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TMI Blog2018 (2) TMI 2127X X X X Extracts X X X X X X X X Extracts X X X X ..... gain - as per loss on sale of shares is a speculation loss and can be allowed only against speculation income in terms of the explanation to section 73 - HELD THAT:- We find that section 73 deals with the loss in speculative business and explanation thereto provides that where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads Interest on Securities , Income from House Property , Capital Gains and Income from other sources ) or a Company (the principal business of which is the business of banking) or the granting of Loans Advances consists in the purchase and sale of shares of other companies, such company shall, for the purpose of section 73, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares . Admittedly, the gross total income of the assessee consists mainly of short term capital gain and does not consist of income from purchase and sale of shares. Therefore, the explanation to section 73 is not applicable and the capital loss on sale of shares cannot be considered as speculative loss and is to be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has filed the revised grounds of appeal in both the appeals along with the Pr. CIT s authorization for the filing of the said grounds of appeal. Therefore, the revised grounds of appeal filed on 18.10.2016 in both the appeals only are being considered for final adjudication of the respective appeals. 2. The Grounds of appeal raised by the Revenue in both the appeals are the same except for the quantum. Therefore, both the appeals were heard together and are disposed of by this common and consolidated order. For the sake of clarity and ready reference, the grounds of appeal in the case of Alpha Villas (P) Ltd are reproduced hereunder: 1. In the facts and circumstances of case and in law, the learned CIT(A) erred in deleting the addition of Rs. 14,99,99,760/- made u/s 68 of the Income Tax Act, 1961. 2. In the facts and circumstances of case and in law, the learned CIT(A) erred in holding the surplus of Rs. 17,74,29,315/- on sale of land as capital gains as against the same held as profits and gains from business by the Assessing Officer. 3. In the facts and circumstances of case and in law, the learned CIT(A) erred in directing the Assessing Officer to set of loss of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Housing Infrastructure Dev. Corporation Pvt. Ltd. He also observed that both the assessee s have claimed that an amount of Rs. 50.00 lakhs has been spent towards levelling of land etc., and therefore, by including the development expenditure and cost of registration at the time of purchase, the cost of acquisition was arrived by each of the assessees at Rs. 3,50,70,685. 6. The AO observed that the assessee is in the business of real estate and therefore, profit on the sale of land is assessable under the head Income from business and not under the head capital gain . Therefore, show cause notices were issued to the assessees. The assessees, vide letters dated 8.11.2010, explained that the land was reflected as a fixed asset in their returns of income filed for the A.Ys 2006-07 and 2007-08 as it was the intention of the assessees to hold it for a long period of time, but due to unprecedented boom in real estate market in Hyderabad and surrounding areas, the lands were offered to be purchased at a good price and hence the assessee s have sold the same and the profit arising from such a transaction has correctly been offered as capital gain and not as business income . The AO, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee had the intention to hold the land as a capital asset and that the AO has not recorded any reasons for not accepting them. He also accepted that the land was transferred w.e.f. 30.09.2005, to come to the conclusion that the land was held by the assessee for 19 months as against the AO s observation that it was held only for a period for 7 months. Thus, he held that the land is a capital asset in the hands of the assessee and therefore, directed the AO to accept the computation of short term capital gains admitted by the assessee. Aggrieved by the relief granted by the CIT (A), the Revenue is in appeal before us. 10. The learned DR strongly relied upon the order of the AO and submitted that the assessee being in the business of real estate, has purchased land from M/s. Matrix Laboratories Ltd and immediately thereafter within a short span of seven months, has sold the same for a huge margin and hence it has rightly been treated as business income by the A.O. 11. The learned Counsel for the assessee, on the other hand, drew our attention to the contentions of the assessee that the land was purchased during the year 2005 by payment of the entire sale consideration and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appurtenances pertaining in which the vendor is having in respect of the said land. 2) That the vendor has already handed over the vacant and peaceful physical possession of the said land to the vendee dated 30.09.2005 and assure to keep indemnified from all the losses, costs, expenses, damages and whatever may be the vendee shall be put into reason of any defect in the title of the said land hereby conveyed . 13. From the above recitals, it appears that in terms of section 2(47)(v) of the Act, the transfer has taken place. Further, from the copy of the balance sheet as on 31.3.2006 at page 35 of the paper book, the gross block of fixed assets is shown at Rs. 2,51,85,185 which is the sale consideration paid for purchase of the property. From the copies of wealth tax returns for the A.Y 2006-07 2007-08 at pages 55 to 59 and 60 to 64 respectively, it is seen that the assessee has shown this asset as a taxable asset. From the balance sheet for the relevant A.Y, the asset as on 31.03.2007 is shown at Rs. 30,070,685 and as on 31.3.2008 at Nil. There is no schedule for the fixed assets. Further, from the order of ITAT in ITA No. 2123/Hyd/2011 in the case of Mylan Laboratories (formerly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on 24-08-2006. But the same was brought to tax as Short Term Capital Gain. Even the DRP failed to consider the same when assessee pointed out. No direction was given to AO to treat it as Long Term Capital Gain. (d) DRP did not interfere with the order on the reason that proceedings for AY. 2006-07 were pending. The order of AO in the reassessment proceedings indicate that AO did not reduce the capital gains offered in this year. This indicates that the action of assessee in offering Short Term Capital Gain was accepted. (e) Even though, the provisions of Section 50C was amended to clarify that the SRO value as on date of agreement of sale has to be considered that need not be considered here as AO on facts accepted capital gain in AY. 2006-07 itself. 18.3 For the reasons stated above, the action of AO in bringing to tax the difference alone cannot be approved. Accordingly, the addition made is set aside. Grounds are allowed . 14. Thus, the vendor M/s. Matrix Laboratories had offered the STCG on the basis of receipt of sale consideration and handing over of the possession in the financial year 2005-06 in the A.Y 2006-07, but the AO had brought it to tax in A.Y 2007-08 on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee consists mainly of short term capital gain and does not consist of income from purchase and sale of shares. Therefore, the explanation to section 73 is not applicable and the capital loss on sale of shares cannot be considered as speculative loss and is to be set off from the short term capital gain. Thus, grounds of appeal No.2 3 are dismissed. 18. As regards Ground No. 1, brief facts are that the AO observed that there was increase in share capital of the assessee by Rs. 3,49,16,662 and has received the premium of Rs. 14,58,33,100. The assessee was asked to prove the genuineness of the same and the assessee furnished the required details. On perusal of the details furnished by the assessee, the AO observed that the assessee has received an amount of Rs. 14,99,99,760 from one M/s. Corner Stone Properties Invest. Pvt. Ltd towards allotment of 4,16,666 shares of the company @ Rs. 360/per share (i.e. with a premium of Rs. 350/- per share of Rs. 10/-) on 03.03.2008 whereas just two days prior thereto i.e on 01.03.2008 Rs. 30,75,000/- shares of the company were allotted to one of the Director Mr. N. Prakash at the rate of Rs. 10/- per share i.e. without any premium. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the share capital received by it from Walden Properties Pvt Ltd., (WPPL) on various dates starting from 31.07.2007 to 9.10.2007 and that the WPPL had stated that its source for such investment is the sale proceeds from customers and surplus fund from its cancellation of FDRs. The AO observed from the books of account of WPPL for the financial year 2006-07 and 2007-08, that it was in heavy need of funds for its operations for financial year 2007-08 and had secured loans. The correspondence between the WPPL and CPIPL was also furnished before the A.O by Mr. B. Subhash of WPPL on 29.11.2010. From the sequence of events, the AO observed that the WPPL had evinced interest in acquiring 50% stake in CPIPL at Rs. 60 crores and had also stated that its operational team and supervisory team would participate in the project at Bangalore, but the CPIPL did not agree for participation of the operational team and management team from WPPL from the day-to-day, but agreed for a periodical overview. He observed that on 26.06.2007 WPPL agreed to the proposal of CPIPL without any due diligence and has paid money to CPIPL which was immediately invested in the assessee companies. He observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute w.e.f 1.04.2013 and prior to such an amendment, there was no provision to tax the share premium as the income of the assessee. For this reason also, the share premium cannot be brought to tax in the hands of the assessee. 25. Further, we also find that the Hon ble Bombay High Court, in its recent decision in the case of M/s Apeak InfoTech, Nagpur and others in ITA Nos. 26 of 2017 to 31 of 2017, dated 08.06.2017, has held that the share premium is a capital receipt like share capital and therefore is not taxable. 26. In the case before us also, the share premium has been brought to tax as the income of the assessee. Respectfully following the decision of the Hon ble Bombay High Court in the above case (cited supra), we hold that the share premium, even it is in excess of the value of the net worth of the assessee, can only be treated as capital receipt and cannot be brought to tax. Though, we do not agree with the findings of the CIT(A), that it is the income of the individual Shri N. Prasad, and has to be brought to tax in his hands, for the reasons given above, we hold that the share premium cannot be brought to tax in the hands of the assessees before us. Thus, the grounds of ..... 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