ACIT, New Delhi V. Jubilant Securities Pvt. Ltd., New Delhi

ITA 3337/DEL/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3645 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 07-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AVDHESH BANSAL ACA
• Keywords: Capital asset; Gift; Business income; Fair market value; Capital Gains
• Section: 143(2); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D NEW DELHI BEFORE SHRI G.E VEERABHADRAPPA VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMEBR I.T.A NO. 3337/DEL/08 ASSTT. YEAR 2005-06 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 4 (1), NEW DELHI. VS. JUBILANT SECURITIES PVT. LTD. 15 TH FLOOR, DEVIKA TOWERS, NEHRU PLACE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. KAVITA BHATNAGAR, CIT(DR) RESPONDENT BY: SHRI AJAY VOHRA, ADVOCATE & SHRI AVDHESH BANSAL, ACA ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 7 TH AUGUST, 2008 PASSED FOR ASSTT. YEAR 2005-06. THE S OLITARY GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERR ED IN DIRECTING THE AO TO TREAT PROFIT ARISING ON SALE OF SHARES OF JUBILA NT ORGANOSYS LTD. (HEREINAFTER REFERRED TO JOL) AS CAPITAL GAINS I NSTEAD OF BUSINESS INCOME AS HELD BY THE AO. ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A NON BANKING FINANCIAL COMPANY (NBFC) WHICH IS DULY REGISTERED W ITH THE RESERVE BANK OF INDIA UNDER THE RBI ACT AND RELEVANT DIRECT ION ISSUED FOR REGULATING NBFCS. IT HAD FILED ITS RETURN OF INCOME ON 30 TH OCTOBER, 2005 DECLARING A LOSS OF RS. 7816401/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORILY NO TICE U/S 143(2) WAS ISSUED ON 7.8.2006 WHICH WAS DULY SERVED UPON THE A SSESSEE. IN RESPONSE TO THE NOTICE SHIR MANOJ SHARMA AND SHRI S .K. SUREKA LD. TAX CONSULTANTS OF THE ASSESSEE COMPANY APPEARED BEFORE THE AO AND SUBMITTED THE DETAILS REQUIRED BY THE AO TIME TO TI ME. IT EMERGES OUT FROM THE ASSTT. ORDER THAT ASSESSEE COMPANY HAD SOL D 2, 09,500 SHARES OF M/S. JOL FOR A TOTAL CONSIDERATION OF RS. 175667 689/-. THE PURCHASE VALUE OF THESE SHARES HAVE BEEN SHOWN AT RS. 717448 0/-. THE ASSESSEE HAD EARNED A CAPITAL GAIN OF RS. 168492709/-. THE S AID GAIN WAS CLAIMED AS EXEMPT AS PER THE PROVISION OF SECTION 1 0(38) OF THE INCOME TAX ACT 1961. THE AO AFTER GOING THROUGH THE DETAIL S OF TRANSACTIONS FORMED AN OPINION THAT ASSESSEE COMPANY ADOPTED A U NIQUE MODUS OPERANDI OF EVADING TAX. HE OBSERVED THAT SHARES OF JOL HELD AS STOCK IN TRADE WERE KEPT UNSOLD AND THE SHARES ACQUIRED D URING THE YEAR ALONG WITH THE ERSTWHILE INVESTMENT IN SUCH SHARES WERE R EFLECTED TO HAVE BEEN LIQUIDATED RESULTING INTO ACCRUAL OF LONG TERM CAPI TAL GAIN WHICH WAS ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 3 CLAIMED AS EXEMPT FROM LEVY OF TAX. ACCORDING TO TH E AO THE SALE OF SHARES OUT OF INVESTMENT / ACQUISITION WITHOUT SELL ING SHARES HELD AS STOCK IN TRADE APPEARED TO BE A COLOURABLE DEVICE W ITH THE SOLE INTENTION TO AVAIL THE BENEFIT OF SECTION 10 (38) OF THE INCO ME TAX ACT. HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE INVITING ITS EXPL ANATION AS TO WHY THE ALLEGED LONG TERM CAPITAL GAIN CLAIMED BY THE ASSES SEE BE NOT TREATED AS BUSINESS INCOME. THE ASSESSEE MADE DETAILED SUBMISS ION. IT SUBMITTED THAT ACCORDING TO THE AIMS AND OBJECTS PROVIDED IN THE MEMORANDUM OF ASSOCIATION, ITS MAIN OBJECT WAS TO CARRY ON THE BU SINESS OF AN INVESTMENT COMPANY AND FOR THAT PURPOSE TO INVEST I N, ACQUIRE UNDERWRITE, SUBSCRIBE FOR, HOLD, SHARES, BONDS, STO CKS SECURITIES AND DEBENTURES. IN ORDER TO FULFIL THIS MAIN OBJECT ASS ESSEE HAD INVESTED IN 96200 SHARES OF JOL IN THE YEAR 2000-01. THE ASSESS EE HAD RECEIVED 3956 SHARES ON MERGER OF ANICHEM INDIA LTD. WITH T HE ASSESSEE IN THAT YEAR AND ASSESSEE HAD SHOWN SUCH SHARES UNDER INVES TMENT PORTFOLIO. THE ASSESSEE FURTHER SUBMITTED THAT THE FACT THAT S HARES WERE ACQUIRED AS INVESTMENT IS ALSO CORROBORATED FROM THE BOARD R ESOLUTIONS PASSED AT THE TIME OF MAKING INVESTMENT. IN ASSTT. YEAR 2002- 03 IT HAD RECEIVED 236160 SHARES OF JOL AS GIFT UNDER THE FAMILY SETTL EMENT ARRIVED AT BETWEEN BHARTIAS. IN THE PRESENT ASSTT. YEAR ASSES SEE HAS PURCHASED 70221 SHARE OF JOL WHICH WERE ALSO PURCHASED IN THE INVESTMENT ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 4 PORTFOLIO. IN OTHER WORDS THE ASSESSEE WAS HOLDING 3557841 SHARES OF JOL, IN THE INVESTMENT PORTFOLIO AS ON 31 ST MARCH, 2005. THE ASSESSEE FURTHER POINTED OUT THAT IT HAD ALSO ACQUIRED CERTA IN OTHER SHARES / UNITS OF VARIOUS COMPANIES OVER THE YEAR UNDER THE SAME PORT FOLIO. IT ALSO HELD 115200 SHARES OF JOL AS STOCK IN TRADE. THE ASSESSE E HAD SOLD 209500 SHARES OF JOL ACQUIRED IN PREVIOUS YEARS OF 2000-01 AND 2002-03. IN THIS WAY THIS TRANSACTION HAD RESULTED A LONG TERM CAPITAL GAINS AMOUNTING TO RS. 168492709/-. 3. THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASS ESSEE. ACCORDING TO THE AO ASSESSEE FAILED TO ESTABLISH THAT SHARES SOLD WERE OUT OF ITS INVESTMENT PORTFOLIO. THE APPREHENSION OF THE AO IS THAT ASSESSEE MIGHT HAVE SOLD THE SHARES FROM THE STOCK IN TRADE. HE A FTER REFERRING CERTAIN JUDGMENT OF HONBLE HIGH COURTS ON PAGE 6 OF THE AS STT. ORDER TREATED THE TRANSACTION AS A BUSINESS TRANSACTION AND REJEC TED THE CLAIM OF ASSESSEE FOR TREATING THE GAIN ARISING ON SALE OF SHARES AS LONG TERM CAPITAL GAIN. 4. DISSATISFIED WITH THE FINDING OF THE AO ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY. IT FILED DETAILED WRITTEN SUBMISSION WHICH HAS DULY BEEN NOTICED BY THE LD. F IRST APPELLATE AUTHORITY. THE MAIN EMPHASIS OF THE ASSESSEE IS THA T IT HAS BEEN ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 5 MAINTAINING TWO SEPARATE ACCOUNTS I.E. ONE FOR BUSI NESS PURPOSE AND THE OTHER FOR INVESTMENT PURPOSE. THE ASSESSEE FURTHER CONTENDED THAT AN INVESTMENT COMPANY LIKE THE ASSESSEE CAN ALWAYS MAI NTAIN ITS INVESTMENT ACCOUNT SEPARATELY. ACCORDING TO THE ASS ESSEE AN ASSESSEE IS ENTITLED TO ACQUIRE AND HOLD SHARES / SECURITIES EITHER AS INVESTMENT FOR CERTAIN STRATEGIC REASONS AND DERIVED INCOME THERE FROM OR A STOCK IN TRADE WITH A VIEW TO RESALE THE SHARES / SECURITIES AND DRIVE PROFIT FROM SALE OF SUCH SHARES ON ACCOUNT OF PRICE CHANGING. F OR THE PURPOSE OF ACCESSIBILITY OF PROFITS DERIVED FROM THE SALE OF S HARES / SECURITIES, IT IS PREDOMINANTLY THE INTENTION OF THE ASSESSEE WHICH I S RELEVANT. THE INTENTION OF THE ASSESSEE IS TOBE ASCERTAINED FROM THE FACTS OF THE EACH CASE AND THE ATTENDANT CIRCUMSTANCES. IT IS ALSO BE POSSIBLE THAT SOME SHARES MAY BE ACQUIRED AND HELD BY THE ASSESSEE FOR THE PURPOSE OF INVESTMENT WHEREAS OTHER MAY BE HELD AS STOCK IN TR ADE. THE PROFIT DERIVED FROM SALE OF THE SHARES HELD AS INVESTMENT WOULD BE LIABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS WHEREAS PROFI T DERIVED FROM PURCHASE AND SALE OF THE STOCK IN TRADE WOULD BE LI ABLE TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME. WITH THE HELP OF ACCOUNTING STANDARD 13 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS IN INDIA IT WAS SUBMITTED BY THE ASSESSEE THAT INSTITUTE HAD PROVID ED THAT A COMPANY IS REQUIRED TO VALUE ITS CURRENT INVESTMENT I.E INVEST MENT WHICH HAVE BEEN ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 6 MADE WITH A VIEW OF RESALE AT A PROFIT, IN SHORT PE RIOD OF TIME AT COST OR FAIR MARKET VALUE WHICHEVER IS LOWER. WHEREAS LONG TERM INVESTMENTS ARE REQUIRED TO BE VALUED AT COST, UNLESS THERE IS A PERMANENT DIMINUTION IN THEIR VALUE. IT WAS ALSO POINTED OUT THAT RBI HA D ISSUED DIRECTIONS TO NBFC MANDATING THEM THAT INVESTMENT INTENDED TO BE SOLD IN THE SHORT RUN SHOULD BE VALUED AT COST OR MARKET VALUE WHICHE VER IS LOWER. THE EMPHASIS OF THE ASSESSEE BEFORE THE LD. FIRST AUTHO RITY WAS THAT SHARES / SECURITIES HELD BY IT INDICATE LONG TERM INVESTME NT PORTFOLIO, BECAUSE THESE HAVE BEEN VALUED AT COST AND NOT AT LOWER OF COST OR MARKET VALUE. THIS VALUATION HAS NOT BEEN COMMENTED UPON ADVERSEL Y BY THE AUDITORS OF THE COMPANY NOR ANY OBJECTION WAS RAISED BY THE RBI. THE SALE PROFITS OF THE SHARES HAVE NOT BEEN REFLECTED AS TURN OVER AND THE PROFIT DERIVED FROM THE SALE HAS BEEN SHOWN ON PROFIT ON SALE OF I NVESTMENT. ACCORDING TO THE ASSESSEE THESE ACCOUNTING TREATMENT DO INDIC ATE THAT IT WAS HOLDING THE SHARES AS INVESTMENT WITH AN INTENTION TO HOLD SUCH SECURITIES FOR LONG TERM AND NOT WITH ANY INTENTION TO SELL THE SAME WITHIN A SHORT PERIOD. 5. LD. FIRST APPELLATE AUTHORITIES HAS CONSIDERED T HE ELABORATE SUBMISSIONS MADE BY THE ASSESSEE. AND ACCEPTED THE STAND OF ASSESSEE THAT IT WAS MAINTAINING TWO PORTFOLIO ONE IS FOR INVESTMENT AND ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 7 OTHER FOR THE PURPOSE OF THE BUSINESS. THE SHARES S OLD FROM INVESTMENT PORTFOLIO WOULD GIVE RISE TO CAPITAL GAIN . LD. CIT (A) WHILE CONSIDERING ALL THESE ASPECTS HAS SUMMARISED THE REASONS ON PAGE 23 TO 24 OF THE ORDER. IT IS WORTH TO TAKE NOTE ALL THESE REASONS : - IN THE PRESENT CASE IN MY OPINION, PROFIT ON SALE OF SHARES OF JOL IN ASSESSABLE IN THE HANDS OF THE APPELLANT AS CAPITAL GAINS ON ACCOUNT OF THE FOLLOWING FACTORS : 1) THE PROMOTERS OF THE APPELLANT WERE ALSO CO-PROM OTERS OF THE JOL. THE APPELLANT HAS BEEN A SUBSTANTIAL SHAREHOLD ER IN JOL SINCE 2000-01. THE SHARES IN JOL WERE ACQUIRED AS PART OF PROMOTER HOLDING WHICH IS EVIDENT FROM WEB PAGE OF NSE SUBMITTED AT PAGE 22 OF THE PAPER BOOK. 2) SUBSTANTIAL PART OF SHAREHOLDING OF THE APPELLAN T IN JOL HAS RESULTED FROM SHARES RECEIVED ON ACCOUNT OF BONUS/GIFT/MERGER AND NOT ON ACCOUNT OF PURCHASE MA DE BY THE APPELLANT. 3) THE SHARES OF JOL HAVE BEEN VALUED AT COST BY TH E APPELLANT IN THE PROFIT AND LOSS ACCOUNT WHICH HAS NOT BEEN O BJECTED TO BY THE STATUTORY AUDITORS / RBI. 4) THE SALE OF SHARES OF JOL IN THE CAPTIONED ASSES SMENT YEAR WAS MADE OUT OF INVESTMENT PORTFOLIO AND NOT OUT OF STOCK IN TRADE. 5) SALE PROCEEDS OF THE SHARES HAVE NOT BEEN REFLEC TED AS TURNOVER AND PROFIT DERIVED HAD BEEN SHOWN AS PROFI T ON SALE OF INVESTMENT. 6) THE APPELLANT HAS HELD ALL HIS INVESTMENTS FOR L ONG PERIOD, WITH AN OBJECTIVE OF EARNING DIVIDEND INCOME THEREF ROM 7) THE APPELLANT HAD EVEN CONVERTED THE SHARES OF J OL HELD AS STOCK IN TRADE INTO INVESTMENT IN THE IMMEDIATELY S UCCEEDING ASSESSMENT YEAR, I.E. 2006-07, WHICH FURTHER FORTIF IES THE CONDUCT OF THE APPELLANT TO HOLD THE SHARES AS INVE STMENTS. ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 8 IN VIEW OF THE SEVERAL FACTORS MENTIONED ABOVE, IN MY OPINION, THE ASSESSEE IS A LONG TERM INVESTOR IN SHARES TO EARN DIVIDEND THERE FROM AND THE GAINS ARISING FROM SALE OF SUCH INVESTMENTS IN ASSESSABLE AS CAPI TAL GAINS. 6. THE LD. DR RELIED UPON THE ORDER OF AO. HE SUBMITTE D THAT THERE WAS DISCREPANCY IN THE RECONCILIATION OF THE DMAT A CCOUNT. HE FURTHER POINTED OUT THAT ASSESSEE COULD NOT BRING ANY EVIDE NCE INDICATING THE FACT THAT SHARES WERE NOT SOLD FROM STOCK IN TRADE. ACCORDING TO THE ASSESSEE IT HAS BEEN MAINTAINING SEPARATE ACCOUNT F OR INVESTMENT AS WELL AS FOR THE PURPOSE OF BUSINESS. BUT IS NOT DIS CERNABLE HOW THE SHARES PURCHASED EVEN DURING THIS ASSTT. YEAR WERE TO BE CONSIDERED ONLY IN THE INVESTMENT ACCOUNT. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT(A). HE DREW OUR ATTENTION TOWARDS PAGES NO. 55-56 OF THE PAPER BOOK WHEREIN D ETAILS OF SHARES HELD AS INVESTMENT AS WELL AS DETAILS OF SHARES HEL D IN STOCK ARE PLACED ON RECORD. ON THE STRENGTH OF THESE DETAILS HE POIN TED OUT THAT AS ON 31 ST MARCH 2004 ASSESSEE WAS HOLDING 538106 SHARES IN TH E INVESTMENT ACCOUNT. IT WAS HOLDING 115200 SHARES AS STOCK IN TRADE. THE ASSESSEE HAD SOLD 209500 SHARES FROM THE INVESTMENT PORTFOLI O. AS ON 31 ST MARCH 2005 IT WAS HAVING 3557841 NUMBER OF SHARES IN THE INVESTMENT PORTFOLIO. ACCORDING TO THE LD. COUNSEL FOR THE ASS ESSEE DURING ALL THESE PERIODS I.E RIGHT FROM 31 ST MARCH, 2001 THE NUMBER OF SHARES HELD IN THE ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 9 INVESTMENT WERE ALWAYS MORE THAN THE TOTAL NUMBER O F SHARES SHOWN IN THE STOCK IN TRADE. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AN D GONE THROUGH THE RECORD CAREFULLY. SECTION 45 AND SECTION 2 (14) OF THE INCOME TAX ACT HAVE A DIRECT BEARING ON THE CONTROVERSY BECAUSE SE CTION 45 DEALS WITH CAPITAL GAINS ON TRANSFER OF A CAPITAL ASSET WHEREA S SECTION 2 (14) PROVIDE THE DEFINITION OF CAPITAL ASSET. THEREFORE IN ORDER TO APPRECIATE THE CONTROVERSY IN HAND IT IS SALUTARY UPON US TO T AKE NOTE OF BOTH THESE CLAUSES. THE RELEVANT PORTION READ AS UNDER :- S.45 (1) ANY PROFITS OR GAINS ARISING FROM THE TRA NSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTION 54, 54B, 54D, 54EA, 54EB, 54F, 54G AND 54H BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS, AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YE AR IN WHICH THE TRANSFER TOOK PLACE. THE TERM CAPITAL ASSET HAS BEEN DEFINED IN SECTIO N 2 (14) OF THE ACT AS UNDER : CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE (I) ANY STOCK-IN-TRADE, CONSUMABLE STORES OR RAW MA TERIALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION ; XXXXX XXXXX XX XXX ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 10 8. A BARE PERUSAL OF BOTH THESE CLAUSES WOULD REVEA L THAT CAPITAL GAINS WOULD BE CHARGEABLE TO TAX ON THE TRANSFER OF ANY CAPITA ASSET OTHER THAN, INTER ALIA, STOCK IN TRADE HELD FOR THE PURPOSE OF BUSINESS OR PROFESSION. SHARES HELD AS INVESTMENT WOULD QUALIFY AS A CAPITAL ASSET AND PROFIT ARISING ON SALE THEREOF WOULD BE TAXABLE AS A CAPITAL GAIN AND NOT AS A BUSINESS PROFIT. THE MOOT QUESTION BEFORE US IS WHETHER SHARES SOLD BY THE ASSESSEE WERE HELD BY IT AS INVESTMENT OR STOCK IN TRADE. THE APPREHENSION OF THE AO IN THE ASSTT. ORDER IS T HAT ASSESSEE FAILED TO BRING ANY EVIDENCE ON THE RECORD WHICH SUGGEST THAT SHARES SOLD BY IT WERE NOT CONTAINING THE SHARES FROM STOCK IN TRADE, CONTRARY TO THIS BELIEF THE CASE OF ASSESSEE IS THAT IT IS MAINTAINING TWO ACCOUNTS ONE FOR INVESTMENT AND THE OTHER FOR STOCK IN TRADE. THE HO NBLE SUPREME COURT IN THE CASE OF KARAM CHAND THAPAR & SONS V. CIT 82 ITR 899 HAS OBSERVED THAT SHARES SHOWN BY THE ASSESSEE AS INVES TMENT IN ITS BOOKS AS WELL AS IN THE BALANCE SHEET, THOUGH BY ITSELF N OT A CONCLUSIVE CIRCUMSTANCE , BUT A RELEVANT CIRCUMSTANCE FOR DRAW ING INFERENCE THAT THE SHARES WERE HELD IN INVESTMENT ACCOUNT. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NSS INVESTMENTS P. LTD. REPO RTED IN 277 ITR 149 HAS UPHELD THE VERSION OF THE ASSESSEE THAT A C OMPANY CAN HOLD SIMULTANEOUSLY THE SHARES OF ANY COMPANY ON INVESTM ENT ACCOUNT AND SOME OTHER SHARES AS STOCK IN TRADE. THUS THERE IS NO BAR FOR AN ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 11 ASSESSEE TO KEEP SHARES OF A SINGLE COMPANY AS STOC K IN TRADE AS WELL AS IN THE INVESTMENT PORTFOLIO. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. REWASHANKER A KOTHARI 283 ITR 338 HAS CONSIDERED AN ISSUE WHETHER INCOME FROM SALE OF SHARES IS TO BE T REATED AS CAPITAL GAIN OR NOT. IN THAT CASE ASSESSEE DECLARED CAPITAL GAIN ON SALE OF SHARES. THIS STAND WAS ACCEPTED U/S 143 (1). THEREAFTER THE COMMISSIONER TOOK ACTION U/S 263 AND THE DISPUTE TRAVELLED UP TO THE HONBLE HIGH COURT. THE HONBLE HIGH COURT HAS PROPOUNDED FEW BROADER T EST FOR DETERMINING THE NATURE OF TRANSACTION. THESE TESTS ARE AS UNDER:- (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISIT ION OF THE SUBJECT MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDANCE; (B) THE SECOND TEST IS WHY AND HOW FOR WHAT PURPOSE THE SALE WAS EFFECT SUBSEQUENTLY ; (C) THE THIRD TEST IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS WITH THE ASSESSEE, WHETHER IT HAS BEEN TREATED A STOCK-IN-TRADE, OR BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS IN QUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE; (D) THE FOURTH TEST IS HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEA LT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMEN TS. THE FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT E VIDENCE TO JUDGE THE NATURE OF TRANSACTION AND WOULD BE A RELEVANT C IRCUMSTANCE TO BE CONSIDERED IN THE ABSENCE OF ANY SATISFACTORY EXPLA NATION; (E) THE FIFTH TEST, NORMALLY APPLIED IN CASES OF FI RMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM O F ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY; ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 12 (F) THE MOST IMPORTANT TEST IS AS TO THE VOLUME, FREQUE NCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PR OPORTION TO THE STRENGTH OF HOLDING, AN INFERENCE CAN READILY BE DR AWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. 9. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HAV E GONE THROUGH THE PAGES NO. 55-56 OF THE PAPER BOOK WHEREIN ASSES SEE HAS PLACED ON RECORD THE DETAILS OF SHARES HELD AS INVESTMENT STA RTING FROM 15 TH JULY, 2000 UPTO 31 ST MARCH, 2005 AND THE DETAILS OF SHARES HELD IN STOC K STARTING FROM 20 TH JULY, 2001 UPTO 31 ST MARCH, 2005. FROM PERUSAL OF THESE DETAILS IT WOULD REVEAL THAT IN THE BEGINNING ASSESSEE HAD MADE INVESTMENT ONLY IN THE SHARES BECAUSE IT IS ONE OF THE PROMOTER OF JOL. THEREAFTER CERTAIN SHARES WERE ACQUIRED AS A STOCK IN TRADE AND A LARGE NUMBER OF SHARES WERE RECEIVED BY IT AS A GIFT OR O N ACCOUNT OF MERGER OF OTHER COMPANIES. RIGHT FROM THE VERY BEGINNING IT H AS BEEN VALUING ITS SHARES HELD IN THE INVESTMENT ACCOUNT ON COST BASIS AND NOT ON THE BASIS OF COST OR MARKET VALUE WHICH IS LOWER AT THE END O F RELEVANT ACCOUNTING YEAR. THIS VALUATION AT THE CLOSE OF THE ACCOUNTS A T A PARTICULAR YEAR IS IN CONSONANCE WITH AS 13 ISSUED BY INSTITUTE OF CHARTE RED ACCOUNTANTS, PROVIDING THE VALUATION OF INVESTMENT. CONTRARY TO THIS, AO EXCEPT, RAISING A SUSPICION HAS NOT BRING ANY EVIDENCE ON R ECORD THAT THESE SHARES WERE NOT HELD IN THE INVESTMENT PORTFOLIO. W E COULD APPRECIATE THE APPREHENSION OF THE AO TO SOME EXTENT IF AFTER THE SALE OF 209500 ITA NOS. 3337/DEL/08 ASSTT. YEAR 2005-06 13 SHARES DURING THE PRESENT ACCOUNTING YEAR THE NUMBE R OF SHARES HELD IN THE INVESTMENT PORTFOLIO WAS BELOW THE SHARE IN T HE STOCK IN TRADE IN THAT SITUATION. AO MAY RAISE A SUSPICION THAT IN TH E GARB OF SALE OF SHARES FROM INVESTMENT ASSESSEE APPEARS TO HAVE HOLD STOCK IN TRADE ALSO. BUT EVEN AFTER SALE THERE IS STILL 3551841 SHARES AVAIL ABLE WITH THE ASSESSEE IN THE INVESTMENT PORTFOLIO. LD. FIRST APPELLATE AU THORITY HAS CONSIDERED ALL THESE ASPECTS IN DETAIL THEREAFTER UPHELD THE V ERSION OF ASSESSEE THAT IT HAS ACCRUED ONLY CAPITAL GAIN ON SALE OF SHARES HELD AS INVESTMENT. WE DO NOT FIND ANY ERROR IN THE ORDER OF LD. CIT(A) . THIS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.6.2010. [G.E.VEERABHADRAPPA] [RAJPAL YADAV] VICE PRESIDENT JUDICIAL MEMBER DATED: VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT