9911796707
TMI Blog2018 (8) TMI 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Short Term Capital Gain , matter should be restored back to the file of the Assessing Officer to examine, whether there is any repetitive transaction; or whether similar scrips have been shown by the assessee in its trading portfolio; or there is frequent switching of same shares. AO will examine these aspects and will also examine it in the light of the clarification issued by the CBDT vide circular dated 2nd May, 2016. Thus, with this direction this issue is remanded back for limited purpose; and in so far as transaction of Long Term Capital Gain is concern, we hold that same is assessable as Long-Term Capital Gain and not business income. Coming to the objection raised by the ld. CIT-DR that the new plea has been raised with regard to the transaction of Punjab Tractor Ltd., we do not find any merits in such objection, because the acquisition of sale of Punjab Tractor Ltd. has been discussed by the Assessing Officer also and moreover if the entire issue of Long-Term Capital Gain, whether assessable under the head capital gain or business income is in dispute and if certain facts are being pointed out from the material already on record, then the same can always be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has been that it always had huge sufficient interest free funds available with it which is also evident from the balance-sheet in the form of huge reserves and surplus and therefore, no disallowance of interest could have been made. This contention of the assessee has not been rebutted by the Assessing Officer. Apart from that, assessee has also categorically stated that none of its borrowed funds was applied for the purpose of the investment and it has earned interest income of 19.84 crore from the loan advanced by it and has paid interest on loans of 1.98 crores only. Thus, there is a net interest income. We have already given a finding while deciding the appeal for Assessment Years 2008-09 that if there is net interest income then no disallowance of interest can be made. Under these circumstances and facts, we hold that no disallowance of interest can be made. Accordingly, the disallowance made by the Assessing Officer under Rule 8D(2)(iii) is directed to be deleted. TDS u/s 194H on DEMAT charge - Whether no principle agent relationship? - HELD THAT:- We find that the only reason for disallowing the payment of DEMAT charges by AO is that the CBDT Notification No.56/2012 has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant craves to the allowed to amend, delete or add any other grounds of appeal during the course of hearing of this appeal" 3. The facts in brief qua the issue are that, assesseecompany has been stated to be in the business of sale and purchase of shares and mutual funds. During the year, the assessee had shown income from business and also income from Long Term and Short-Term Capital Gains in the following manner: - Heads of Income Rs. Capital gains i) Long term capital gains exempt u/s 10(38) 106,78,21,147 ii) Long-term capital gain without indexation 10,13,29,232 iii) Long-term capital gain with indexation 1,35,49,508 iv) Short-term capital gain u/s 111A 1,85,41,338 v) Short-term capital gain Others 29,95,242 Profit and gains of Business or profession Trading in mutual funds 3,60,77,965 Income from other sources Dividend income 8,19,14,172 5. The Assessing Officer to understand the different nature of transaction undertaken by the assessee, first of all noted that assessee had done huge trading in mutual fund having turnover of ₹ 907.91 crores for which assessee has offered the income under the head 'business and profession'. Then he tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown as investment) (Excluding Dabur India Ltd. Stock of ₹ 60,054/- = ₹ 39.92 crore Total= ₹ 70.16 crore Closing Stock c. Mutual Fund (shown as stock in trade) = ₹ 53.35 crore d. Shares (shown as investment) (Excluding Dabur India Ltd. Stock of ₹ 41,774/-) = ₹ 88.62 crore Total Turnover = ₹ 141.97 crore e. Mutual Fund (shown as stock in trade) = ₹ 907.91 crore f. Shares (shown as investment) (Excluding Dabur India Ltd. Sale of ₹ 106.46 crores)= ₹ 37.78 crore Total = ₹ 945.69 crore 5. Thereafter, the learned Assessing Officer after referring the various judgments held that mere entries in the books of account showing shares as investment is not a determinative factor to decide the real nature of transaction. In support, he strongly relied upon the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkali chemicals and Fertilizers Ltd. vs. CIT, reported in 271 ITR 172 and catena of other judgments as incorporated by him in the assessment order. Thereafter, he has discussed the various tests laid down by the courts from time to time distinguishing between shares held as stock-in-trade and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. & Svg. Co. Ltd. (1978) 113 ITR 173 (guj)]." 6. Thereafter, he again referred to various decisions as discussed from pages 15 to 22 of his order including CBDT Circular No.4 of 2007 dated 15th June, 2007 and concluded that assessee was dealing in sale and purchase of shares for earning profit and tax them under the head 'business income' in the following manner: Long Term Capital gain: (Except Dabur India Ltd.) ₹ 32,39,427 Long Term Capital Gain: (without indexation) ₹ 10,13,29,232 Long Term Capital Gain: (with idexation after removing Indexation) ₹ 2,93,99,990 Short Term Capital Gain: ₹ 1,85,41,338 Short Term Capital Gain: With PMS (Net): Rs. 16,86,882 Total ₹ 15,41,96,869/- 7. However, before coming to his decision, AO has highlighted following facts to reach to the following conclusions: - (i) Assessee is in the business of sale and purchase of shares and mutual funds, which is the only business of the assessee. (ii) The assessee is even doing the trading in items of growth oriented or dividend oriented Mutual Funds which are normally considered as investment items. This shows the motive of the assessee in such activities. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), the assessee submitted that it has maintained two portfolios for the shares in the balance-sheet; one as an 'investment' and other as 'stock' for trading activities. Such an investment in shares have been classified since Assessment Year 2005-06 and in all the years separate schedule of investment have been shown right from 31st March, 2005 to 31st March, 2008. The intention of the assessee for making investment in shares is also borne out from the resolution of Board of Directors. It was further pointed out that 85% of the gain were from Long Term Capital Gain, i.e., the shares which were held for more than 365 days and only 15% of the shares were held for less than a year, hence, the intention was always to keep the shares as investment. In support, the reliance was placed upon the decision of Hon'ble Jurisdictional High Court in the case of Essjay Enterprises Pvt. Ltd., reported in (2007) 165 taxmann.com (Del.) and Madras High Court judgment in the case of CIT vs. NSS Investments Pvt. Ltd., reported in (2005) 277 ITR 149 (Mad.). Thereafter, point-wise rebuttal of Assessing Officer's allegation was given which has been incorporated in the appellate order in detail. Again, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imself has held that it was always held as investment and he has excluded it from the computation of business income. From these details, he again pointed out that there was one scrip of 'Punjab Tractors Ltd.' which was purchased in the Assessment Years 2005-06 and 2006-07, was always held as investment and was never part of stock-in-trade. Out of total gain of Long Term Capital Gain of ₹ 15,41,96,869/- gain on the shares of Punjab Tractors Ltd. alone were ₹ 10,13,29,232/-. This gain at any cost cannot be held to be in the nature of business income, because right from day one it was acquired as an investment and was sold as such. He further pointed out that the shares of Punjab Tractors Ltd. were sold to Mahindra & Mahindra in a takeover deal for which he has also filed copy of share purchase agreement dated 08.03.2007 executed between assessee and Mahindra & Mahindra and the offer letter made by Mahindra & Mahindra to purchase equity shares from the public at large after the acquisition of the shares of the Punjab Tractors Ltd from the assessee in accordance with provision of SEBI. Apart from that, he submitted that another major amount relates to ABN Amro Securities P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decisions of Hon'ble High Court and Hon'ble Supreme Court which has been rendered after the earlier Tribunal order and looking to the fact that the major transaction is into Punjab Tractor Ltd. and ABN Amro Securities Ltd. which has held as investment from day one, the ratio laid down by the earlier order would not be applicable. 13. By way of rejoinder, ld. CIT-DR vehemently opposed the contention of the Ld. Counsel with regard to the nature of holding of shares of Punjab Tractors Ltd. on the ground that, this plea was never taken before the Assessing Officer and ld. CIT(A). Even though the assessee has filed an application under Rule 27, however, such an application is not tenable under the scope of Rule 27, because here the ld. CIT (A) has reversed the entire finding of the Assessing Officer that the sale and purchase of the share of the assessee is not in the nature of trade and business but assessable under the head 'Long-Term Capital Gain and Short-Term Capital Gain'. There is no such finding which has been decided against the assessee. Thus, such a plea cannot be taken under Rule 27. Moreover, the assessee has also not filed any Cross Objection before the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to do business only and mere classification in books as investment by making entries is not decisive factor. It was on 01.04.2004 the shares were converted into investment portfolio and since A.Y. 2005-06; assessee has segregated the income under the head 'Capital Gains' and 'Business Income'. Apart from that, Assessing Officer has noted that magnitude of the transaction and the volume shows that assessee was into sale and purchase of share for the intention of business only and has also referred to the huge turnover and also highlighted various facts it has been discussed and incorporated in detail in the earlier part of the order. Now from the perusal of the schedule of investments especially investment made in the shares under the head 'Long-Term Capital Gain', we find that the major amount on amount of Long-Term Capital Gain is arising on account of sale of shares of Punjab Tractors Ltd. which is at ₹ 10,13,29,232/-, out of total Long-Term Capital Gain of ₹ 15,41,96,869/-, which has been treated as business income by the Assessing Officer. Shares of Punjab Tractors were acquired in the years 2005 and 2006 and since the date of purchase it was shown under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as for investment purpose or for trading in future for profit. However, we find that in the earlier years the Tribunal has taken a different view and held that even if the shares have been held under investment portfolio also, it can be taxed as business income. One of the core reasoning for arriving to this conclusion was that the assessee has been trading in shares and the audit report also suggest that the assessee is dealer in shares and prior to 31st March, 2004 assessee was a full-fledged trader of share. Thus, the intention of the assessee at the time of purchase became the decisive factor to hold that it was only for the business purpose. The conclusion of the Tribunal in this regard reads as under: - 8. We are of the opinion that the character of a transaction cannot be determined solely on the application of any abstract test or rule and the cumulative factors affecting the transactions have to be seen. Habitual dealing in a particular item and that too since inception is indicative of the assessee's intention of trading. Merely for taking benefit of provisions of sec. 111A of the Act applicable from the AY 2005-06, the assessee cannot be categorised as an investor, esp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition and it is not the case that these shares were earlier part of stock-in-trade which has been converted into investment after 01.04.2004. We have already held that the shares of Punjab Tractors Ltd. were acquired for controlling interest and ABN Amro shares are not tradeable in stock market and if one goes by the intention part, then these two scrips could never be held to be intended for trading purposes. Thus, the aforesaid decision will not be binding at least for these two scrips. For the other scrips also, if we see the volume of transaction and the period of holding, then we find that the transaction in the shares which was held for more than a year constitute 98.38%. For the sake of ready reference, the period of holding, volume of shares dealt, percentage of shares held in LTCG and other percentage of gain in shares are incorporated hereunder:- Period of Holding More than 365 days 81 to 364 days 91 to 180 days 60 to 90 days 30 to 59 days Less than 30 days Quantity of Shares 1,33,65,009* 53,003 1,01,571 43,971 78,813 67,802 Percentage to Total quantity 97.48% 03.8% 0.74% 0.32% 0.57% 0.49% Gain or loss 1,19,85,50,369 86,05,051 20,57,841 21,45,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et exists for trading, a need has been felt to have a consistent view in assessments pertaining to such income. It has, accordingly, been decided that the income arising from transfer of unlisted shares would be considered under the head 'Capital Gain', irrespective of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach. 3. It is, however, clarified that the above would not be necessarily applied in the situations where: i. the genuineness of transactions in unlisted shares itself is questionable; or ii. the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or iii. the transfer of unlisted shares is made along with the control and management of underlying business; and the Assessing Officer would take appropriate view in such situations. 4. The above may be brought to the notice of all the necessary compliance. 17.2 Now this circular has been approved and upheld in many judgments including that of Hon'ble Gujarat High Court in the case of PCIT vs. Ramniwas Ramjivan Kasat, reported in 248 Taxman 484. (Guj). Following the above two circulars, the Tribunal in assessee's own case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther examined or looked upon by the Assessing Officer or by the ld. CIT(A), therefore, we deem it proper that in so far as transaction of shares shown under the head 'Short Term Capital Gain', matter should be restored back to the file of the Assessing Officer to examine, whether there is any repetitive transaction; or whether similar scrips have been shown by the assessee in its trading portfolio; or there is frequent switching of same shares. The Assessing Officer will examine these aspects and will also examine it in the light of the clarification issued by the CBDT vide circular dated 2nd May, 2016. Thus, with this direction this issue is remanded back for limited purpose; and in so far as transaction of Long Term Capital Gain is concern, we hold that same is assessable as Long-Term Capital Gain and not business income. 20. Lastly, coming to the objection raised by the ld. CIT-DR that the new plea has been raised with regard to the transaction of Punjab Tractor Ltd., we do not find any merits in such objection, because the acquisition of sale of Punjab Tractor Ltd. has been discussed by the Assessing Officer also and moreover if the entire issue of Long-Term Capital Gain, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the assessment order passed by the AO. I agree with the submission of Id. A.R. that the appellant is a Non-Banking Financial Company and also engaged in financing activities. The appellant is registered with Reserve Bank of India as Non-banking Financial Company and earning interest income. To earn the interest income of ₹ 395.23 lakhs it has paid interest of ₹ 156.86 lakhs and offered the balance interest income of ₹ 238.37 lakhs for tax under the head Business Income. Since the appellant is a Non-Banking Financial company and it is also maintaining a separate financing business activity to earn interest and other business receipts, total interest payment made to earn the interest income is eligible to be set off against the interest income. In the instant case payment of interest is adjusted with interest income and balance interest income of ₹ 238.37 lakhs is offered for tax proved the financing activity as a separate business activity which should not be clubbed with other business activities. "Any expense which is related to earning a specific income, should be allowed and such income should be reduced to the extent of such expense". The same prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer has brought out that such an interest payment has any co-relation with the loan funds for the purpose of making the investment. On the other hand, we find that the assessee has huge surplus funds in its reserve which is around ₹ 19,200 lacs. Under these circumstances, it could be easily presumed that, investments have been made from interest free surplus funds and no portion of interest expenditure can be disallowed. Accordingly, we do not find any infirmity in the order of the ld. CIT (A) and same is confirmed. 25. In the result, the appeal for the Assessment Year 2008-09 is treated as partly allowed for statistical purposes. 26. In the Assessment Year 2009-10, the Revenue has taken only one ground, i.e., ld. CIT(A) has earned in treating profit from sale of shares as Long-Term and Short-Term Capital Gains or business income. Admittedly, the fact in this year are by and large the same as were in there in the Assessment Year 2008-09, that is, the shares which were held for more than 365 days were held as investment from the date of acquisition. We have already held that so far as the shares transacted under the head Long Term Capital Gain the same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consists of interest component made under Rule 8D(2)(ii) by the Assessing Officer. The assessee has already disallowed sum of ₹ 28,42,651/- for the purpose of disallowance u/s.14A which has been computed in accordance with formula given in Rule 8D2(iii). However, the Assessing Officer has imputed the interest disallowance without even examining the nature of accounts and also whether any interest-bearing funds have been invested in the purchase of the investment which has yielded dividend income. No 'satisfaction' has been recorded by the Assessing Officer as to why such interest disallowance should be made. The ld. CIT(A) noted that assessee has not made investment from the borrowed funds and interest expenditure has no link whatsoever for the earning of the exempt income and accordingly, he has deleted the addition under Rule 8D2(ii). 30. After considering the submission made by both the parties and on perusal of the impugned orders, we find that the assessee's contention has been that it always had huge sufficient interest free funds available with it which is also evident from the balance-sheet in the form of huge 'reserves and surplus' and therefore, no disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
