried out the transactions on regular basis as evident from the numbers of shares and transactions. Besides, the investment in Punjab Tractors Ltd. was made by the assessee in order to enjoy the controlling shares in the said company and the profit on sale of shares enjoying managing control is always considered as capital gain as per the decision cited hereinabove in the cases of Accra Investment Pvt. Ltd. vs. ITO (supra), Ram Narain Sons (P) Ltd. (supra) and Raja Bahadur Kamakhya Narain Singh vs. CIT (supra). He 36 also referred page Nos. 7 to 15 of the paper book i.e. investments as on 31.3.2008, 31.3.2007, 31.3.2006 and 31.3.2005, and page Nos. 149 to 181 i.e. computation of income with details of capital gain with balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts regarding showing of the shares as investment in the balance sheet, their holding period, and volume and frequencies of their transactions, have not been rebutted by the Revenue. We thus do not find reason to interfere with the First Appellate Order on the issue. The same is upheld. 42. In result, ground Nos.1 to 3 of the appeal of the Revenue are thus rejected. 43. In ground Nos. 1 to 4 of the appeal of the assessee, the assessee has basically questioned treatment given to the gain of ₹ 5,83,72,758 on disposal of shares by the authorities below as business income against the claim of the assessee as short term capital gain chargeable to tax under sec. 111 of the Act. 44. The relevant facts are that the Assessing Officer noted that during the assessment year under consideration, the assessee had shown short term capital gain of ₹ 5,83,72,785. In the computation of income furnished during the assessment proceedings, an amount of ₹ 3,53,22,682 was shown as short term capital loss under sec. 111A . Details of capital gains and losses were furnished. On perusal of the same, the Assessing Officer noted that in the computation of taxable income only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. It was held that there cannot be a single factor or criterion to determine whether the income falls under the head of short term capital gain or of business income. He referred page Nos. 13 to 18 of the paper book wherein details of short term capital gains STT paid (benefit claimed under sec. 111A) and without STT(no benefit claimed under sec. 111A) have been furnished. 46. Learned CIT(Appeals) on the other hand tried to justify the orders of the authorities below and he has also adopted similar arguments as advanced by him hereinabove in the appeal for the assessment year 2006-07 in opposition of ground Nos. 1 to 3 of the appeal preferred by the assessee. 47. Considering the above submission, we find that the authorities below have denied the claimed short term capital gain mainly on the basis that the assessee carried on the activities of purchase and sale of shares on regular basis, volume of purchase and sale of shares was huge, frequency of transaction was very high, conduct of assessee was that of a trader in shares and no proper records were maintained as per report under sec. 142(A) issued by the special auditor. The authorities below have not discussed the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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