CNB Finwiz Ltd., New Delhi V. ACIT, New Delhi

ITA 1962/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3936 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: C S AGGARWAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI C. L. SETHI, JM AND SHRI K. D. RAN JAN, AM I. T. A. NO. 1962 (DEL) OF 2009 ASSESSMENT YEAR : 2005-06. M/S. C N B FINWIZ LIMITED, ASSTT. COMMISSIO NER OF INCOME-TAX, 4318/3, ANSARI ROAD, DARYA GANJ, VS. CIRCLE : 3 (1), N E W D E L H I 110 002. N E W D E L H I . PAN / GIR NO. AAB CB 2613 A. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI C. S. AGGARWAL, ADV.; & SHRI RAVI PRATAP MALL, ADV.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 05-06 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-VI, NEW DELHI. 2. THE ONLY ISSUE FOR CONSIDERATION INVOLVING GROUN DS OF APPEAL RELATES TO ASSESSMENT OF PROFITS ARISING ON SALE OF SHARES AS SHORT TERM CAP ITAL GAIN OR BUSINESS INCOME. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE COMPANY IS A SHARE BROKER REGISTERED WITH NSE AND BSE AND CARRIES ON BUSINESS OF PURCHASE AND SALE OF SHA RES ON ITS OWN. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN INCOME OF RS.1 ,46,09,327/- INCLUDING SHORT TERM CAPITAL GAINS OF RS.82,32,316/-. THE AO REQUIRED THE ASSES SEE TO EXPLAIN AS TO WHY THE SHORT TERM CAPITAL GAIN SHOULD NOT BE TREATED AS BUSINESS INCO ME. THE ASSESSEE WAS ALSO REQUIRED TO JUSTIFY 2 I. T. A. NO. 1962 (DEL) OF 2009 THE FACTS ON THE BASIS OF DOCUMENTARY EVIDENCE. IN RESPONSE TO THIS QUERY IT WAS SUBMITTED BY THE ASSESSEE THAT IT WAS POSSIBLE FOR ITS TAXPAYER TO H AVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO AND TRADING PORTFOLIO. THE ASSESSEE RELYING ON CBD T CIRCULAR NO. 4 DATED 15/06/2007 SUBMITTED THAT THE VOLUME OF BUSINESS OF THE ASSESSEE WITH RE GARD TO PURCHASE AND SALE OF SHARES WAS QUITE VOLUMINOUS. THE ASSESSEE WAS PURCHASING AND SELLIN G THE SHARES WITHOUT AFFECTING ANY DELIVERY AND MOSTLY THERE WAS NO OPEN POSITION AT THE END OF THE DAY. THE ASSESSEE WAS ALSO MAKING INVESTMENTS IN SHARES WHEREIN DELIVERY OF SHARES WA S TAKEN. THE SHARES WERE CREDITED TO DEMAT ACCOUNT OF THE COMPANY. IT WAS ALSO SUBMITTED THAT AS PER SECTION 292(1)(B) AND SECTION 372-A OF THE INDIAN COMPANIES ACT, THE ASSESSEE COMPANY WAS REQUIRED TO PASS RESOLUTION AS AND WHEN SOME INVESTMENT WAS MADE FOR THE PURCHASE AND SALE OF SHARES OR FOR MAKING INVESTMENT IN ANY OTHER BODY CORPORATION. ACCORDING TO COMPANIES ACT , EACH AND EVERY COMPANY WAS REQUIRED TO MAINTAIN A REGISTER OF INVESTMENT, WHICH WAS STATUT ORY REGISTER AND HAS BEEN MAINTAINED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE ASSESSEE APPLIED FOR SHARES IN IPOS OF NTPC AND DENA BANK AND THE SHARES WERE ALLOTTED IN IPOS IN CONSUL TATION WITH STOCK EXCHANGE AND SEBI. IN THESE TWO CASES THE COMPANY MADE INVESTMENT FOR PUR CHASE OF SHARES; THE SHARES WERE RECEIVED IN DEMAT ACCOUNT AND SOLD. THE REMAINING SHARES OF NTPC (25,000/-) AND DENA BANK (1,25,355/-) WERE CARRIED FORWARD IN INVESTMENT ACC OUNT AS ON 31 ST MARCH, 2005 AND WERE VALUED AT COST. AS REGARDS SHARES OF STATE BANK OF INDIA THE ASSESSEE PURCHASED 25,000 SHARES IN THE MONTH OF NOVEMBER / DECEMBER, 2004 AND WERE HELD FO R MERELY 3 MONTHS AND SOLD ON 29/30 TH MARCH, 2005. IT WAS ALSO SUBMITTED THAT THE ASSESS EE HAD RECEIVED DIVIDEND OF RS.30,000/- ON 25,000 SHARES OF NTPC DURING THE YEAR UNDER CONSIDE RATION. IN VIEW OF THESE FACTS IT WAS SUBMITTED THAT THE SHARES WERE HELD AS INVESTMENT A ND THE INCOME ARISING ON SALE COULD NOT BE ASSESSED AS BUSINESS INCOME. THE ASSESSING OFFICER EXAMINED THE CONTENTION OF THE ASSESSEE WITH REFERENCE TO CBDT CIRCULAR NO. 4 OF 2007 DATED 16/0 5/2007 AND VARIOUS DECISIONS ON THE SUBJECT. THE AO OBSERVED THAT THE PERIOD OF HOLDIN G OF THE SHARES UNDER INVESTMENT PORTFOLIO VARIED FROM 15 DAYS TO 5 MONTHS. THE ASSESSEE HAD NOT EARNED ANY DIVIDEND. THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE HAD RECEIVED DIVIDENDS O N SHARES OF NTPC WAS MISPLACED. NTPC DECLARED DIVIDEND ON 10/03/2005 WHEREAS THE ASSESSE E HAD SOLD 1,45,682 SHARES ON 28 TH FEBRUARY, 2005, OUT OF TOTAL SHARES OF 21,69,682 PU RCHASED ON 3/11/2004. THE DIVIDEND RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF 25,000 SHARES OF NTPC, WHICH WERE NOT SOLD TILL 31 ST MARCH, 2005. THEREFORE, NO DIVIDEND WAS EARNED BY THE ASS ESSEE ON THE SHARES SOLD BY IT. AS REGARDS THE 3 I. T. A. NO. 1962 (DEL) OF 2009 DEPOSIT OF SHARES IN DEMAT ACCOUNT THE ASSESSING OF FICER NOTED THAT THE ASSESSEE HAD PROFIT ON SALE OF SETTLEMENT OF CONTACT TO THE TUNE OF RS.1,72,95, 665/-. IN THESE CASES THE ASSESSEE HAD BOUGHT / SOLD SHARES AND MONEY HAD COME IN AND GONE OUT ITS BANK ACCOUNT. THEREFORE, IT WAS NOT CORRECT ON THE PART OF THE ASSESSEE TO SHOW THAT IN CASE OF INVESTMENTS SHARES WERE BOUGHT / SOLD ON ACTUAL BASIS AND MONEY CAME IN AND WENT OUT, OUT OF BANK A CCOUNT. THE LD. ASSESSING OFFICER ON THE BASIS OF THE ABOVE HELD THAT THE TRANSACTIONS WERE IN THE NATURE OF BUSINESS. 3. ON APPEAL BEFORE THE LD. CIT (APPEALS) IT WAS SU BMITTED THAT IN CASE OF INVESTMENTS THE COMPANY IS REQUIRED TO PASS THE RESOLUTION AS AND W HEN SOME INVESTMENTS WERE TO BE MADE FOR PURCHASE / SALE OF SHARES OR FOR MAKING INVESTMENT IN ANY BODY / CORPORATION. THE ASSESSEE HAS PURCHASED SHARES OF NTPC AND DENA BANK IN IPO AND S HARES WERE ALLOTTED TO ASSESSEE IN CONSULTATION WITH STOCK EXCHANGES AND SEBI. THE CO MPANY HAD MADE INVESTMENTS FOR PURCHASE OF SHARES. AS REGARDS SHARES OF STATE BANK OF INDI A, THE SHARES WERE PURCHASED IN THE MONTH OF NOVEMBER / DECEMBER, 2004. THE SHARES WERE TRANSFE RRED TO DEMAT ACCOUNT. THE SHARES HAVE BEEN SHOWN AS INVESTMENT IN THE BOOKS OF ACCOUNTS. THEREFORE, PROFIT ON SALE OF SHARES SHOWN AS INVESTMENTS WILL BE TAXABLE AS SHORT TERM CAPITAL G AINS AND NOT AS BUSINESS INCOME. AS REGARDS STOCK-IN-TRADE, THE SHARES ARE PURCHASED AND SOLD O N THE SAME DAY WITHOUT HAVING TAKEN DELIVERY. THEREFORE, ONLY THE SHARES WHICH WERE HELD AS STOCK -IN-TRADE WERE LIABLE TO BE TAXED AS BUSINESS INCOME. THE LD. AR OF THE ASSESSEE ALSO SUBMITTED THAT SHARES HELD AS INVESTMENT HAVE BEEN VALUED AT COST PRICE. THE LD. CIT (APPEALS) EXAMIN ED THE CONTENTION IN THE LIGHT OF VARIOUS DECISIONS. SHE PLACED RELIANCE ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. GUEST KEEN & METALFOLD LTD. 115 ITR 205 (CAL.) WHEREIN IT HAS BEEN HELD THAT REPEATEDLY DECISIONS HAVE LAID DOWN THAT IN DETERMINING THAT W HETHER A TRANSACTION WAS ON AN INVESTMENT OR AN ADVENTURE IN THE NATURE OF TRADE NO UNIVERSAL RU LE WOULD APPLY. EACH CASE HAD TO BE JUDGED ON ITS OWN MERIT AND THE COURT HAS TO COME TO A CONCLU SION TAKING INTO ACCOUNT THE TOTALITY OF FACTS AND CIRCUMSTANCES. THE LD. CIT (A) RELYING ON THE DECISION OF HONBLE CALCUTTA HIGH COURT HELD THAT THE FACTS OF THE CASE CLEARLY ESTABLISHED THAT THE RECEIPTS OF RS.82,32,316/- WERE INCOME FROM REGULAR BUSINESS OF THE ASSESSEE AND THUS TO BE COM PUTED UNDER THE HEAD BUSINESS INCOME. THE LD. CIT (A) ACCORDINGLY UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 4 I. T. A. NO. 1962 (DEL) OF 2009 4. BEFORE US THE LD. AR OF THE ASSESSEE REITERATED THE SIMILAR ARGUMENTS. HE SUBMITTED THAT THE ASSESSEE HAD SHOWN THE INVESTMENTS IN THE BOOKS OF ACCOUNTS AS PER BOARDS RESOLUTION AS REQUIRED UNDER SECTION 292 (1) (B) AND 372-A OF THE COMPANIES ACT. THE ASSESSEE HAD RECEIVED DIVIDEND ON REMAINING 25,000 SHARES OF NTPC. THE SHARES WERE TRANSFERRED TO DEMAT ACCOUNT. ON SALE THE DELIVERY OF SHARES HAD BEEN GIVEN BY TH E ASSESSEE COMPANY AND ACTUAL PAYMENT OF THE SHARES WAS RECEIVED BY THE COMPANY THROUGH BANK. I T WAS ALSO SUBMITTED THAT THE ASSESSEE HAD TAKEN DELIVERY OF SHARES AND HAD MADE PAYMENTS FOR ENTIRE CONSIDERATION OF PURCHASE OF SHARES. THE LD. AR OF THE ASSESSEE HAS FILED DETAILS OF DIV IDEND RECEIVED DURING THE FINANCIAL YEAR IN RESPECT OF SHARES HELD AS INVESTMENT AS WELL AS STO CK-IN-TRADE. THE ASSESSEE ALSO FILED DETAILS OF STOCK-IN-TRADE HELD ON 31 ST MARCH, 2005. THE LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PURO HIT VS. JCIT 188 TAXMAN 140 (BOM.) AND OF HONBLE SUPREME COURT IN THE CASE OF ANIL JAIN V S. CIT 294 ITR 435 (SC) AND ATLAS CORPORATION VS. ITO 57 ITD 139. IN THE CASE OF GOP AL PUROHIT VS. JCIT (SUPRA) HONBLE BOMBAY HIGH COURT HAS HELD THAT IT IS OPEN TO AN AS SESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RE LATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE HONBLE HIGH COURT HAS UPHELD THE V IEW TAKEN BY THE ITAT THAT THE DELIVERY BASED TRANSACTION WERE TO BE TREATED AS THOSE IN TH E NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED EITHER AS SHORT TERM OR AS THE CASE MAY BE LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF HOLDING. 5. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). SHE SUBMITTED THAT THE MOTIVE BEHIND HOLDING A PARTICUL AR SHARE HAS TO BE ASCERTAINED. VOLUME IS NOT THE CRITERIA. THE ASSESSEE HAD NOT RECEIVED ANY DIVIDEND ON NTPC SHARE WHICH WERE SOLD. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD FILED MINUTES OF THE MEETING OF BOARD OF DIRECTORS OF THE CNB FINWIZ LTD. HELD ON 12 TH OCTOBER, 2004 AND 19 TH OCTOBER, 2004. IN MEETING DATED 12 TH OCTOBER, 2004 IT WAS RESOLVED THAT AN APPLICATION FOR PURCHASE OF 20,25,000 SHARE S AT THE RATE OF RS.62/- IN THE INITIAL PUBLIC OFFER OF EQUITY SHARES OF NTPC SHOULD BE MADE FOR T HE PURPOSE OF INVESTMENT. SHRI CHAND RATTAN BAGRI, THE DIRECTOR OF THE COMPANY WAS AUTHO RIZED FOR APPLYING FOR SHARES OF NTPC BY OPENING DEPOSITORY ACCOUNT IN THE NAME OF IL & FS S ERVICES. IN BOARD MEETING DATED 19 TH OCTOBER, 2004 IT WAS RESOLVED THAT EQUITY SHARES OF STATE BANK OF INDIA MAY BE PURCHASED FROM 5 I. T. A. NO. 1962 (DEL) OF 2009 SECONDARY MARKET FOR A SUM NOT EXCEEDING RS.1,50,00 ,000/- FOR THE PURPOSE OF INVESTMENT. AGAIN AS PER MINUTES OF THE MEETING HELD ON 28 TH JANUARY, 2005 IT WAS RESOLVED TO PURCHASE 25,00,000 SHARES OF DENA BANK FOR THE PURPOSE OF IN VESTMENT IN THE INITIAL PUBLIC OFFER. THE ASSESSEE HAD FILED PHOTO-COPY OF INVESTMENT REGISTE R FOR THE RELEVANT PERIOD. ON PERUSAL OF REGISTER OF INVESTMENT IT IS SEEN THAT THE ASSESSEE HAS ACQUIRED SHARES OF NTPC AS PER BOARD RESOLUTION DATED 12 TH OCTOBER, 2004 AND SHARES OF STATE BANK OF INDIA ON DIFFERENT DATES FROM SECONDARY MARKET. THE SHARES OF DENA BANK HAS BEEN PURCHASES BY MAKING APPLICATION IN PUBLIC OFFER AS PER BOARDS RESOLUTION. THE ACQUISITION O F THESE SHARES IN THE INVESTMENT REGISTER HAS BEEN SHOWN OUT OF SURPLUS FUNDS. THESE SHARES WERE CREDITED IN DEMAT ACCOUNT AND HAVE BEEN SOLD DURING THE YEAR EXCEPT 25,000 SHARES OF NTPC. THEREFORE, FROM THE BOARD RESOLUTIONS AND ENTRIES IN THE BOOKS OF ACCOUNTS IT IS PROVED THAT THESE SHARES WERE HELD AS INVESTMENTS AND NOT AS STOCK-IN-TRADE. THE ASSESSEE HAD ALSO RECEIVED DIV IDEND FROM THE SHARES WHICH WERE HELD AS STOCK-IN-TRADE. MERELY BECAUSE THE DIVIDEND HAS NO T BEEN RECEIVED FROM SHARES HELD AS INVESTMENTS, THE NATURE OF SUCH SHARES CANNOT BE TR EATED AS STOCK-IN-TRADE. THE ASSESSEE HAS MAINTAINED INVESTMENT PORTFOLIO AS WELL AS TRADING PORTFOLIO. THE SHARES IN THE INVESTMENT PORTFOLIO HAVE BEEN HELD IN DEMAT ACCOUNT. THEREFO RE, PROFIT ON SALE OF SHARES WILL BE ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT VS. JCIT (SUPRA). IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE PROFITS EARNED ON SALE OF SHARES HELD AS INVESTMENT WILL BE ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. WE, THEREFORE, DECIDE THIS ISSU E IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 13 TH MAY, 2011. SD/- SD/- [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH MAY, 2011. *MEHTA * 6 I. T. A. NO. 1962 (DEL) OF 2009 COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.