Jabook Finance & Investments P.Ltd., Mumbai V. ITO Ward 1(3)(3), Mumbai

ITA 5352/MUM/2004

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3685 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-07-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 09-07-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRI
• Keywords: Business income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 5352/MUM/2004 (ASSESSMENT YEAR : 2000-01) ITA NO.4110/MUM/2005 (ASSESSMENT YEAR 2001-02) TABOOK FINANCE & INVESTMENTS PRIVATE LTD. THE TAXATION DEPARTMENT, AIKONE MKT.& MGMT. SERVICES LIMITED, (SUCCESSOR IN THE BUSIESS OF TABOOK FIN.& INV. PVT. LTD) 4 TH FLOOR, PIRAMAL TOWER ANNEXE, GANPATRAO KADAM MARG, LOWER PAREL(W), MUMBAI 400 013. PAN:AAACT 5552O ... APPELLANT VS. THE INCOME TAX OFFICER WARD 1(3)(3), MUMBAI .... RESPONDENT APPELLANT BY : SHRI J.D.MISTRI RESPONDENT BY : SHRI YOGESH KAMAT DATE OF HEARING : 11/02/2016 DATE OF PRONOUNCEMENT : 29/04/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE FOR ASSESSMENT YEARS 2000-01 AND 2001-02 INVOLVING COMM ON ISSUES, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHE R AND A 2 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. WE MAY FIRST TAKE THE APPEAL IN ITA NO.5352/MUM/ 2004 PERTAINING TO THE ASSESSMENT YEAR 2000-01 AS THE LE AD CASE, WHICH IS AN APPEALDIRECTED AGAINST THE ORDER PASSED BY THE CIT( APPEALS) XXI, MUMBAI DATED 31/03/2004, WHICH IN TURN ARISES OUT O F AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION. 143(3) OF T HE ACT, 1961 ( IN SHORT THE ACT) DATED 26/03/2003. 3. IN THIS APPEAL, ALTHOUGH ASSESSEE HAS RAISED MUL TIPLE GROUNDS OF APPEAL, BUT THE PERTINENT DISPUTE ARISES FROM THE A CTION OF THE INCOME- TAX AUTHORITIES IN ASSESSING THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN EARNED ON THE SALE OF SHARES AS BUSIN ESS INCOME. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. I T IS AN INVESTMENT COMPANY INCORPORATED WITH THE OBJECT, INTER-ALIA, O F UNDERTAKING AND TRANSACTING IN ALL KINDS OF INVESTMENTS AND FINANCI NG ACTIVITIES. PRECISELY PUT, IT IS AN INVESTMENT COMPANY HOLDING THE EQUITY SHARES OF PIRAMAL GROUP OF COMPANIES. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2000-01, IT EARNED LONG TERM CAPITAL GAIN ON S ALE OF SHARES OF M/S. NICHOLAS PIRAMAL INDIA LTD AND RECKITT & COLMAN IN DIA LTD. AMOUNTING TO RS.1,07,70,080/- AND RS.2,52,794/- RESPECTIVELY. ADDITIONALLY, IT ALSO EARNED SHORT TERM CAPITAL GAIN ON SALE OF SHARES OF PIRAMAL HEALTHCARE LTD. AMOUNTING TO RS.12,748/-. THE ASSESSEE REFLE CTED THE AFORESAID GAIN AS ITS INCOME ASSESSABLE UNDER THE HEAD CAPIT AL GAINS IN THE RETURN OF INCOME. THE ASSESSING OFFICER TREATED TH E SAID TRANSACTIONS AS TRADING TRANSACTIONS AND ACCORDINGLY, ASSESSED THE RESULTANT INCOME AS 3 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) BUSINESS INCOME INSTEAD OF CAPITAL GAINS. THE DISCUSSION MADE IN THE ASSESSMENT ORDER REFLECTS THAT THE PRIMARY ARGUMENT OF THE ASSESSING OFFICER, IS TO THE EFFECT THAT THE ASSESSEE COMPA NY HAD UNDERTAKEN PURCHASE AND SALE OF SHARES THROUGHOUT THE YEAR UND ER CONSIDERATION, AND THUS, SUCH INCOME WAS TO BE ASSESSED AS BUSIN ESS INCOME. 4. IN APPEAL BEFORE THE CIT(APPEALS), THE ASSESSEE COMPANY ASSAILED THE DECISION OF THE ASSESSING OFFICER IN L AW AND ON FACTS. THE CIT(APPEALS) UPHELD THE ACTION OF THE ASSESSING OF FICER AND AFTER REFERRING TO THE DETAILS OF PURCHASE AND SALE OF SH ARES UNDERTAKEN BY THE ASSESSEE FROM FINANCIAL YEARS 1996-97 TO 1999-2 000 HE REINFORCED THE ARGUMENT OF THE ASSESSING OFFICER THAT PURCHASE AND SALE OF SHARES HAVE BEEN REGULARLY UNDERTAKEN BY THE ASSESSEE. TH US, THE STAND OF THE ASSESSING OFFICER TO TAX THE GAIN ON SALE OF SHARES AS BUSINESS INCOME WAS AFFIRMED. 4.1 AT THIS POINT, IT WOULD ALSO BE RELEVANT TO NOT E THAT THE CIT(APPEALS) NOT ONLY AFFIRMED THE STAND OF THE ASS ESSING OFFICER, BUT ALSO ENHANCED THE TOTAL INCOME ON ACCOUNT OF INTERE ST COSTS. THE ASSESSING OFFICER HAS ALLOWED THE DEDUCTION IN RESP ECT OF INTEREST COST OF RS.95,79,195/-, WHILE ASSESSING THE GAIN ON SAL E OF SHARES AS BUSINESS INCOME. THE CIT(APPEALS) WAS OF THE VI EW THAT DISALLOWANCE IS REQUIRED TO BE MADE OUT OF INTEREST EXPENDITURE ON AN APPLICATION OF SECTION 14A OF THE ACT AND/OR THAT THE SAME WAS NOT RELATABLE TO THE YEAR UNDER CONSIDERATION. ON BOTH THE ASPECTS, THE CIT(APPEALS) SHOW CAUSED THE ASSESSEE. IN RESPONSE, THE ASSESSEE COM PANY OBJECTED TO THE ENHANCEMENT ON THE GROUND THAT, IF INTEREST IS PAID ON AMOUNT BORROWED FOR INVESTMENT IN SHARES HELD AS INVESTME NTS IT MUST BE 4 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) ADDED TO THE COST OF ACQUISITION FOR COMPUTING CAPI TAL GAINS AND THAT, IF THE INCOME ARISING FROM SALE OF SHARES IS HELD AS BUSINESS INCOME, THEN THE INTEREST EXPENDITURE OF RS.95,79,195/- WAS ALLO WABLE AS A DEDUCTION, AND, THUS NO DISALLOWANCE WAS MERITED. IN SO FAR AS THE BREAK-UP OF INTEREST COST WAS CONCERNED, ASSESSEE S UBMITTED THAT INTEREST OF RS.32,21,278/- RELATED TO THE INSTANT A SSESSMENT YEAR AND THE BALANCE OF RS.63,57,919/- RELATED TO THE PRECED ING ASSESSMENT YEAR OF 1999-2000. 4.2 IN THIS BACKGROUND, THE CIT(APPEALS) DISALLOWED THE INTEREST COST OF RS.63,57,919/- ON THE GROUND THAT IT PERTAINED T O AN EARLIER YEAR AND THE BALANCE OF RS.32,21,278/- WAS DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT, THEREBY RESUL TING IN A TOTAL ENHANCEMENT OF RS.95,79,195/-. 4.3 IN THIS BACKGROUND, THE ASSESSEE COMPANY IS IN APPEAL BEFORE US CHALLENGING THE ASSESSABILITY OF GAIN ON PURCHASE A ND SALE OF SHARES AS BUSINESS INCOME AND THE DISALLOWANCE OF INTEREST EX PENDITURE OF RS.95,79,195/-. 5. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS VEHEMENTLY POINTED OUT THAT THE SHARES SOLD BY THE ASSESSEE WERE REFLECTED AS INVESTMENT IN THE BALANCE SHEET ALL AL ONG AND THAT THEY WERE BEING VALUED AT COST IN THE BOOKS OF ACCOUN T. COUNTERING THE CHARGE MADE BY THE ASSESSING OFFICER THAT ASSESSEE HAS UNDERTAKEN MULTIPLE TRANSACTIONS, IT WAS POINTED OUT THAT THE SALE AND PURCHASE OF SHARES INVOLVED SCRIPS OF ONLY THREE GROUP COMPANIE S AND, THEREFORE, THE STAND OF THE ASSESSING OFFICER WAS INCORRECT. IN THIS CONTEXT, OUR 5 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) ATTENTION WAS INVITED TO PAGES 3 TO 4 OF THE PAPER BOOK, WHEREIN IS PLACED SCRIP-WISE DETAILS OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ANNEXED WITH THE RETURN OF INCOME. FU RTHERMORE, IT IS SOUGHT TO BE POINTED OUT THAT THE ASSESSEE WAS AN I NVESTMENT COMPANY AND THE SHARES IN QUESTION RELATED TO THE GROUP COM PANIES AND IT CANNOT BE REGARDED AS A TRADING ACTIVITY PER-SE. THE LD. REPRESENTATIVE FOR THE ASSESSEE ALSO REFERRED TO TH E DETAILS OF SALE AND PURCHASE OF SHARES TO SHOW THAT THE TRANSACTIONS WE RE NOT SPREAD OUT THROUGHOUT THE YEAR BUT WERE BEING CARRIED OUT AT I N-FREQUENT INTERVALS. LD. REPRESENTATIVE FOR THE ASSESSEE ALSO EXPLAINED THAT THE SALE OF SHARES WAS UNDERTAKEN AS A NORMAL INVESTOR WOULD DO , BECAUSE THERE WAS A REASONABLY HIGH APPRECIATION IN THEIR VALUES. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE APPELLANT IS THAT THE PURCHASE AND SALE OF SHARES CANNOT BE CONSTRUED AS A TRADING ACTIVITY . ANOTHER ASPECT CONTENDED BY THE LD. REPRESENTATIVE FOR THE ASSESSE E WAS WITH RESPECT TO THE DECISION OF THE ASSESSING OFFICER IN ASSESSM ENT YEAR 1999-2000, WHEREIN ALSO THE INCOME ARISING FROM SALE OF SHARES WAS ASSESSED AS BUSINESS INCOME, WHICH WAS SUSTAINED BY THE CIT(AP PEALS) AND, THEREAFTER NO APPEAL WAS FILED BY THE ASSESSEE BEFO RE THE TRIBUNAL, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E AFORESAID IS NO GROUND TO HOLD THE ISSUE AGAINST THE ASSESSEE, BECA USE IN ASSESSMENT YEAR 1999-2000, ASSESSEE DID NOT PREFER FURTHER AP PEAL BEFORE THE TRIBUNAL PRIMARILY FOR THE REASON THAT THE AMOUNT I NVOLVED WAS VERY SMALL I.E. RS.47,000/- ONLY. 6. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE HAS DEFENDED THE ACTION OF THE INCOME-TAX A UTHORITIES BY 6 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) POINTING OUT THAT THE SALE OF SHARES HAVE BEEN UNDE RTAKEN BY THE ASSESSEE ON MULTIPLE OCCASIONS AND, THEREFORE, SUCH ACTIVITY HAS BEEN RIGHTLY REGARDED AS A TRADING ACTIVITY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CONTROVERSY AS TO WHETHER SALE AND PURCHASE OF SHAR ES IS TO BE REGARDED AS AN INVESTMENT ACTIVITY, SO AS TO TAX T HE RESULTANT GAIN AS BUSINESS INCOME IS NOT WITHOUT PRECEDENTS. IN FA CT, THERE IS A PLETHORA OF JUDICIAL PRONOUNCEMENTS ON THE SAID SUBJECT. SO HOWEVER, IT IS QUITE WELL UNDERSTOOD THAT EACH CASE HAS TO BE DECIDED, H AVING REGARD TO ITS PECULIAR FACTS AND CIRCUMSTANCES. IN THE PRESENT C ASE, IT IS AN ESTABLISHED POSITION THAT ASSESSEE COMPANY IS AN IN VESTMENT COMPANY PRIMARILY INVOLVED IN UNDERTAKING TRANSACTIONS IN T HE SHARES OF PIRAMAL GROUP OF COMPANIES. THIS FEATURE CONTRASTS IT FROM AN INVESTMENT COMPANY, WHO OTHERWISE FREELY OPERATES IN THE MARK ET PLACE LOOKING FOR OPPORTUNITIES TO TRADE IN ALL OR ANY AVAILAB LE SCRIPS IN THE MARKET. THEREFORE, IN SUCH A SITUATION, IN OUR VIEW, THE ON US IS ON THE REVENUE TO ESTABLISH THAT ASSESSEE HAS INDEED UNDERTAKEN TR ADING IN THE SHARES, THOUGH THE TRANSACTION HAVE BEEN CONFINED TO THE SCRIPS OF PIRAMAL GROUP OF COMPANIES. 7.1 WE HAVE PERUSED THE DETAIL OF THE SALE AND PURC HASE OF SHARES IN QUESTION, WHICH HAS BEEN PLACED AT PAGES 3 TO 4 OF THE PAPER BOOK. THE DETAIL REVEALS THAT ASSESSEE HAS UNDERTAKEN SALE O F SHARES ONLY IN RESPECT OF THREE GROUP COMPANIES NAMELY, NICHOLAS P IRAMAL INDIA LTD., RECKITT & COLMAN INDIA LTD., IN WHICH HAS EARNED LO NG TERM CAPITAL GAIN AND THIRDLY, IN PIRAMAL HEALTHCARE LTD., IN WHICH I T HAS EARNED SHORT TERM CAPITAL GAIN. THE DETAIL ALSO REVEALS THAT ASSESSE E PURCHASED THE SHARES 7 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) IN THE THREE COMPANIES IN SMALL LOTS ON VARYING DAT ES. SO HOWEVER, THE SALES HAVE BEEN MADE TOGETHER ON PROXIMATE DATES. THOUGH THE GAIN/LOSS ON EACH LOT HAS BEEN SEPARATELY SHOWN, BU T IT IS NOT A CASE WHERE EACH PURCHASE LOT HAS BEEN SOLD SEPARATELY ON DIFFERENT DATES. THEREFORE, THE MANNER OF MAKING SALES OF SHARES DOE S NOT REFLECT ANY TRADING, THOUGH THERE IS AN INTENTION TO MAKE PRO FITS, WHICH IS A FEATURE NOT UNCOMMON EVEN IN CASES OF SALE OF INVESTMEN TS. THE FACT THAT ASSESSEE HAS TREATED THE ACQUISITION OF SHARES AS I NVESTMENT, AS ALSO THE FACT THAT THE SAME WERE BEING VALUED AT COST IN THE BOOKS OF ACCOUNT, ALSO SHOWS THAT ASSESSEE HAS CONSIDERED SU CH ACTIVITY AS AN INVESTMENT ACTIVITY. THEREFORE, HAVING REGARD TO T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE UNABLE TO UPHOLD THE STAND OF THE REVENUE THAT THE PURCHASE AND SALE OF SHARES HAVE B EEN UNDERTAKEN REGULARLY SO AS TO BE TREATED AS A BUSINESS ACTIVI TY. REFERENCE MADE BY THE CIT(APPEALS) IN ASSESSMENT YEAR 2001-02 TO THE FACTUM OF ASSESSEE NOT DISPUTING THE STAND OF ASSESSING OFFICER IN A SSESSMENT YEAR 1999- 2000 IS NOT DETERMINATIVE OF THE ISSUE BECAUSE OSTE NSIBLY, THE AMOUNT INVOLVED WAS VERY SMALL AND FOR THAT REASON ASSESSE E DID NOT PREFER AN APPEAL BEFORE THE TRIBUNAL, AN ASSERTION OF THE LD. REPRESENTATIVE FOR THE ASSESSEE, WHICH IS NOT CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEFORE US. 7.2 CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTA NCES OF THE CASE, WE HEREBY AFFIRM THE STAND OF THE ASSESSEE AND HOLD THAT THE IMPUGNED INCOME EARNED ON SALE AND PURCHASE OF SHARES IS LI ABLE TO BE ASSESSED AS CAPITAL GAINS, AS CLAIMED BY THE ASSESSEE. RESUL TANTLY, ON THIS ASPECT THE ASSESSEE COMPANY SUCCEEDS. 8 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) 8. IN SO FAR AS THE ACTION OF THE CIT(APPEALS) TO E NHANCE THE INCOME ON ACCOUNT OF DISALLOWANCE OF INTEREST COST OF RS. 95,79,195/- IS CONCERNED, IN OUR VIEW, THE CIT(APPEALS) WAS NOT JU STIFIED. CONSEQUENT TO OUR DECISION TO TREAT THE GAIN ON SALE AND PURCH ASE OF SHARES AS INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS, THE INTEREST COSTS INCURRED FOR INVESTMENT IN SHARES HELD AS INVESTMEN T IS LIABLE TO BE ADDED TO THE COST OF ACQUISITION OF THE SHARES FOR COMPUTING CAPITAL GAINS. IN THIS VIEW OF THE MATTER, THE DISALLOWANC E MADE BY THE CIT(APPEALS) BECOMES UNTENABLE. WE HOLD SO. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 8.1 RESULTANTLY, THE APPEAL FOR THE ASSESSMENT YEAR 2000-01 IS ALLOWED. 9. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT T HE FACTS AND CIRCUMSTANCES IN THE APPEAL FOR ASSESSMENT YEAR 2 001-02 ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2000-01 AND, THEREFORE, OU R DECISION IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2000-01 SHALL APPLY MUTATIS MUTANDIS IN THE APPEAL FOR ASSESSMENT YEAR 2001-02 ALSO. 10. RESULTANTLY, BOTH THE APPEALS OF THE ASSESSEE A RE ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 29/04/2016 SD/- SD/- (JOGINDER SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 29/04/2016 VM , SR. PS 9 ITA NO. 5352&4110/MUM/2004 (ASSESSMENT YEAR : 2000-01& 2001-02) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI