The ACIT,OSD-1,ar-4, Ahmedabad V. Hipolin Ltd., Ahmedabad

ITA 4259/AHD/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9176 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 03-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: P M MEHTA
• Keywords: Capital asset; Business income; Proportionate interest; Advance ruling; Question of law; Capital Gains
• Section: 2(14); 64; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 11/08/09 DRAFTED ON: 27/08 /09 ITA NO.4259/AHD/2007 ASSESSMENT YEAR : 2004-05 THE ACIT OSD-I AR-4, AHMEDABAD VS. HIPOLIN LTD. 4 TH FLOOR, MADHUBAN NR.MADALPUR UNDERBRIDGE ELLISBRIDGE AHMEDABAD PAN/GIR NO. : AAACH 3876 JB (APPELLANT) .. (RESPONDENT) AND CO NO.15/AHD/2008 (OUT OF ITA NO.4259/AHD/2007) HIPOLIN LTD., AHMEDABAD VS. THE ACIT, OSD-I, AR -4, AHD ( CROSS OBJECTOR ) ( RESPONDENT ) ASSESSEE BY: SHRI P.M. MEHTA, AR REVENUE BY: SHRI GOVIND SINGHAL, SR. DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-VII, AHMEDABAD DATED 14/09/2007 PASSED FOR ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS FILED CROSS OBJECTIONS. THE GROUNDS RAISED BY THE RESPECTIVE PARTIES ARE AS UND ER:- (A) IN REVENUES APPEAL, ITA NO.4259/AHD/2007 FOR A.Y.2004-05 ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 2 - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DIRECTING TO DELETE THE DISALLOWANCE OF RS.53,027/- MADE U/S.14A. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING TO TREAT THE SHORT TERM CAPITAL GAIN OF R S.7,85,405/- AND LONG TERM CAPITAL GAIN OF RS.7,94,796/- AS CAPITAL GAINS AND NOT AS BUSINESS INCOME, AS WAS THE STAND TAKEN BY THE ASSE SSING OFFICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A)MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. (B) IN ASSESSEES CROSS OBJECTION NO.15/AHD/1998 F OR A.Y. 2004-05 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.27,590 PE RTAINING TO THE ADVANCE GIVEN TO WONDERWAVE ENTERPRISES (P) LTD. 2. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AN D/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BE FORE OR DURING THE COURSE OF HEARING OF THE SAME. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF WASHING POWDER, DETERGENT CAKES , TOOTH PASTE, ETC. IN THE NAME OF HIPOLIN. DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE CLAIMED INTEREST OF RS.16.7 8 LACS AS BANK CHARGES. THE ASSESSING OFFICER, FURTHER, FOUND THAT THE ASSESS EE HAS SHOWN INVESTMENT OF RS.26,71,053/- AS ON 31/03/2004 AS COMPARED TO RS.1 9,49,725/- AS ON 31/03/2003. THUS, THE ASSESSEE HAS MADE NEW INVEST MENT OF RS.7,21,238/- IN SHARES. THE DIVIDEND INCOME ON THE ABOVE MENTIONED INVESTMENT WAS ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 3 - EXAMINED. THE ASSESSING OFFICER SOUGHT TO DISALLOW PROPORTIONATE INTEREST OUT OF THE INTEREST CLAIMED. IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OUT OF THE H UGE INTEREST-FREE FUNDS AVAILABLE IN THE FORM OF PAID UP SHARE CAPITAL AND ACCUMULATED RESERVES. THE TOTAL INVESTMENT IN SHARES IS LESS THAN 1% OF THE S AID INTEREST-FREE FUNDS. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE ASSESSEE AND DISALLOWED PROPORTIONATE EXPENSES WHICH AMOUNTED TO RS.53,027/ - WHICH INCLUDED INTEREST OF RS.9,403/- AND ADMINISTRATIVE EXPENSES OF RS.43, 624/-. 4. IN APPEAL, THE LEARNED CIT(APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDER:- 3.2. THE COUNSELS SUBMISSIONS HAVE BEEN CONSIDERE D. I FIND THAT THE APPELLANT HAS GIVEN DETAILS REGARDING THE INVESTMEN TS IN SHARES AND MUTUAL FUNDS. THE APPELLANT HAS CONTENDED THAT THE INVESTMENTS IN ACQUIRING THE ABOVE EQUITY SHARES AND MUTUAL FUNDS HAVE BEEN OUT OF COMPANYS HUGE INTEREST FREE FUNDS IN THE FORM OF P AID UP SHARE CAPITAL AND ACCUMULATED RESERVES AND NOTHING HAS BEEN UTILI ZED OUT OF BORROWED FUNDS. THE INVESTMENTS IN SHARES OF ARVIND MILLS L TD. OF RS.7.25 LAKHS WERE MADE FROM THE CURRENT ACCOUNT WITH KALUPUR COM M. CO-OPERATIVE BANK TO CONTROVERT THIS CONTENTION, THE ASSESSING O FFICER HAS NOT BROUGHT OUT FACTS NOR PROVED NEXUS BETWEEN THE INVESTMENTS IN SHARES AND INTEREST BEARING FUNDS. AS THE APPELLANT HAS GOT ENOUGH INT EREST FREE FUNDS FOR MAKING THE SAID INVESTMENTS, IN MY VIEW, THERE IS N O JUSTIFICATION FOR DISALLOWING THE PROPORTIONATE INTEREST AS HAS BEEN DONE BY THE ASSESSING OFFICER. FURTHER THERE IS NO EVIDENCE THAT ADMINIS TRATIVE EXPENSES HAVE BEEN INCURRED TO EARN THE DIVIDEND INCOME. AS CON TENDED BY THE APPELLANT WAGES CANNOT BE STATED TO BE RELATED TO E ARNING OF DIVIDEND INCOME. EVEN OTHERWISE THE CALCULATION OF THE A.R. FOR DISALLOWANCE OF ADMINISTRATIVE EXPENSES WOULD BE ONLY RS.12,985/- A ND NOT THE AMOUNT ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 4 - DISALLOWED BY THE ASSESSING OFFICER. HOWEVER, AS N O PART OF ADMINISTRATIVE EXPENSES HAS BEEN PINPOINTED TO BE D IRECTLY RELATED TO EARNING OF DIVIDEND INCOME, IN MY VIEW NO DISALLOWA NCE IS CALLED FOR. THEREFORE, THE DISALLOWANCE OF RS.53,027/- IS HELD TO BE NOT IN ORDER AND THE SAME IS DELETED. 5. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH OF THE ITAT MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT.LTD. (2009) 312 ITR (AT) 01 (MUM.) ( SB) ACCORDING TO WHICH IF THE ASSESSEE IS NOT ABLE TO PROVE THAT INVESTMEN T IN ASSETS GIVING RISE TO EXEMPTED INCOME IS MADE OUT OF INTEREST-FREE FUNDS , THEN PROPORTIONATE EXPENSES HAVE TO BE DISALLOWED. 6. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRES ENTATIVE OF THE ASSESSEE SUBMITTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES POWER LTD. 309 ITR 340 (BOM.) HAS HELD TH AT IT HAS TO BE FIRST PRESUMED THAT THE INVESTMENT WERE MADE OUT OF INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, NO DISALLOWANCE IS CALLED FOR . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS SUBSTANTIATE SHARE CAPITAL AND RE SERVES. THEREFORE, IT CANNOT BE SAID THAT INVESTMENTS IN SHARES WERE MADE OUT OF IN TEREST-BEARING FUNDS. AFTER HEARING THE PARTIES, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(APPEALS), WHICH IS CONFIRMED. HENCE, THIS GROU ND OF REVENUE IS DISMISSED. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 5 - 7. THE NEXT ISSUE IS REGARDING TREATING THE SUM OF RS.7,85,405/- AS SHORT TERM CAPITAL GAIN AND RS.7,94,796/- AS AGAINST L ONG TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. 8. DURING THE ASSESSMENT YEAR IN QUESTION, THE ASSE SSING OFFICER FOUND THAT THE ASSESSEE HAS BEEN PURCHASING AND SELLING SHARES WHICH HAS GIVEN RISE TO SHORT TERM CAPITAL GAIN AS ABOVE. HE ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE TO TREAT THE GAIN AS BUSINESS INCOME. IN RESPONSE TO THIS, THE ASSESSEE FURNISHED FOLLOWING REPLY:- (I) THE ASSESSING OFFICER HAS ASKED THE ASSESSEE T O SHOW-CAUSE AS TO WHY PROFIT FROM THE PURCHASE AND SALE OF SHARES/MUTUAL FUNDS SHOULD NOT BE TAXED AS BUSINESS INCOME. IN THIS REGARD, IT IS TH E HUMBLE SUBMISSION OF THE ASSESSEE THAT AS STATED IN ITEM B AS ABOVE, T HE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS AS INVESTOR OUT OF ITS SURPLUS FUNDS/ RESERVES AVAILABLE IN THE REGULAR BOOKS OF A CCOUNT. THE INVESTMENTS ARE OUT OF SUCH AVAILABLE FUNDS IN THE PAST AND THE ASSESSEE HAS BEEN SHOWING CAPITAL GAINS AS AND WHEN SALE OF SUCH SHARES TAKE PLACE. PRIMARILY, THE ASSESSEE COMPANY IS MANUFACT URING UNIT AND HAS NOTHING TO DO WITH TRADING IN SHARES. THE ASSESSI NG OFFICER HAS NOT BROUGHT ON RECORD ANYTHING CONTRARY TO ESTABLISH TH AT THE ASSESSEE IS A TRADER IN SHARES. THE ASSESSEE IS REGULARLY ASSESS ED TO TAX SINCE DECADES AND IN ALMOST EVERY YEAR THE CASE OF THE ASSESSEE H AS BEEN UNDER THE SCRUTINY COMPARTMENT ON ONE OR THE OTHER COUNT. HO WEVER, IT MAY BE APPRECIATED FROM THE ASSESSING OFFICERS RECORD ITS ELF THAT THE DEPARTMENT HAS NEVER TAKEN SUCH A STEP TO HOLD THAT THE ASSESS EE IS A TRADER IN SHARES AND NOT A MANUFACTURING COMPANY AS SUCH. (II) IN THIS CONTEXT, THE A PUTS RELIANCE ON A RECE NT DECISION IN THE CASE OF CIT VS. REVASHANKER A KOTHARI ITR NO.142 OF 1995 DECIDED ON 9/1/2006 (GUJ), WHEREIN THE TRIBUNAL FOUND THAT THE RE WAS A LARGE TIME GAP BETWEEN DATES OF ACQUISITION OF SHARES AND SALE THEREOF AND THAT INTENTION TO SALE COULD NOT BE INFERRED AT POINT OF TIME OF PURCHASE, COMMISSIONERS ORDER UNDER SEC.263 SETTING ASIDE AS SESSMENT ON THE ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 6 - GROUND THAT THE ASSESSEE WAS DOING BUSINESS IN SHAR ES AND THAT INCOME FROM SALE OF SHARES WAS ASSESSABLE AS BUSINESS INCO ME AND NOT AS CAPITAL GAINS, WAS HELD AS NOT SUSTAINABLE. IN VIEW OF THE ABOVE STATED FACT, IT IS REQUESTED T HAT PROPOSAL FOR TAXING THE INCOME AS ALLEGED UNDER THE HEAD BUSINESS INCO ME, MAY BE DROPPED. 9. THE ASSESSING OFFICER, HOWEVER, THOUGHT THAT FOL LOWING FIVE CRITERIA ARE NOT MET BY THE ASSESSEE. I) WHETHER THE PURCHASES HAVE BEEN MADE SOLELY WIT H THE INTENTION OF RESALE AT A PROFIT OR FOR LONG TERM APPRECIATION . II) WHETHER THE SCALE OF ACTIVITY IS SUBSTANTIAL. III) WHETHER TRANSACTIONS HAVE BEEN ENTERED INTO C ONTINUOUSLY AND REGULARLY DURING THE ASSESSMENT YEAR. IV) WHETHER THE OBJECT OF TRADING IN SHARE IS MEN TIONED IN MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPA NY. V) HOLDING PERIOD OF THE SECURITIES BROUGHT OR SOLD . 10. ACCORDING TO HIM, THE ASSESSEE IS REGULARLY ENG AGED IN THE TRADING OF SHARES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE I S HOLDING MAJORITY OF SHARES FOR A PERIOD OF LESS THAN A YEAR. THE SCALE OF TH E ACTIVITY IS ALSO SUBSTANTIAL. THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE IS MANUF ACTURING OF DETERGENT CAKES. IN ADDITION TO THIS, THE ASSESSEE HAS BEEN EARNING PROFIT ON TRADING OF THE SHARES OR MUTUAL FUNDS. IN VIEW OF THE ABOVE FACTS, THE ACTIVITY OF PURCHASE AND SALE OF SHARES/MUTUAL FUNDS BY THE ASSESSEE IS BUSINESS ACT IVITY AND PROFIT ARISING FROM SUCH ACTIVITY IS BUSINESS INCOME AND NOT CAPITAL GA IN. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 7 - 11. THE LD. ASSESSING OFFICER REFERRED TO THE FOLLO WING DECISIONS IN SUPPORT OF HIS CONTENTIONS:- (1) IN THE CASE OF G.VENKATSWAMY NAIDU & CO. VS. CIT 35 ITR 594 (SC) (2) IN THE CASE OF H.MOHAMMAD & CO. VS. CIT (1977) 107 ITR 637 (GUJ.) (3) IN THE CASE OF SARDAR INDRA SINGH & SONS LTD. VS. C IT (1953) 24 ITR 415 (SC) (4) IN THE CASE OF KARAM CHAND THAPAR AND BROTHERS (P) LTD. VS. CIT (1971) 83 ITR 899(SC) (5) IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELO PMENT CO. (1971) 82 ITR 586 (SC) (6) IN THE CASE OF A.N.RAMASWAMI CHETTIAR VS. CIT (1963 ) 48 ITR 771 (MADRAS) 12. HE ACCORDINGLY TREATED A SUM OF RS.15,80,202 (R S.7,85,405 + 7,94,796) AS BUSINESS INCOME AND TAXED IT ACCORDINGLY. 13. IN APPEAL, THE LEARNED CIT(APPEALS) DELETED THE ADDITION BY HOLDING THAT THE SCALE OF ACTIVITIES IS NOT SUBSTANTIAL AND THE ASSESSEE HAS SHOWN THE SHARES AS INVESTMENTS IN THIS BALANCE-SHEET. DEALING IN SHAR ES IS NOT A PRINCIPAL OBJECT OF THE APPELLANT AS CAN BE SEEN FROM MEMORANDUM OF ASS OCIATION. HE REFERRED TO THE FOLLOWING DECISIONS RELIED ON BY THE ASSESSEE I N SUPPORT OF HIS CONTENTIONS:- I) MADHYA PRADESH HIGH COURT IN THE CASE OF BIRLA GWAL IOR PVT.LTD. VS. CIT (1962) 44 ITR 847 II) THE MADRAS HIGH COURT IN THE CASE OF CIT VS. PUDUKO TTAI CO. (P) LTD. (1972) 84 ITR 788 III) THE MADHYA PRADESH HIGH COURT IN THE CASE OF D & H SECHERON ELECTRODES PVT.LTD. VS. CIT 142 ITR 528 ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 8 - IV) THE ITAT AHMEDABAD BENCH, IN THE CASE OF SAHIBAUG ENTREPRENEURS VS. ITO 50 ITD 113(AHD). 14. BEFORE US, THE LD.DR SUBMITTED THAT TURNOVER OF THE ASSESSEE IN SHARES IS VERY HIGH. HE IS FREQUENTLY DEALING IN SHARES AND UNIT OF MUTUAL FUNDS. HIS INTENTION IS TO EARN PROFIT BY DEALING IN SHARES, T HEREFORE, THE GAIN FROM DEALING IN SHARES SHOULD BE ASSESSED AS BUSINESS INCOME. 15. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRE SENTATIVE OF THE ASSESSEE SUBMITTED THAT FACTUAL INFORMATION GIVEN BY THE LD . ASSESSING OFFICER IS NOT CORRECT. THE ASSESSEE HAS SHOWN THE SHARES AS INV ESTMENT IN HIS BALANCE-SHEET. HE REFERRED TO PAGE NO.63 TO THIS EFFECT. HE ALSO REFERRED TO SCHEDULE-VI OF BALANCE-SHEET WHICH SHOWED QUOTED AND UNQUOTED INVE STMENT IN SHARES. HE ALSO SUBMITTED THAT THERE IS NO CLOSING OR OPENING STOCK IN SHARES. THERE IS NO TRADING ACCOUNT AS SUCH. HE REFERRED TO PAGE NO.85 OF HIS PAPER-BOOK WHEREIN NUMBER OF SALE TRANSACTIONS OF SHARES AND NUMBER OF SCRIPTS SOLD BY THE ASSESSEE ARE MENTIONED. FOR THE SAKE OF CONVENIENCE, THE C HART SHOWN BY THE ASSESSEE IS REFERRED BELOW:- ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 9 - A.OS OBSERVATION THE APPELLANT HAD BEEN REGULARLY ENGAGED IN THE BUS INESS OF PURCHASE AND SALE OF SHARES ASSESSEES SUBMISSION THE APPELLANT SUBMITS FOLLOWING CHART WHICH WILL EX PLAIN THE FACT THAT ASSESSEE IS NOT REGULARLY ENGAGED IN BUSINESS OF SHARES: PARTICULARS AMOUNT OF CAPITAL GAIN NO.OF SALE TRANSACTION NO.OF PURCHASE TRANSACTION DURING THE YEAR NO.OF SCRIPTS INCOME FROM LONG TERM CAPITAL GAIN 7,94,797 7 - 4 INCOME FROM SHORT TERM CAPITAL GAIN (SHARES) 84,239 14 14 10 INCOME FROM SHORT TERM CAPITAL GAIN (MUTUAL FUND) 7,01,166 12 12 11 IT CAN BE SEEN FROM AFORESAID DETAILS, SHE HAS NOT CARRIED OUT TRANSACTIONS ON DAY TO DAY BASIS WHICH CAN TREAT IT AS TRADER AND HAD IT BEEN TRADER IN SHARES AS ENVISAGED BY ASSESS ING OFFICER, SUCH TRANSACTIONS WOULD HAVE BEEN AT EACH DAY WHICH IS N OT THE CASE OF APPELLANT. APART FROM ABOVE, APPELLANT STATES THAT MAJOR PROFI T HAS BEEN ARISING BY WAY OF INVESTMENTS IN MUTUAL FUNDS IN WH ICH THERE CANNOT BE ANY TRADING ACTIVITY. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 10 - 16. THE ASSESSEE THEN SUBMITTED THAT HOLDING PERIOD FOR MAJORITY OF SHARES IS OVER TWO MONTHS OR MORE. HE ALSO REFERRED TO THE F OLLOWING CHART AT PAGE NO.88 OF THE PAPER-BOOK:- HOLDING PERIOD CAPITAL GAIN % 1 TO 60 DAYS 53,601 3.08 61 TO 120 DAYS 3,26,349 41.56 120 DAYS OR MORE 4,05,346 55.36 TOTAL 7,85,296 100 17. THE ASSESSEE THEN REFERRED TO THE DECISION OF T HE ITAT AHMEDABAD BENCH A IN THE CASE(S) OF ACIT VS. HIMANSHU J.SHAH & OTHERS IN ITA NOS.2875, 2878, 2879 & 2880/AHD/2008 & CO NOS.292, 295, 296 & 297/AHD/2008 AND 2881 AND 2883/AHD/2008 & CO NOS.299 & 300/AHD/2008 & OTHERS, PRONOUNCED ON 17/07/2009, WHEREIN RELIANCE WAS PLAC ED ON THE DECISION OF ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRU CTURE (P) LTD. VS. ACIT (122 TTJ 216) (2009) 313 ITR (AT) 13 ITAT LUCKNOW , WHEREIN IT WAS HELD THAT IF SHARES ARE TRANSFERRED IN THE NAME OF THE ASSESSEE, THEN PRESUMPTION IS THAT THE ASSESSEE DOES NOT INTEND TO DEAL IN SHARES . FOR THE SAKE OF CONVENIENCE, WE REPRODUCE PARAGRAPH NO.11 FROM THAT JUDGMENT AS UNDER:- 11.1. NOW WE CONSIDER THE RELEVANT AUTHORITIES ON THE SUBJECT. THE ISSUE WHETHER TRANSACTION IN SHARES SHOULD BE TREATED AS INVESTMENT OR TREATED AS BUSINESS AND IN WHAT CIRCUMSTANCES HOLDINGS SHOULD BE TREATED AS INVESTMENT OR AS STOCK IN TRADE, HAS BEEN DISCUSSED IN DETAIL BY THE TRIBUNAL, LUCKNOW BENCH SARNATH INFRASTRUCTURE (P) LTD V. ACIT (122 TTJ 216 ). IN THAT DECISION TRIBUNAL HAS REFERRED TO THE FOLLOWING JUDGEMENT OF THE COUR TS. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 11 - 1. FIDELITY NORTHSTAR FUND, IN RE (2007) 288 ITR 64 1 (AAR) 2. RAJA BAHADUR VISHESHWAR SINGH VS. COMMISSIONER O F INCOME-TAX (1961) 41 ITR 685 (SC) 3. CENTRAL INDIA AGENCIES (P.) LTD. VS. COMMISSIONE R OF INCOME-TAX (1970) 77 ITR 959 (ALL) 4. SAROJINI RAJAH (MRS.) VS. COMMISSIONER OF INCOME -TAX (1969) 71 ITR 504 (MAD) 5. DALHOUSIE INVESTMENT TRUST CO. LTD. VS. COMMISSI ONER OF INCOME-TAX (1968) 68 ITR 486 (SC) 6. COMMISSIONER OF INCOME-TAX VS. ASSOCIATED INDUST RIAL DEVELOPMENT CO. (P.) LTD. (1971) 82 ITR 586 (SC) 7. COMMISSIONER OF INCOME-TAX VS. HOLCK LARSEN (H.) (1986) 160 ITR 067 (SC) 8. COMMISSIONER OF INCOME-TAX VS. SUTLEJ COTTON MIL LS SUPPLY AGENCY LTD. (1975) 100 ITR 706 (SC). 18. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT W HETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPEN ING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHAS E AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN A SSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DI SPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 12 - (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE BALANCE SHEET ? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT ? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY ? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO S HOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION 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, STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SH ARES (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 ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISI TES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURC HASES WERE MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 13 - (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WIL L BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 19. THESE DECISION HAS BEEN FOLLOWED BY THE MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT V. JCIT [(2009) 29 SOT 117 (MUM)]. 20. CBDT IN CIRCULAR NO.4/2007 DT.15.6.2007 HAS LAID DOWN THE PRINCIPLES FOR HOLDING AS TO WHEN PROFITS EARNED FROM TRANSACT IONS IN SHARE SHOULD BE HELD AS BUSINESS OR SHOULD BE TREATED AS INVESTMENT. CIRCULAR NO. 4/2007, DATED JUNE 15, 2007 SUB : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-T RADE AND SHARES HELD AS INVESTMENTTESTS FOR SUCH A DISTINCTION. THE INCOME-TAX ACT, 1961 MAKES A DISTINCTION BETWEE N A CAPITAL ASSET AND A TRADING ASSET. 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A ) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(42A) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH INSTRUCTION NO. 1827 DATED AUGUST 31, 1989, HAD BROUGHT TO THE NOTI CE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE ( TRADING ASSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE AB OVE INSTRUCTIONS FOR THE INFORMATION OF THE ASSESSEES AS WELL AS FOR GUIDANC E OF THE ASSESSING OFFICERS. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 14 - 5. IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVE LOPMENT COMPANY (P) LTD. [1971] 82 ITR 586, THE SUPREME COURT OBSERVED THAT (HEADNOTE) : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE HIS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . 6. IN THE CASE OF CIT V. H. HOLCK LARSEN [1986] 160 ITR 67, THE SUPREME COURT OBSERVED (PAGE 87) : THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS IS A MIXED QUESTION OF LAW AND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) [2007] 2 88 ITR 641, REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HAS CULLED OUT THE FOLLOWING PRINCIPLES (PAGE 651) : (I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOC IATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION ; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNT, THE MAGNITUDE OF PURCHASES AND SA LES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD F URNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS ; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCO ME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE I N SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REV ENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES, THE AAR HAS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER (PAGE 661) : ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 15 - WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. T HE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SH ARES BY A FII IN EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIAT ION/TRUST DEED WAS AS STOCK-IN-TRADE AS THE MERE EXISTENCE OF THE POWE R TO PURCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E., WHETHER THEY WERE VALUED AS STOCK-IN-TRADE AT THE END OF THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR HELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PRINCIPLE FURNISHES A GUIDE FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THER E ARE SUBSTANTIAL TRANSACTIONS, THEIR MAGNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT W ILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIO NS ENJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAININ G TRUE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS O F BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENTS AND ACCOUNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN INDIA AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDINARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PR OFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY OF DIVIDENDS ETC., THE TRANSACTIONS OF PURCHASES AND S ALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS PROFITS. 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES T O EMPHASISE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I. E., AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRAD E WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TW O PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAP ITAL GAINS AS WELL AS BUSINESS INCOME. 11. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABO VE PRINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SING LE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 16 - 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIER INSTRUCTION NO. 1827 DATED AUGUST 31, 1989. [F. NO. 149/287/2005-TPL]. 21. APPLYING ABOVE PRINCIPLES IN THE PRESENT CASE, WE FIND THAT (1) THE ASSESSEES DID NOT HAVE DEALINGS IN LARGE N UMBER OF SCRIPTS OR LARGE FREQUENCY OF TRANSACTIONS WHICH WOULD WARRANT INTERFERENCE THAT IT IS TRADER. (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEES HAS NEVE R TREATED THE SHARES AS STOCK IN TRADE. RETURN OF INCOME HAVE BEEN FILE D PRIOR TO THE SEARCH SHOWING THEM AS INVESTMENTS AND PROFIT THERE FROM A S CAPITAL GAINS; (3) THE ASSESSEES HAVE RETAINED THE SHARES FOR ENJ OYING APPRECIATION IN VALUE AND NOT FOR THE PURPOSE OF REALIZATION OF PRO FIT. THERE IS APPARENTLY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIE NT TO BE A TRADER. IT IS CLEARLY SHOWN BY THEM IN THE RETURNS OF INCOME FILE D THAT THEY ARE ENJOYING DIVIDEND INCOME FROM HOLDING SHARES AS INV ESTMENT; (4) IT IS NOT SHOWN BY THE REVENUE THAT STOCK OF SH ARES HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOW BUT THEY HAVE BEEN VALUED AT COST WHILE COMPUTING THE CAPITAL GAINS; (5) THE ASSESSEES HAVE APPARENTLY DISCHARGED THE PR IMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWING HOLDINGS ONLY AS INVESTMENT AND NOT STOCK IN TRADE. THE PRIMARY ONUS HAS NOT BEEN R EBUTTED BY THE REVENUE. THE CASE OF THE REVENUE IS THUS BASED MERE LY ON SUSPICION AND ON NUMBER OF TRANSACTIONS CARRIED IN ONE OR TWO YEA RS THOUGH WHICH ARE NOT FREQUENT IF WE SPREAD THEM ON MONTHLY BASIS AS OBSERVED BY US ABOVE; ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 17 - (6) ASSESSEES HAVE ALWAYS TAKEN THE DELIVERY OF SHA RES AND MADE THEM REGISTERED. IT HAS BEEN HELD IN SARNATH INFRASTRUCT URE (P) LTD V. ACIT (122 TTJ 216) THAT ONCE SHARES ARE REGISTERED IN THE NAM E OF THE ASSESSEE, INTENTION IS CLEAR THAT IT IS AN INVESTMENT AND NOT A TRADE; (7) THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FOR DEALING AS A TR ADER IN SHARES. 22. THUS, THE PERCEPTION OF THE DEPARTMENT IS THAT THE NATURE OF TRANSACTIONS IN SHARES IS TRADING IN THE CASE OF THE ASSESSEE O N THE GROUND OF RE-SHUFFLING ITS PORTFOLIO IS MISPLACED BECAUSE ONCE THE ASSESSEE G OT THE SHARES REGISTERED IN ITS NAME, IT HAS DISCHARGED THE PRIMARY ONUS AND IT IS NOW WITH THE REVENUE TO SHOW THAT IN SPITE OF SHARES BEING TRANSFERRED/REGI STERED IN THE NAME OF THE ASSESSEE, THE ASSESSEE COULD STILL BE DEALING IN SH ARES. THIS COULD BE DONE BY SHOWING THAT FREQUENCY TRANSACTION IS QUITE HIGH O R IT IS COMPLYING WITH THE LEGAL REQUIREMENTS OF BEING A TRADER IN SHARES. H AVING NOT COLLECTED ADEQUATE MATERIAL, WE ARE OF THE VIEW THAT THE ASSESSEE CANN OT BE TREATED AS TRADER IN SHARES PARTICULARLY WHEN ITS MAIN BUSINESS IS IN MA NUFACTURING AND TRADING OF DETERGENT. IT IS ALSO NOT CORRECT TO SAY THAT ME MORANDUM AND ARTICLES OF ASSOCIATION HAS NOT AUTHORIZED THE ASSESSEE TO MAK E INVESTMENT IN SHARES AND SECURITIES. THE LD. LEARNED AUTHORISED REPRESENTA TIVE OF THE ASSESSEE DREW OUR ATTENTION TOWARDS PAGE NOS.3 & 4 OF MEMORANDUM AND ARTICLES OF ASSOCIATION WHEREIN IN CLAUSE-B (SIX POINTS) PERMITS THE ASSESS EE TO MAKE INVESTMENT IN SHARES, WHICH READS AS UNDER:- ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 18 - (B) THE OBJECTS INCIDENTAL OR ANCILLARY TO THE AT TAINMENT OF THE MAIN ARE : 1. TO ACQUIRE AND TAKE OVER ANY BUSINESS OR UN DERTAKING CARRIED ON. UPON OR IN CONNECTION WITH/WITHOUT ANY LAND OR BUILDING WHI CH THE COMPANY MAY DESIRE TO ACQUIRE AS AFORESAID OR BECOME INTERESTED IN AND THE WHOLE OR ANY OF THE ASSETS AND LIABILITIES OF SUCH BUSINESS OR UNDERTAK ING AND TO CARRY ON THE SAME OR TO DISPOSE OR REMOVE OR PUT AN END THERETO. 2. TO ACQUIRE, PURCHASE, START, RUN, ERECT AND MAINTAIN LANDS, BUILDINGS, FACTORIES, FOUNDRIES, WORKSHOPS, MILLS, COLD STORAG E PLANTS, EQUIPMENTS, MACHINERIES, PLANTS AND TOOLS, INDUSTRIAL UNDERTAKI NG OF ANY KIND, WAREHOUSES, CELLERS, VAULTS, WAGONS BRANCH OFFICES, DEPOTS AND SHOW-ROOMS FOR THE BUSINESS OF THE COMPANY. 3. TO FORM, PROMOTE, SUBSIDISE, ORGANISE AND ASSIST OR AID IN FORMING, PROMOTING SUBSIDISING, ORGANISING OR AIDING COMPANI ES, SYNDICATES AND PARTNERSHIPS OF ALL KINDS FOR THE PURPOSE OF ACQUIR ING AND UNDERTAKING ANY PROPERTIES AND LIABILITIES OF THIS COMPANY OR FOR A DVANCING DIRECTLY THE OBJECTS THEREOF WHICH THIS COMPANY MAY THINK EXPEDIENT. 4.. TO ACQUIRE FROM AND/OR GIVE TO ANY PERSON, FIRM OR BODY CORPORATE INCORPORATED WHETHER IN INDIA OR ELSEWHERE, TECHNIC AL' INFORMATION, KNOW HOW, PROCESSES, ENGINEERING, MANUFACTURING AND OPERATING DATA, PLANTS, LAY OUTS AND BLUE PRINTS USEFUL FOR THE DESIGN, ERECTION AND OPE RATION OF PLANT REQUIRED FOR ANY OF THE BUSINESSES OF THE COMPANY AND TO ACQUIRE ANY GRANT OR LICENCES AND OTHER RIGHTS AND BENEFI'S IN THE FOREGOING MATTERS AND THINGS. 5. TO PAY TO PROMOTERS SUCH REMUNERATION AND F EES AND OTHERWISE RECOMPENSATE THEM FOR THEIR TIME AND FOR THE SERVIC ES RENDERED BY THEM. 6. TO INVEST ANY MONEYS OF THE COMPANY NOT IMMEDIAT ELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS IN SUCH INVESTMENTS OR SECU RITIES AS MAY BE THOUGH EXPEDIENT INCLUDING SECURITIES ISSUED AND/OR GUARAN TEED BY CENTRAL OR STATE GOVERNMENT, CORPORATIONS, TRUSTS AND FINANCIAL INS TITUTIONS. 23. ACCORDINGLY, WE HOLD THAT THE LEARNED CIT(APPEA LS) WAS JUSTIFIED IN TREATING THE GAIN IN SHARES AS CAPITAL GAIN AN D NOT AS BUSINESS INCOME. 24. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO 4259/AHD/2007 & CO NO.15/AHD/2008 HIPOLIN LTD. VS. ACIT ASST.YEAR - 2004-05 (CROSS) - 19 - ASSESSEES CO NO.15/AHD/2008 (OUT OF ITA NO.4259/AH D/2007) 25. THE CROSS OBJECTION FILED BY THE ASSESSEE HAS NOT BEEN PRESSED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE A ND, THEREFORE, THE SAME IS DISMISSED AS SUCH. 26. AS A RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 04/09/2009. SD/- SD/- (H.L. KARWA) ( D.C.AGRAWAL ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 04/09/2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD