ACIT, New Delhi V. M/s. Dreamland Buildtech Pvt. Ltd., New Delhi

ITA 3116/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7575 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 22-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROMESH CHANDER; PARWIDNER KAUR SR D
• Assessee Lawyers: MRS SHAILY GUPTA
• Keywords: Capital asset; Business income; Earning of tax free income; Retrospective amendment; Question of law; Speculation loss
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI I.C.SUDHIR , JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 2596 /DEL/201 0 ASSESSMENT YEAR : 200 6 - 07 DREAMLAND BUILD TECH. P.LTD. VS. ACIT, CIRCLE 10(1) 910, ANSAL BHAVAN NEW DELHI KASTURBA GANDHI MARG NEW DELHI 110 001 PAN: AACCD 0809 M ITA NO. 3115/D EL/201 0 ASSESSMENT YEAR : 2006 - 07 ACIT, CIRCLE 10(1) VS. DREAMLAND BUILDTECH PVT.LTD. NEW DELHI NEW DELHI ITA NO. 2939 /DEL/201 0 ASSESSMENT YEAR : 200 7 - 08 DREAMLAND BUILD TECH. P.LTD. VS. ACI T, CIRCLE 10(1) NEW DELHI NEW DELHI ITA NO. 3116/ DEL/201 0 ASSESSMENT YEAR : 2007 - 08 ACIT, CIRCLE 10(1) VS. DREAMLAND BUILDTECH PVT.LTD. NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) A SSESSEE BY: - SHRI AJAY VOHRA, SR.ADV. ALONG WITH SHRI ROHIT JAIN , ADV. AND MRS.SHAILY GUPTA, C.A. DEPARTMENT BY: - SH. ROMESH CHANDER , CIT, D.R. AND SMT.PARWIDNER KAUR, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST SEPARATE ORDERS OF THE LD.CIT(A) - XIII, NEW DELHI DATED 1.4.2010, PERTAINING TO THE AY 2006 - 07 AND 2007 - 08. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 2 1.1. AS THE ISSUES ARISING OUT OF BOTH THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND ARE DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. FACTS IN BRIEF : - THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF REAL ESTATE . F OR THE AY 2006 - 07 I T FILED ITS E - RETURN OF INCOME ON 31.11.2006 AND FOR THE AY 2007 - 08 IT FILED ITS E - RETURN OF INCOME ON 31.3.2008. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. LATER AN ORDER U/S 143(3) WAS PASSED FOR BOTH THE AYS MAKING CERTAIN ADDITIONS. ONE OF THE MAIN ISSUES THAT ARISE IN THIS APPEAL IS TH E ACTION OF THE AO OF TREATING THE GAINS THAT AROSE F ROM THE SALE AND PURCHASE OF SHARES, AS BUSINESS INCOME AND NOT AS SHORT TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE. THERE ARE OTHER ISSUES WHICH WE WOULD BE ADDRESSING IN DUE COURSE. 2.1. THE FIRST APPELLATE AUTHORITY FOR THE AY 2006 - 07 GRANTED PART RELIEF. AGGRIEVED BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL. WE FIRST TAKE UP ITA NO.2596/DEL/2010 AND 3115/DEL/2010 FOR THE AY 2006 - 07. 2.2. THE GROUNDS IN THE REVENUE S APPEAL READ AS UNDER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT RS.1,39,41,555/ - AS SHORT TERM CAPITAL GAIN, WHICH WAS HELD BY THE AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW PROPORTIONATE EXPENSES OF S ECURITIES TRANSACTIONS TAX AS DEDUCTION FROM THE BUSINESS INCOME. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2.3. THE GROUNDS IN THE ASSESSEE S APPEAL READ AS UNDER. 1. THAT THE ORDER OF CIT(A) - VIII, N.DEL DT. 1.4.2010 IS WRONG ON FACTS AND BAD IN LAW. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 3 2. THAT THE CIT(A) ERRED IN HOLDING THAT THE GAIN OF RS.36,09,941/ - OUT OF THE TOTAL SHORT TERM CAPITAL GAIN FROM SALE OF SHARES WAS BUSINESS PROFIT. 3. THAT THE CIT(A) ERRED IN HOLDING THAT THE GAIN ON A SHARE SOLD WITHIN THE PERIOD OF 30 DAYS OF ITS ACQUISITION WAS BUSINESS PROFIT INSTEAD OF SHORT TERM CAPITAL GAIN. 4. THAT THE CIT(A) ERRED IN NOT ALLOWING RS.2,000/ - BEING THE FEES PAID TO REGISTRAR OF COMPANIES, N.DEL FOR FILING ANNUA L ACCOUNTS ETC. 5. THAT THE CIT(A) FAILED TO APPRECIATE THAT THE ADDITIONAL FEES OF RS.45,936/ - PAID TO ROC, N.DEL HAS BEEN DISALLOWED TWICE. 6. THAT THE CIT(A) ERRED IN NOT DIRECTING THE DEDUCTION OF THE LOSS OF RS.2,308/ - IN SOME TRANSACTIONS OF SHARES. 7. THAT THE CONCLUSIONS AND INFERENCES OF THE AO AND/OR CIT(A) ARE BASED ON SUSPICIONS, CONJECTURES, SURMISES AND EXTRANEOUS AND IRRELEVANT CONSIDERATIONS. 8. THAT THE RELIEFS PRAYED FOR MAY KINDLY BE ALLOWED AND THE ORDERS OF THE AO OR CIT(A) MAY KINDLY BE QUASHED, SET ASIDE, ANNULLED OR MODIFIED, 9. THAT THE AFORESAID GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER, 10. THAT TH E APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. WE FIRST TAKE UP THE ASSESSEE S APPEAL. GROUND NO.1 IS GENERAL IN NATURE. GROUND NOS. 2 AND 3 ARE INTER CONNECTED AND ARE TO BE TAKEN UP TOGETHER WITH GROUND NOS. 2 AND 3 OF THE ASSESSEE S APPEAL. 3.1 . THE FINDING OF THE AO ON THE ISSUE AS TO WHETHER TH E PROFITS AND GAINS THAT AROSE OUT OF PURCHASE AND SALE OF SHARES HAVE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UNDER THE HEAD PROFITS AND GAINS OF BUS I NESS IS AS FOLLOWS. IN THE CONTEXT OF THE ISSUES INVOLVED, THE ACTION OF THE ASSESSEE O F TREATING THE GAIN FROM SALE AND PURCHASE OF SHARES INSTEAD OF BUSINESS INCOME IS NOT ACCEPTABLE FOR THE REASONS GIVEN AS UNDER. (A) THE TRANSACTION WERE REGULARLY ENTERED DURING THE YEAR UNDER CONSI DERATION. (B) THE PURCHASE AND SALES SHARES WERE NOT OCCASIONAL BUT CONTINUOUS, ( C ) THE ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR THE ALLEGED INVESTMENTS AND REGULAR BUSINESS. NO SEPARATE BANK ACCOUNT IS ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 4 MAINTAINED FOR DIFFERCATING THE ALLEGED I NVESTMENTS MADE AND FOR BUSINESS ACTIVITY. THE ASSESSEE WAS UTILIZING THE SALE PROCEED OF SHARES ALLEGED TO BE INVESTMENT FOR THE BUSINESS PURPOSE AND INTER - ALIA PURCHASING SHARES FOR ALLEGED INVEST MENT PURPOSE FORM FUNDS RAI S ED FOR BUSINESS ACTIVITY FRO M ALLEGED INVESTMENTS PURPOSE FROM FUND RAI SED FOR BUSINESS ACTI V ITY. UNDER THESE CIRCUMSTANCES IT WILL NOT BE POSSIBLE TO DIFFERENTIATE IN INV ESTMENT FROM BUSINESS ASSETS. MERELY AN ASSUMPTION BY THE ASSESSEE THAT A PARTICULAR PURCHASE IN INVESTMENT IS NOT SUFFICIENT. IF IT IS ALLOWED THEN EVERY PERSON SHALL OPT FOR TREATING INCOME FROM TRADING OF SHARES AS CAPITAL GAIN INCOME, WHERE HOLDING IS MORE THAN A PARTICULAR PERIOD, ONLY BECAUSE TAX ON CAPITAL GAIN IS EITHER LEVIED LESSER RATE OR NIL RATE. (D ) THE HOLDING PERIOD OF SHARES WAS 10 DAYS TO ONE MONTH. EVEN THE PURCHASE TO SALE RATIO WAS SUBSTANTIAL. NONE OF THE SHARE WAS HELD FOR MORE THAN ONE YEAR. THIS CLEARLY SHOWS THAT THE INTENTION OF ASSESSEE WAS NOT EARN DIVIDEND BUT TO EARN PROFIT ON SALE/ PURCHASE OF SHARES. (E) THE PERIOD OF HOLDING WAS NOT SUCH WHICH CAN BE SAID SUITABLE FOR EARNING DIVIDEND. (F) MERELY TRANSFERRING THE SHARES IN D - MAT ACCOUNT AND TAKING DELIVERY DOE S NOT QUALITY A SHARE AS INVESTMENT. IN CASE THE ASSESSEE HAD NOT T AKEN THE DELIVERY THEN IT WOULD HAVE BEEN SPECULATIVE BUSINESS. (G) IT IS ALSO OBSERVED THAT ASSEESEE IS ALSO DOING SPECULATION IN SHARES, IT HAD SHOWN RS. 2,308/ - AS SPECULATION LOSS. IT CLEARLY SHOWS THE INTENTION OF ASSESSEE AND NATURE OF TRADING DON E BY THEM. IT PROVES THAT THE ASSESSEE IS PREDOMINANTLY INVOLVED IN BUSINESS OF SHARES AND AT ITS SWEET WILL IT IS TREATING IT AS SHORT TERM GAIN OR LONG TERM GAIN, WHERE THE HOLDING EXCEEDS A CERTAIN PERIOD. WHERE HOLDING IS LESS THAN A SPECIFIED PERIOD IT IS A CERTAIN PERIOD. WHERE HOLDING IS LESS THAN A SPECIFIED PERIOD IT IS CLASSIFYING AS SPECULATION BUSINESS. (H) THE ASSESSEE AS SPECULATION FAILED TO PRODUCE ANY EVIDENCE WHICH CAN REFLECT AS TO HOW THESE SHARES WERE INVESTMENT OF THE COMPANY. THE ASSESSEE HAS WRONGLY INTERPRETED THE MEANING OF 'INVESTMENT AND CAPITAL ASSTS' AND USED IT FOR ITS BENEFIT TO DEFLATE ITS TAX LIABILITY. IT WAS NOT ACTUALLY AN INVESTMENT BUT A WRONG INTERPRETATION ADOPTED BY THE ASSESSEE. IN THE LIGHT OF ABOVE, DISC USSION AND PREDOMINANTLY FREQUENT TRAN S ACTION OF PURCHASE AND SALES OF THE SHARES IN TERMS OF AMOUNT AND QUANTITY ASSUME EXPLICITLY THE CHARACTER OF BUSINESS. ACCORDINGLY, THE SHORT TERM CAPITAL GAIN EARNED ON ENTIRE SALE PURCHASE OF SHARES IS TREATED AS BUSINESS INCOME AND IS TAKEN AS BUSINESS INCOME AND IS TAKEN AS BUSINESS INCOME BY REJECTING THE SPECIAL TAX TREATMENT AS PER SECTION 111(A), SINCE IT WAS ITS BUSINESS. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 5 3.2. ON APPEAL THE FIRST APPELLATE AUTHORITY CONSIDERED THE ARGUMENTS OF THE ASSESSE E AND CAME TO THE FOLLOWING CONCLUSION. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE ASSESSEE PRINCIPALLY THAT PURCHASES WERE MADE BY WAY OF INVESTMENT AND INCOME ON SALE WAS IN THE NA TURE OF CAPITAL GAIN AND NOT IN THE NATURE OF BUSINESS INCOME. IT IS HOWEVER, NOTICED THAT IN THE CASE OF THE ASSESSEE ON THE BASIS OF DETAILS CALLED FOR IN REGARD TO PERIOD OF 30 DAYS OF PURCHASE OF SHARES. INSPITE OF THE FACTUAL POSITION OF THE CASE O F THE ASSESSEE AND ALSO THE CASE LAW MENTIONED HEREINABOVE, I AM OF THE VIEW THAT IT CANNOT BE SAID IN RESPECT OF SALE OF SHARES MADE WITHIN A SHORT PERIOD OF 30 DAYS OF PURCHASE OF SHARES THAT THESE SHARES HAD ALSO BEEN PURCHASED BY THE ASSESSEE COMPANY BY WAY OF INVESTMENT AND GAIN ARISING ON SALE OF THESE SHARES SHOULD ALSO BE CONSIDERED AS SHORT TERM CAPITAL GAIN. IN MY VIEW IT WOULD BE QUITE LOGICAL TO HOLD THAT GAIN ARISING ON SALE OF SHARES PURCHASE WITHIN THE PERIOD OF 30 DAYS WAS IN THE NATURE O F BUSINESS INCOME AND NOT CAPITAL GAIN. I ACCORDINGLY, HOLD THAT GAIN OF RS.36,09,941/ - EARNED BY THE COMPANY ON SALE OF SHARES WITHIN A PERIOD OF 30 DAYS WAS IN THE NATURE OF BUSINESS INCOME. ACCORDINGLY, I ACCEPT THE CONTENTION OF THE ASSESSEE TO THE E XTENT OF SHORT TERM CAPITAL GAIN OF RS.1,39,41,555/ - AND HOLD THAT AMOUNT OF RS.36,09,941/ - IS IN THE NATURE OF BUSINESS INCOME. AO IS DIRECTED TO TREAT RS.1,39,41,555/ - AS SHORT TERM CAPITAL GAIN AND RS.36,09,941/ - AS BUSINESS INCOME. THIS GROUND OF APP EAL IS PARTLY ALLOWED. 3.3. AGGRIEVED BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE BEFORE US. 4. THE LD.COUNSEL FOR THE ASSESSEE MR.AJAY VOHRA REPEATED THE ARGUMENTS RAISED BY THE ASSESSEE BEFORE THE LD.CIT(A). HE SUPPORTED THE ORDER OF THE LD.CIT(A) TO THE EXTENT THE LD.CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE. ON THE FINDING OF THE LD.CIT(A) THAT WHEREVER THE HOLDING PERIOD OF SHARES IS LESS THAN 30 DAYS, IT SHOULD BE HELD THAT THE INCOME ARISING FROM SUCH SHARES IF BUSINESS INCOME, THE LD.COUN SEL ARGUED THAT THIS IS AN ARTIFICIAL SEGREGATION, WHICH IS NOT SUPPORTED BY ANY PRECEDENT OR PROPOSITION OF LAW. HE REFERRED TO PAGE 37 OF THE LD.CIT(A) S ORDER AND POINTED OUT THAT CERTAIN SHARES SOLD, WERE FROM OUT OF INVESTMENT MADE DURING THE PREVIOU S YEAR AND WHICH WERE OPENING BALANCES OF THE CURRENT YEAR. HE CONTENDED THAT THERE WERE NO BORROW ED FUNDS AND THE ASSESSEE HAD NO INFRASTRUCTURE WHATSOEVER TO CARRY OUT ANY TRADING ACTIVITY. HE POINTED OUT THAT THE ASSESSEE HAD PAID SECURITY TRANSACTIO NS TAX AND HAD NOT CLAIMED ANY DEDUCTION FOR THE SAME. LD.COUNSEL POINTED OUT THAT ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 6 TRADING IN SHARES, IS NOT AN OBJECT OF THE COMPANY AND THAT THE SHARES HELD WERE DISCLOSED AS INVESTMENTS IN THE BALANCE SHEET OF THE COMPANY. HE RELIED ON THE DECISION OF MUMBAI H BENCH OF THE TRIBUNAL IN ITA 6497/MUM/2009 AND ITA 6603/MUM/2009 AND OTHER CASES AND SPECIFICALLY AT PARA 9 FOR THE PROPOSITION THAT SUCH ARTIFICIAL SEGREGATION IS NOT CONTEMPLATED EITHER UNDER THE STATUTE OR ANY CIRCULAR/INSTRUCTIONS OR JUDICI AL PRONOUNCEMENTS. HE RELIED ON THE FOLLOWING CASE LAWS. * CIT VS. ROHIT ITA 1135/2010 JUDGEMENT DT. 16.8.2010 (DEL) * NIRMAL KUMAR JAIN ITA 3562 AND 2729/DEL/09 ORDER DT. 29.1.2010 * CIT VS. GOPAL PUROHIT (BOM) * SARNATH INFRASTRUCTURE 313 ITR CAT (13) (LUCKNOW) 5. MR.SUNIL BAJPAI , THE LD.CIT, D.R. ALONG WITH SMT. PARWINDER KAUR, SR.D.R. SUBMITTED THAT THE ASSESSEE HAS BEEN FREQUENTLY AND REGULARLY CONDUCTING SHARE TRANSACTIONS DURING THE YEAR. THEY ARGUED THAT THE ASSESSEE WAS DOING SYSTE MATIC ACTIVITY OF TRADING IN SHARES AND THAT HUGE VOLUMES OF TRANSACTIONS WERE DONE, WHETHER THE PERIOD OF HOLDING WAS LESS THAN ONE MONTH. HE REFERRED TO THE OVERALL PERIOD OF HOLDING AND ARGUED THAT THE HOLDING PERIOD WAS SO SHORT THAT IT CANNOT BE CLA IMED THAT THE ASSESSEE COULD HAVE EARNED THE DIVIDEND. THEY POINTED OUT THAT THE ASSESSEE WAS IN FACT INDULGING IN SPECULATION OF SHARES AND HAD DISCLOSED CERTAIN SPECULATION LOSSES. THE LD.SR.D.R. VEHEMENTLY CONTENDED THAT ON ONE HAND ASSESSEE SUBMITS THAT IT IS NOT AUTHORISED UNDER THE MOA AND AOA TO DO BUSINESS IN SHARES AND ON THE OTHER HAND DOES SPECULATION BUSINESS AND DISCLOSES SPECULATION LOSSES AND THAT A CONTRARY ARGUMENT IS RAISED THAT THE ENTIRE HOLDING OF SHARES IS INVESTMENT. THEY RELIE D ON THE FINDING OF THE AO. 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, WE HOLD AS FOLLOWS. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 7 7. THE ISSUE WHETHER A PARTICULAR TRANSACTIONS RESULTS IN BUSINESS INCOME OR A CAPITAL GAIN IS A QUESTION OF INTENTION OF THE ASSESSEE AND MANY OTHER FACTORS HAVE TO BE ANALYSED BEFORE COMING TO A CONCLUSION. NO SINGLE FACTOR OR ASPECT CAN BE TAKEN AS A DETERMINING FACTOR. BEFORE WE CONSIDER THE LEGAL PROPOSITIONS, WE RECORD THE FACTS OF THIS CASE FOR THE AY 2006 - 07 HEREIN BELOW. 1 . THE ASSESSEE OBJECTS IS TO CARRY ON THE BUSINESS AS REAL ESTATE DEVELOPERS. AS THE COMPANY WAS NOT ABLE TO START ITS BUSINESS, INVESTMENTS WERE MADE IN VARIOUS SHARES AND SECURITIES. 2 . THE BOARD OF DIRECTORS AT ITS MEETING ON 26.12.2004 AND 25.3.2005 RESOLVED TO ACQUIRE AND HOLD SHARES OUT OF SURPLUS FUNDS AS PART OF ITS INVESTMENT PORTFOLIO. 3 . THE SHARES AND SECURITIES ACQUIRED ARE CLASSIFIED AS I NVESTMENTS IN THE BALANCE SHEET AND WERE VALUED AT COST ONLY . 4 . THERE WERE NO BORROWED FUNDS OUT OF WHICH THE SHARES/SECURITIES WERE PURCHASED. THE PURCHASES WERE MADE OUT OF OWN FUNDS. 5 . IN AN ORDER PASSED U/S 143(3) OF THE ACT FOR THE AY 2005 - 06 SIMILAR PRO FITS/GAINS DECLARED UNDER THE HEAD CAPITAL GAINS ARE ACCEPTED BY THE DEPARTMENT AS SUCH. 6 . SOME OF THE SHARES SOLD WERE ACQUIRED DURING THE PRECEDING F.Y., WHEREIN IT WAS CLASSIFIED AS INVESTMENTS AND ACCEPTED AS SUCH. 7 . THE SHORT TERM CAPITAL GAINS OF RS.1,75 ,51,496/ - WAS EARNED OUT OF 41 SHARES/SECURITIES AND THUS CAN BE CLASSIFIED AS FOLLOWS. I . RS.1,01,92,939 ON SHARES HELD FOR MORE THAN 90 DAYS; II . RS.19,03,596/ - FOR SHARES HELD BETWEEN 61 TO 90 DAYS AND RS.18,45,019/ - FOR SHARES HELD BETWEEN 31 TO 60 DAYS AND RS.36,09,941/ - FOR SHARES HELD BELOW A PERIOD OF 30 DAYS. 8 . THE FINDING OF THE AO THAT THE HOLDING PERIOD OF MAJORITY OF THE SHARES BY THE ASSESSEE WAS BETWEEN 10 DAYS TO 01 MONTH IS FACTUALLY INCORRECT. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 8 8. WE NOW DISCUSS THE CASE LAWS ON THE SUBJECT. IN THE CASE OF G.VENKATESWAMI NAIDU AND CO. VS. CIT : 35 ITR 594 (SC), THE SUPREME COURT HELD AS UNDER: IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. IN DECIDING THE CHARACTER OF SUCH TRANSACTIONS SEVERAL FACT ORS ARE RELEVANT. WHETHER THE PURCHASER WAS A TRADER AND THE PURCHASE OF THE COMMODITY AND ITS RESALE WERE ALLIED TO - HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT? .... WHAT IS THE NATURE AND QUANTITY OF THE COMMODITY PURCHASED AND RESOLD? ... . DID THE PURCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF COMMODITY PURCHASED AND THEREBY MAKE IT MORE READILY RESALEABLE? ... WHERE THEY (ACTS OF PURCHASE OR SALE) SIMILAR OPERATIONS USUALLY ASSOCIATED WITH TRADE OR BUSINESS? . . . ARE THE T RANSACTIONS OF PURCHASE AND SALE REPEATED' IN REGARD TO THE PURCHASE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURCHASERS, DOES NOT ELEMENT OF PRIDE OF POSSESSION COME INTO THE PICTURE. A PERSON MAY PURCHASE A PIECE OF ART, HOLD IT FOR SOME TIM E AND IF A PROFITABLE OFFER IS RECEIVED SELL IT. DURING THE TIME THAT THE PURCHASER HAD ITS POSSESSION HE MAY BE ABLE TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; AND IF SUCH A CLAIM IS UPHELD THAT WOULD BE A FACTOR AGAINST THE TRANSACTION BEIN G IN THE NATURE OF TRADE ..... THE PRESENCE OF ALL THESE RELEVANT FACTORS MAY HELP THE COURT TO DRAW AN INFERENCE THAT A TRANSACTION IS IN THE NATURE OF TRADE; BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANCES PRO AND CON; WHA T IS IMPORTANT TO CONSIDER IS THEIR DISTINCTIVE CHARACTER. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. . .. . .. WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT .... THE PRESENCE OF SUCH AN INTENTION IS NO DOUBT, A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID - INITIAL INTENTION, BE INCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF TRADE'.' (EMPHASIS SUPPLIED) THE APEX COURT IN THE CASE OF SUTLEJ COTTON MILLS SUPPLY AGENCY LTD: 100 ITR 706 (SC) OBSERVED AS FOLL OWS: ..... WHERE THE PURCHASE OF ANY ARTICLE OR OF ANY CAPITAL INVESTMENT, FOR IN STANCE, SHARES, IS MADE WITHOUT THE INTENTION TO RESELL AT A PROFIT, A RESALE UNDER CHANGED CIRCUMSTANCES WOULD ONLY BE A REALISATION OF CAPITAL AND WOULD NOT STAMP THE TRA NSACTION WITH A BUSINESS CHARACTER. WHERE A PURCHASE ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 9 IS MADE WITH THE INTENTION OF RESALE, IT DEPENDS UPON THE CONDUCT OF THE ASSESSEE AND THE CIRCUMSTANCES OF THE CASE WHETHER THE VENTURE IS ON CAPITAL ACCOUNT OR IN THE NATURE OF TRADE. A TRANSACTION I S N OT NECESSARILY IN THE NATURE OF TRADE BECAUSE THE PURCHASE WAS MADE WITH THE INTENTION OF RESALE. A CAPITAL INVESTMENT AND RESALE DO NOT LOSE THEIR CAPITAL NATURE MEREL Y BECAUSE THE RESALE WAS FORESEEN AND CONTEMPLATED WHEN THE INVESTMENT WAS MADE AND THE POSSIBILITY OF ENHANCED VALUES MOTIVATED THE INVESTMENT. (EMPHASIS SUPPLIED) IN COMMISSIONER OF INLAND REVENUE V. FRASER: [1942] 24 TC 498,502 LORD NORMAND SAID: 'THE INDIVIDUAL WHO ENTERS INTO A PURCHASE OF AN ARTICLE OR COMMODITY MAY HAVE IN VIEW THE RESALE OF IT AT A PROFIT, AND YET IT MAY BE THAT THAT IS NOT THE ONLY PURPOSE FOR WHICH HE PURCHASED THE ARTICLE OR THE COMMODITY, NOR THE ONLY PURPOSE TO WHICH HE M IGHT TURN IT IF FAVOURABLE OPPORTUNITY FOR SALE DOES NOT OCCUR ... AN AMATEUR MAY PURCHASE A PICTURE WITH A VIEW TO ITS RESALE AT A PROFIT, AND YET HE MAY RECOGNISE AT THE TIME OR AFTERWARDS THAT THE POSSESSION OF THE PICTURE WILL GIVE HIM AESTHETIC ENJOYM ENT IF HE IS UNABLE ULTIMATELY, OR AT HIS CHOSEN TIME, TO REALISE IT AT A PROFIT. ... ' AN ACCRETION TO CAPITAL DOES NOT BECOME INCOME MERELY BECAUSE THE ORIGINAL CAPITAL WAS INVESTED IN THE HOPE AND EXPECTATION THAT IT WOULD RI SE IN VALUE; IF IT DOES SO RISE, ITS REALIZATION DOES NOT MAKE IT INCOME. LORD DUNEDIN SAID IN L EEMING V. JONES AT PAGE 360: 'THE FACT THAT A MAN DOES NOT MEAN TO HOLD AN INVESTMENT MAY BE AN ITEM OF EVIDENCE TENDING TO SHOW WHETHER HE IS CARRYING ON A TRADE OR CONCERN IN THE N ATURE OF TRADE IN RESPECT OF HIS INVESTMENTS BUT PER SE IT LEADS TO NO CONCLUSION WHATEVER.' IN THE CASE OF RAJA BAHADUR KAMAKHYA NARAIN SINGH VS. CIT: 77 ITR 253 (SC) THE SUPREME COURT OBSERVED AS UNDER: 'SINCE THE EXPRESSION 'ADVENTURE IN THE NATURE OF TRADE' IMPLIE S THE EXISTENCE OF CERTAIN ELEMENTS IN THE TRA NSACTIONS WHICH IN LAW WOULD INVEST THEM WITH THE CHARACTER OF TRADE OR BUSINESS AND THE QUESTION ON THAT ACCOUNT BECOMES A MIXED QUESTION OF LAW AND FACT, THE COURT CAN REVIEW THE TRIBUNAL'S FI NDING IF IT HAS MISDIRECTED ITSELF IN LAW. IT IS FAIRLY CLEAR THAT WHERE A PERSON IN SELLING HIS INVESTMENT REALISES AN ENHANCED PRICE, THE EXCESS OVER HIS PURCHASE PRICE IS NOT PROFIT ASSESSABLE TO TAX. BUT IT WOULD BE SO, IF WHAT IS DONE IS NOT A MERE R EALISATION OF THE INVESTMENT BUT AN ACT DONE FOR MAKING PROFITS. THE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTIONS IS NOT ALWAYS EASY TO MAKE. WHETHER THE TRANSACTION IS OF ONE KIND OR THE OTHER DEPENDS ON THE QUESTION WHETHER THE EXCESS WAS AN ENHANCE MENT OF THE VALUE BY REALISING A SECURITY OR GAIN IN AN OPERATION OF PROFIT - MAKING. IF THE TRANSACTION IS IN THE ORDINARY LINE OF THE ASSESSEE'S BUSINESS, THERE WOULD HARDLY BE ANY DIFFICULTY IN CONCLUDING THAT ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 10 IT WAS A TRADING TRANSACTION, BUT WHERE IT IS NOT, THE FACTS MUST BE PROPERLY ASSSESSED TO DISCOVER WHETHER IT WAS IN THE NATURE OF TRADE. THE SURPLUS REALISED ON THE SALE OF SHARES, FOR INSTANCE, WOULD BE CAPITAL IF THE ASSESSEE IS AN ORDINARY INVESTOR REALISING HIS HOLDING; BUT IT WOULD BE REVEN UE IF HE DEALS WITH THEM AS AN ADVENTURE IN THE NATURE OF TRADE. THE FACT THAT THE ORIGINAL PURCHASE WAS MADE WITH THE INTENTION OF RESELL IF AN ENHANCED PRICE COULD BE OBTAINED IS BY ITSELF NOT ENOUGH BUT IN CONJUNCTION WITH THE CONDUCT OF THE ASSESSEE AN D OTHER CIRCUMSTANCES IT MAY POINT TO THE TRADING CHARACTER OF THE TRANSACTION. FOR INSTANCE, AN ASSESSEE MAY INVEST HIS CAPITAL IN SHARES WITH THE INTENTION TO RESELL THEM IF IN FUTURE THEIR SALE MAY BRING IN A HIGHER PRICE. SUCH AN INVESTMENT, THOUGH MOT IVATED BY A POSSIBILITY OF ENHANCED VALUE, DOES NOT RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. THE TEST OFTEN APPLIED IS, HAS THE ASSESSEE MADE HIS SHARES AND SECURITIES THE STOCK - IN - TRADE OF A BUSINESS ..... ' (EMPHASIS SUPPLIED) IN THE CASE OF KARAM CHAND THAPAR & BROS. (P) LTD. REPORTED IN 82 ITR 899 THE HON BLE SUPREME COURT HELD AS FOLLOWS. ..................... THE TRIBUNAL ALSO RELIED ON THE CIRCUMSTANCE THAT THE ASSESSEE WAS SHOWING THESE SHARES AS INVESTMENT SHARES IN ITS BOOKS AS WELL AS IN THE BALANCE SHEET. IT IS TRUE THAT CIRCUMSTANCE BY ITSELF IS NOT A CONCLUSIVE CIRCUMSTANCE. IT CANNOT BE DENIED THAT THAT IS A RELEVANT CIRCUMSTANCE ON WHICH THE TRIBUNAL COULD HAVE RELIED FOR DRAWING THE INFERENCE IT DID. THE EXPLAN ATION THAT IT HAD TO DO SO BECAUSE OF THE PROVISIONS OF THE COMPANY LAW IS UNFOUNDED. (EMPHASIS SUPPLIED). THE LU C KNOW BENCH OF THE ITAT IN THE CASE OF SARNATH INFRASTRUCTURE P.LTD. VS. ACIT, 313 ITR (AT) 13 (LUCKNOW) HELD AS FOLLOWS. 13. AFTER CONSIDERING THE ABOVE RULINGS, WE CULL OUT THE FOLLOWING PRINCIPLE WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTIONS IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES: ( I ) WHAT IS THE INTENTION OF THE ASSES SEE AT THE TIME OF PURCHASE OF SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER, IT IS TREATED AS STOCK - IN - TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOW N SEPARATELY AS INVESTMENT OR NON - TRADING ASSET. ( II ) WHETHER THE ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAY INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 11 ( III ) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR 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 T RADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). ( IV ) WHETHER PURC HASE AND SALE IS FOR REALISING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, 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. ( V ) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WH ERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALISABLE VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK IN TRADE. ( VI ) HOW THE COMPANY IS AUTHORISED IN MOA/AOA? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORISED O NLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY AND VICE VERSA. ( VII ) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DIS TINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK IN TRADE) THEN ONUS WOULD SHIFT TO THE REVENUE TO PROVE THAT APPARENT IS NOT REAL. ( VIII ) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES(OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT THE ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. ( IX ) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE A RGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THESE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION TO ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 12 CARRY ON ILLEGAL BUSINESS IN THAT ITEM SINCE BEGINNING OR WHEN PURCHASES WERE MADE? ( X ) IT IS PERMISSIBLE AS PER CBDT CIRCULAR NO.4 OF 2007 OF JUNE 15, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THE RE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. ( XI ) NOR ONE OR TWO FACTORS OUT OF THE ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ROHIT ANAND, ITA NO. 1135/2010 DT. 16.8.2010 UPHELD THE FINDING OF THE TRIBUNAL IN THE FOLLOWING WORDS. 3. HOWEVER, UPON A PERUSAL OF THE IMPUGNED ORDER, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRE SENT PROCEEDINGS INASMUCH AS BOTH THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUNAL HAVE GIVEN COGENT REASONS IN ARRIVING AT THE CONCLUSION THAT THE RESPONDENT - ASSESSEE WAS NOT - A - TRADER IN STOCK BUT ONLY A INVESTOR AND FURTHER HIS INCOME ON SALE OF SHARES WAS NOT BUSINESS INCOME. IN FACT, THE TRIBUNAL IN ITS IMPUGNED ORDER HAS OBSERVED AS UNDER. - '9. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND THE FINDINGS OF BOTH THE AUTHORITIES BELOW. THE ASSESSEE IN HIS INDIVIDUAL CARRIES ON BUSINESS OF JEWELLERY. APART FROM SAID BUSINESS, THE ASSESSEE INVESTED IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT. THIS ITSELF MANIFEST THE INTENTION OF THE ASSESSEE AS TO WHETHER HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AND PROF IT OUT OF SUCH INVESTMENT. THE ASSESSING OFFICER WAS GUIDED MORE BECAUSE OF THE TOTAL AMOUNT INVOLVED RATHER THAN THE ACTUAL INTENTION AND THE WAY OF CARRYING ON SHARE TRANSACTION. THERE IS NO DOUBT THAT EVEN A SINGLE TRANSACTION CAN BE IN THE NATURE OF T RADE BUT THE ASSESSEE HAS DEMONSTRATED THAT HIS. INTENTION WAS NEVER TO TRADE IN SHARES. THE INTENTION IS MANIFESTED BY TREATMENT GIVEN TO SUCH INVESTMENT THAT THE INVESTMENT IS OUT OF OWN FUND AND NOT BORROWED THAT THE INVESTMENT IS NOT ROTATED FREQUENTLY, THAT THE TOTAL NUMBER OF TRANSACTIONS ARE VERY FEW, THAT ALL THE SHARES PURCHASED ARE NOT SOLD AND RATHER HELD FOR QUITE NUMBER OF DAYS. IT IS TO BE ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 13 NOTED THE INCOME TAX ACT ITS ELF HAS PROVIDED THAT WHEN THE SHARES ARE HELD FOR A PERIOD OF ONE YEAR OR MORE WILL BE TREATED AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE THE HOLDING PERIOD TO TREAT SUCH ASSET A LONG TERM IS MORE THAN 36 MONTHS. THUS EVEN AFTER HOLDING THE SHARES FOR MORE THAN 12 MONTHS AND SHOWING SUCH INTENTION FROM THE CONDUCT, THE ASSESSING OFFICER CANNOT REPLACE HIS OPINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK IN TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BUSINESS INCOME. IN ALL SUCH CASES THE INTENTION IS MANIFESTED BY THE ASSESSEE HIMSELF BY HIS CONDUCT AND OTHER RELEVANT FACTORS AS CONSIDERED BY THE LEARNED CJT(A). IT IS ALSO SEEN THAT THE SHARES WERE TREATED AS INVESTMENT IN EARLIER YEAR AND WHICH FACT HAS BEE N ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO EARNED HUGE DIVIDEND INCOME FROM SUCH SHARES. THE ASSESSING OFFICER MERELY BECAUSE OF THE TOTAL VOLUME OF TRANSACTION IS SUBSTANTIAL, IS GUIDED TO HOLD THE INCOME AS BUSINESS INCOME. HOWEVER, HE FA ILED TO. RECOGNIZE THAT THE VOLUME OF TRANSACTION INCLUDES THE APPRECIATION IN SHARES ALSO AND SUCH APPRECIATION 'HAS BEEN OFFERED FOR TAX. IF VOLUME OF TRANSACTION IS THE CRITERIA, WHAT IS TO BE EXAMINED IS HOW FREQUENTLY THE TRANSACTION IS DONE, WHETHER THE TRANSACTION IS SETTLED IN THE COURSE OF THE DAY OF TRADING ITSELF OR IN THE SETTLEMENT PERIOD ITSELF SO AS TO AVOID PAYMENT OF FULL PURCHASE PRICE. HERE. THE ASSESSEE HAS BEEN HOLDING THE SHARES BY TAKING DELIVERY AND MAKING FULL PAYMENT FOR SUCH INVE STMENT. IN SUCH CIRCUMSTANCES, THE TRANSACTIONS ARE TO BE TREATED AS GIVING RISE TO THE CAPITAL GAIN AND CANNOT BE BRANDED AS TRADING OF MAKING INVESTMENT SO AS TO DETERMINE WHETHER THE TRANSACTION WAS FOR DEALING IN SHARES OR MAKING INVESTMENT FOR EARNING DIVIDEND AND APPRECIATION FROM SUCH INVESTMENT. THE TOTAL NUMBER OF SHARES DEALT IN RESPECT OF LONG TERM PORTFOLIO IS ONLY 5. THIS CANNOT BE CONSIDERED AS VOLUME TRANSACTION. THEREFORE, THIS TRANSACTION IN SHARES CANNOT BE SAID TO BE WITH INTENTION TO DE AL IN SUCH SHARES. RATHER THE TRANSACTION WERE WITH INTENTION OF EARNING APPRECIATION FROM SUCH SHARES. THEREFORE, THE SAME ARE ASSESSABLE AS CAPITAL GAIN AND NOT AS PROFITS AND GAINS OF BUSINESS. WE, THEREFORE, UPHOLD THE ORDERS OF THE LEARNED CIT(A) . 4 . IN OUR OPINION, THE FACTUAL FINDINGS OF THE FINAL FACT FINDING AUTHORITY ARE NEITHER PERVERSE NOR CONTRARY TO RECORD. ACCORDINGLY, WE FIND THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT APPEAL. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 14 8.1. THE MAIN ARGUMENTS OF THE ASSESSEE HAVE BEEN SUMMARISED BY THE FIRST APPELLATE AUTHORITY AT PAGES 33 TO 35 OF HIS ORDER WHICH IS EXTRACTED FOR READY REFERENCE. I. THE ASSESSEE HAS BEEN INVESTING SURPLUS FUNDS IN SHARES SINCE AY 2005 - 06 AND THE FACT OF INVESTMENT IS SUPPORTED FROM AUDITED BALA NCE SHEET FOR THE YEAR ENDING 31.3.2005. THE DETAILS OF INVESTMENT ARE GIVEN IN RESPECTIVE SCHEDULE TO THE BALANCE SHEET. II. IN THE PRECEDING YEAR, THERE WERE SALES OF SHARES AND SHARES WERE REFLECTED UNDER THE HEAD INVESTMENT IN THE RESPECTIVE BALANCE SHEET. THE SAME WAS ASSESSED BY THE AO U/S 143(3) AS CAPITAL GAIN ONLY. III. THE ENTIRE INVESTMENT IS OUT OF THE FUNDS OF ASSESSEE AND THERE IS NO CASE OF ANY LOAN OR USE OF BORROWED FUNDS. IV. THE ASSESSEE HAS NOT PAID ANY INTEREST ON SUCH INVESTMENT. V. ALL THE SHARE TRANSACTION WHERE THROUGH DEMAT ACCOUNTS AND SUBJECTED TO SECURITY TRANSACTION TAX (STT). VI. SEPARATE DETAILS WERE MAINTAINED AND PROFIT AND LOSS ACCOUNT WAS WORKED OUT ON THE BASIS OF SAME AND CORRECTNESS SUCH PROFIT/LOSS IS NOT IN DISPUTE . VII. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.10,01,322/ - . VIII. THE ASSESSEE HAS EARNED CAPITAL GAIN ON THE BASIS OF PERIOD OF HOLDING. IX. IN VIEW OF THE UNFAVOURABLE MARKET CONDITIONS, THE MANAGEMENT OF THE ASSESSEE DECIDED TO INVESTMENT THE AVAI LABLE FUNDS IN VARIOUS SHARES/SECURITIES IN ORDER TO EARN RETURN/DIVIDEND RATHER THAN KEEPING THE FUNDS IDLE. X. IN THE MEETING HELD ON 26.12.2004 AND 24.3.2005 THE BOARD OF ASSESSEE COMPANY RESOLVED TO ACQUIRE AND HOLD SHARES/SECURITIES OUT OF SURPLUS FUN DS TO BE HELD AS PART OF THE INVESTMENT PORTFOLIO OF THE COMPANY. THIS SHOWS THE INTENTION OF APPELLANT. XI. SHARES/SECURITIES HAVE BEEN RECORDED IN SCRIP NAME INVESTMENT ACCOUNT AND NOT AS STOCK IN TRADE IN THE BOOKS OF ACCOUNTS. XII. HAD THE SHAR ES BEEN HELD BY THE ASSESSEE NOT AS INVESTMENT BUT AS STOCK IN TRADE, THE ASSESSEE WOULD HAVE VALUED THE SAME AT LOWER OF COST OR MARKET VALUE AND NOT AT COST. XIII. THE SALE PROCEEDS OF THE SHARES HAVE NOT BEEN REFLECTED AS TURNOVER AND THE PROFIT DERIVED FROM THE SALE HAS BEEN SHOWN AS PROFIT ON SALE OF INVESTMENTS. XIV. ACQUISITION OF SHARES WAS NOT MADE IN THE NORMAL/REGULAR COURSE OF BUSINESS OF THE ASSESSEE AS THE MAIN/NORMAL BUSINESS FOR WHICH THE ASSESSEE HAD BEEN SET UP WAS TO ENGAGE IN REAL EST ATE BUSINESS. XV. CLASSIFICATION OF SHARES/SECURITIES BY THE ASSESSEE AS INVESTMENTS HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEAR. IN THE INCOME TAX ASSESSMENT FOR THE AY 2005 - 06, I.E. IMMEDIATELY PRECEDING AY, COMPLETED U/S 143(3) OF TH E ACT, SIMILAR GAINS/PROFITS DECLARED UNDER THE HEAD CAPITAL GAINS WERE FULLY ACCEPTED BY THE AO. XVI. IN THE EARLIER AY, THE SAID SHARES WERE CLASSIFIED AND ACCEPTED TO BE PART OF INVESTMENT PORTFOLIO OF THE ASSESSEE EVEN BY THE INCOME TAX DEPARTMENT. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 15 UNDER THESE CIRCUMSTANCES, THE ASSESSEE FAILS TO APPRECIATE AS TO HOW THE NATURE/CHARACTER OF THE S AID SHARES COULD AT ALL BE CHANGED DURING THE YEAR UNDER CONSIDERATION MERELY BECAUSE THE SAID SHARES WERE SOLD BY THE ASSESSEE DURING THE CURRENT YEAR. XVII. ON PERUSAL OF THE DETAILS OF CAPITAL GAINS ON VARIOUS SHARES AND ANALYSIS OF THE GAINS WITH REFERENCE TO THE NUMBER OF DAYS FOR WHICH SHARES WERE HELD PRIOR TO ITS SALE, IT WILL BE FURTHER NOTICED THAT SUBSTANTIAL PART OF THE PORT FOLIO WAS HELD FOR A CONSIDERABLE PERIOD OF TIME BY THE ASSESSEE PRIOR TO SALE. 8.2 . APPLYING THE PROPOSITIONS LA ID DOWN IN THE ABOVE REFERRED CASE S TO THE FACTS OF THE PRESENT CASE WE HAVE TO NECESSARILY HOLD THAT THE GAINS DERIVED FROM THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS RIGHTLY OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS INCOME. THE FACTS SHOW THAT OUT OF THE TOTAL SHORT TERM CAPITAL GAIN OF RS.1,75,51,496/ - THE UNDISPUTED FACT IS THAT AN AMOUNT OF RS.1,39,41,555/ - WAS EARNED ON SHARES WHICH WERE HELD BY THE ASSESSEE FOR MORE THAN 30 DAYS. IN FACT SHORT TERM CAPITAL GAIN OF RS.83 ,56,196/ - WAS EARNED ON SHARES WHICH WERE HELD FOR MORE THAN 4 MONTHS. SIMILARLY THE ASSESSEE EARNED CAPITAL GAINS OF MORE THAN RS.40 LAKHS FOR SHARES WHICH WERE HELD FOR MORE THAN 5 MONTHS. THIS IS NOT A CHARACTERISTIC OF A TRADER. THERE ARE NO BORROW ED FUNDS. THE ASSESSEE HAS ALWAYS CLASSIFIED THE PURCHASES AS INVESTMENTS IN ITS BOOKS OF ACCOUNTS. IN THE EARLIER YEAR THE ASSESSEE HAS DISCLOSED CAPITAL GAINS AND THE AO IN THE ORDER PASSED U/S 143(3) ACCEPTED THE SAME. ON THIS FACTUAL MATRIX WE AGREE WITH THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE GAINS IN QUESTION CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. 8.3. WE NOW CONSIDER THE FINDINGS OF THE LD.CIT(APPEALS) WHEREIN HE HAS HELD THAT THE GAINS RECEIVED ON SHARES WHI CH WERE HELD FOR A PERIOD OF LESS THAN 30 DAYS SHOULD BE ASSESSED AS INCOME FROM BUSINESS. THE MUMBAI H BENCH OF THE TRIBUNAL IN THE CASE OF MR.HITESH SATISHCHANDRA DOSHI ETEMIA VS. JCIT IN ITA NO.6497/MUM/2009 AND ITA 148/MUM/2010 FOR THE AY 2003 - 04 AN D OTHER APPEALS HAD AFTER CONSIDERING A NUMBER OF DECISIONS AT PAGE 15 HELD AS FOLLOWS. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 16 THEREFORE, THE BIFURCATION OF THE SHORT TERM CAPITAL GAIN AND TREATING THE TRANSACTION AS INVESTMENT IN THE CASES WHERE THE HOLDING PERIOD OF MORE THAN 30 DAYS AND AS BUSINESS TRANSACTION IN THE CASE WHERE THE HOLDING PERIOD IS LESS THAN 30 DAY, IN OUR CONSIDERED OPINION, IS NOT JUSTIFIED ON THE PART OF THE CIT(A). SINCE THERE CANNOT BE A SINGLE CRITERIA FOR JUDGING THE TRANSACTION AS CAPITAL ASSET OR TRADING ASSET, TH E CIT(A) ADOPTED ONLY HOLDING PERIOD AS A SOLE CRITERIA FOR BIFURCATING THE TRANSACTIONS RELATING TO THE SHORT TERM CAPITAL GAIN, WHICH IS NEITHER PROPER AND NOR JUSTIFIED. 8.4. RESPECTFULLY FOLLOWING THE SAME WE HAVE TO NECESSARILY DISLODGE THIS DIRECTION OF THE LD.CIT(APPEALS). WE HOLD THAT THE ENTIRE PROFITS FROM THE PURCHASE AND SALE OF SHARES HAVE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS . 8.5 . IN VIEW OF THE ABOVE DECISION WE ALLOW GROUND NOS. 2 AND 3 FILED BY THE ASSESSEE. 8.6. GROUND NOS. 1 , 7 AND 8 ARE GENERAL IN NATURE. 8.7 . GROUND NO.6 IS DISMISSED AS NOT PRESSED . 8.8. GROUND NO.5 IS ON AN ADDITION MADE ON FEES PAID TO REGISTRAR OF COMPANIES AMOUNTING TO RS.45,936/ - . THE ASSESSEE CLAIMS THAT THIS IS A DOUBLE ADDITION. WE SET ASIDE THE MATTER TO THE FILE OF AO FOR VERIFYING THE SAME AND PASS NECESSARY ORDERS. 8.9. GROUND NO.4 IS ON THE DISALLOWANCE OF FEES PAID TO REGISTRAR OF COMPANIES FOR FILING ANNUAL ACCOUNTS. THIS IS IN THE REVENUE FILED AND HAS TO BE ALLOWED. 8.10 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 17 9. WE NOW TAKE UP ITA 3115/DEL/ 2010 WHICH IS AN APPEAL FILED BY THE REVENUE. 9.1. GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE. 9.2. GROUND NOS. 2 AND 3 HAVE TO BE DISMISSED IN VIEW OF OUR FINDING IN GROUND NOS. 2 AND 3 OF THE ASSESSEE S APPEAL. 9.3 . IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. ITA 2939/DEL/2010 IS ASSESSEE S APPEAL FOR THE AY 2008 - 09 ON THE FOLLOWING GROUNDS. 1. THAT THE ORDER OF CIT(A) - VIII, N.DEL DT . 1.4.2010 IS WRONG ON FACTS AND BAD IN LAW; 2. THAT THE CIT(A) ERRED IN HOLDING THAT THE GAIN OF RS.2,53,84,621/ - OUT OF THE TOTAL SHORT TERM CAPITAL GAIN FROM SALE OF SHARES WAS BUSINESS PROFIT; 3. THAT THE CIT(A) ERRED IN HOLDING THAT THE GAIN ON A SHARE SOLD WITHIN THE PERIOD OF 30 DAYS OF ITS ACQUISITION WAS BUSINESS PROFIT INSTEAD OF SHORT TERM CAPITAL GAIN; 4. THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS.2,57,283/ - U/S 14A OF THE ACT BY APPLYING RULE 8D OF THE RULES; 4.1. THAT THE CIT(A) FAILED TO APPRECIATE THAT NO EXPENDITURE WAS INCURRED FOR THE DIVIDEND INCOME EARNED AND AS SUCH NO EXPENDITURE WAS TO BE DEDUCTED UNDER THE SAID PROVISIONS; 4.2. THAT THE CIT(A) FAILED TO APPRECIATE THAT THE ENTIRE EXPENDITURE WAS I NCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. 4.3. THAT THE CIT(A) ERRED IN HOLDING THAT RULE 8D OF THE RULES WAS APPLICABLE WITH RETROSPECTIVE EFFECT AND AS SUCH WAS APPLICABLE IN THE AY UNDER REFERENCE. THE DISALLOWANCE U/S 14A OF THE ACT WA S TO BE CALCULATED BY APPLYING THE FORMULA LAID DOWN IN THE SAID RULE; 4.4. THAT THE CIT(A) FAILED TO APPRECIATE THAT THE AO ERRED IN APPLYING THE FORMULA LAID DOWN IN THE SAID RULE WITHOUT RECORDING AS TO WHY THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR THE DIVIDEND INCOME WAS INCORRECT. HE FAILED TO APPRECIATE THAT RULE 8D OF THE RULES WAS NOT APPLICABLE IN THE INSTANT CASE; 4.5. THAT THE DISALLOWANCE OF RS.2,57,283/ - U/S 14A OF THE ACT IS EXCESSIVE AND UNREASONABLE; ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 18 5. THAT THE CONCLU SIONS AND INFERENCES OF THE AO AND/OR CIT(A) ARE BASED ON SUSPICIONS, CONJECTURES, SURMISES AND EXTRANEOUS AND IRRELEVANT CONSIDERATIONS. 6. THAT THE RELIEFS PRAYED FOR MAY KINDLY BE ALLOWED AND THE ORDERS OF THE AO OR CIT(A) MAY KINDLY BE QUASHED, SET AS IDE, ANNULLED OR MODIFIED, 7. THAT THE AFORESAID GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER, 8 . THAT TH E APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 11 . GROUND NOS. 1, 5, 6, 7 AND 8 AR E GENERAL IN NATURE. 12. GROUND NOS. 2 AND 3 ARE IDENTICAL TO GROUND NOS. 2 AND 3 OF THE ASSESSEE S APPEAL FOR THE AY 2006 - 07 . IN THIS AY THE FACTUAL POSITION OF PERIOD OF HOLDING IS BROUGHT OUT BY THE LD.CIT(A) AT PA GE 42 OF HIS ORDER AS FOLLOWS. I HAVE ALSO CALLED FOR BIFURCATION OF PROFIT RELATING TO SHARES DECLARED AS INVESTMENT IN THE PAST AND TRANSACTION CARRIED OUT IN THE YEAR UNDER REFERENCE ON THE BASIS OF PERIOD OF HOLDING. THE RELEVANT BIFURCATION IS AS UNDER: 1 . CAPITAL GAIN ON SHARES S OLD OF INVESTMENT OF PRECEDING YEARS WHICH WERE DISCLOSED IN THE BALANCE SHEET AS INVESTMENT (ST) RS.1,95,06,51/ - AND (LT) RS. 7,24,61,100/ - . 2 . SHORT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF 6 MONTHS AND ABOVE. RS. 2,39,07,368/ - . 3 . SHO RT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF 5 - 6 MONTHS. RS. 68,24,511/ - . 4 . SHORT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF 4 - 5 MONTHS. RS. 62,90,269/ - . 5 . SHORT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF3 - 4 MONTHS. RS. 47,05,291/ - 6 . SHORT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF 2 - 3 MONTHS. RS. 12,82,245/ - . 7 . SHORT TERM CAPITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD OF 1 - 2 MONTHS. RS. 29,04,972/ - . 8 . SHORT TERM CAP ITAL GAIN ON INVESTMENT RELATING TO HOLDING PERIOD UPTO 1 MONTH. RS. 2,53,84,621/ - . 12.1. AS THE FACTUAL POSITION OF THIS YEAR IS IDENTICAL TO THE FACTUAL POSITION OF THE P.Y. WE ALLO W THESE GROUNDS OF THE ASSESSEE FOR THE SAME REASONS THAT WERE CITED BY US WHILE DISPOSING OF THE CASE FOR THE AY 2006 - 07. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 19 13. GROUND NO.4 IS ON THE ISSUE OF DISALLOWANCE U/S 14A. THE LD.CIT(A) APPLIED THE DECISION OF THE MUMBAI ITAT IN DAGA CAPITAL MANAGEMENT PVT.LTD. AND CONFIRMED THE DISALLOWANCE. THE LD.COUNSE L FOR THE ASSESSEE SUBMITS THAT THE ENTIRE EXPENDITURE HAS BEEN DISALLOWED IN THIS YEAR. 13.1. THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S HOLCIM INDIA P.LTD. IN ITA NO.486/2014 AND ITA NO.299/2014 VIDE JUDGEMENT DATED 05 TH SEPTEMBER,2014, HELD THAT SEC.14A CANNOT BE INVOKED WHEN THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS NOT PART OF TOTAL INCOME . THE HON BLE JURISDICTIONAL COURT AT PARA NOS. 14, 15 AND 16 HELD AS FOLLOWS. 14. ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AG AINST THE APPELLANT - REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX , FARIDABAD VS. M/S LAKHANI MARKETING INCL,, ITA NO. 970/2008, DECIDED ON 2.4.2014, MADE REFERENCE TO TW O EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LTD. (2010) 232 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LTD.(2009) 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE G UJARAT HIGH COURT IN CIT - I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED O N 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR E ARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 20 HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752 / - - MADE BY THE ASSESSING OFFICER WAS IN ORDER . '. 15. INCO ME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTI ON ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE R ULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DI STRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR WHOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT - ASSESSEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT - ASSESSEE, THEREFORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF INVESTMENT IN SHARES OF CEMENT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE AO AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A). 13.2. RESPECTFULLY FOLLOWIN G THE SAME, WE SET ASIDE THIS ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AS THE FACTS ARE NOT CLEARLY COMING OUT IN THE ASSESSMENT ORDER AS TO WHETHER THE ASSESSEE HAS EARNED TAX FREE INCOME DURING THE YEAR . IN THE RESULT GROUN D NO.4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 21 15 . ITA 3116/DEL/2010 IS REVENUE S APPEAL FOR THE AY 2007 - 08 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT RS.3,35,01,5 77/ - AS SHORT TERM CAPITAL GAIN, RS. 7,24,61,100/ - AS LONG TERM CAPITAL GAIN AND RS. 2,53,84,621/ - AS BUSINESS INCOME OUT OF RS.13,17,85,308/ - WHICH WAS THE INCOME TREATED AS INCOME FROM BUSINESS AND PROFESSION. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTE R, AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 15.1. GROUND NOS. 1 AND 3 ARE GENERAL IN NATURE. 15.2 . IN VIEW OF OUR FINDING IN GROUND NOS. 2 AND 3 OF THE ASSESSEE S APPEAL, GROUND NO.2 OF THE REVENUE S APPEAL HAS TO BE DISM ISSED. 15.3. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 16. IN THE RESULT APPEALS OF THE ASSESSEE FOR BOTH THE AYS ARE PARTLY ALLOWED AND APPEALS BY THE REVENUE FOR BOTH THE AYS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DECEMBER , 2014. SD/ - SD/ - ( I.C. SUDHIR ) ( J. SU DHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 12 TH DECEMBER , 2014 *MANGA ITA NOS. 2596/DEL/10 ITA 2939/DEL/10 ITA 3115/DEL/10 ITA 3116/DEL/10 DREAMLAND BUILDTECH PVT.LTD., N.DEL AYS: 2006 - 07 AND 2007 - 08 22 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR