THE ITO 7(1)(3), MUMBAI V. M/S. PACIFIC HOLDINGS PVT. LTD, MUMBAI

ITA 687/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56046 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 15-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A JANAKI RAMAN
• Keywords: Capital asset; Business income; Question of law
• Section: 143(3); 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, J BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.687/ MUM/2008 ASSESSMENT YEAR: 2003-04 INCOME TAX OFFICER 7(1)(3) .. APPELLANT AAYAKAR BHAVAN, M.K. ROAD, 6 TH FLOOR, MUMBAI. VS PACIFIC HOLDINGS PVT LTD. .. RESPONDEN T 91, SIR BHALCHANDRA ROAD, DADAR E), MUMBAI-014. PA NO.AACCP 1711 C APPEARANCES: D.S.SUNDER SINGH, FOR THE APPELLANT A.JANAKI RAMAN , FOR THE RESPONDENT DATE OF HEARING : 15.11.2011 DATE OF PRONOUNCEMENT : 18 -11-2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALL ENGED CORRECTNESS OF CIT(A)S ORDER DATED 18 TH NOVEMBER, 2007, IN THE MATTER OF ASSESSMENT UNDER SECTI ON 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUND: 2 ON THE FATS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN HOLDING THE PROFIT ON SALE OF SHARES OF M/S. BAY CONTA INER PVT LTD., AND M/S. MARINE CONTAINERS SERVICES PVT LTD., AS INCOME CH ARGEABLE UNDER THE HEAD CAPITAL GAINS AS AGAINST INCOME CHARGEABLE UNDER THE HEAD BUSINESS AND PROFESSION. 2. THE ISSUE IN APPEAL LIES IN A NARROW COMPASS OF MATE RIAL FACTS. THE ASSESSEE COMPANY HAS BEEN IN THE BUSINESS OF BUYING AND SELLING SH ARES AND IT HAD ALSO INVESTED AT PAR 9,600 SHARES OF RS.10 EACH IN MARINE CONTAINER SERVICES PVT.LTD., AND 8,333 SHARES OF RS.10 EACH IN BAY CONTAINERS TERMINAL P VT LTD. THE ASSESSEES HOLDING IN THESE COMPANIES WAS 33.33% AND THE SHARES BEI NG IN PRIVATE LIMITED COMPANIES, THE SHARES COULD NOT HAVE BEEN TRADED AT A LL. YET THESE TWO SHARES ALONG WITH SHARES HELD IN PUBLIC LIMITED COMPANIES, WERE ALL ALONG TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT. IT WAS IN THIS BACKDROP TH AT GAINS ON SALE OF THESE SHARES`, WHICH WERE CLAIMED TO BE LONG TERM CAPITAL GAINS BY THE ASSESSEE, WERE TREATED AS BUSINESS PROFITS BY THE ASSESSING OFFICER. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD ALSO FILED A BOARD RESOLUTION DATED 1 ST APRIL, 2002, WHEREBY ASSESSEE HAD CONVERTED HIS ENTIRE STOCK IN TRADE OF SHARES AS INV ESTMENT. THIS DID NOT IMPRESS THE ASSESSING OFFICER, AND WAS DISREGARDED. THE REASONING ADOPTED BY THE ASSESSING OFFICER WAS THIS. THE ASSESSEE HIMSELF HAS TREATED THE SHAR ES IN MARINE CONTAINER SERVICES PVT LTD., AND BAY CONTAINER TERMINAL PVT LT D., AND THE PROVISIONS OF SECTION 2(14) WHICH DEFINE CAPITAL ASSET, DO NOT EXTEND TO, INTER ALIA, ANY STOCK IN TRADE HELD FOR THE PURPOSE OF BUSINESS AND PROFESSION. ACCORDINGLY , GAINS ON SALE OF THESE SHARES, WHICH TOOK PLACE IN THE RELEVANT PREVIOUS YEA R, WAS TREATED AS IN THE NATURE OF BUSINESS PROFITS. AGGRIEVED, ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE CIT(A). LEARNED CIT(A) WITH A VERY DETAILED AND ELABORATE A NALYSIS OF RELATED FACTS, UPHELD THE GRIEVANCE OF THE ASSESSEE, TO THE EXTENT SHARES IN THESE TWO PRIVATE LIMITED COMPANIES ARE CONCERNED, AND OBSERVED AS FOLLOWS: 3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE ASSESSING OFFICER, THE SUBMISSIONS BY THE APPELLANT AND THE CASE LAWS RELI ED UPON BY THE APPELLANT. THE ENTIRE BASIS OF TREATMENT OF THE GAINS FROM SAL ES OF SHARES AS BUSINESS INCOME AND NOT CAPITAL GAINS IS THAT THE SHARES HAV E BEEN DISCLOSED AS STOCK-IN- TRADE BY THE APPELLANT IN THE BALANCE SHEET. OUT OF THE TOTAL GAINS OF RS.1 18,01,014, THE GAINS OF RS.1 1760670 ARISE OUT OF S ALE OF SHARES OF PRIVATE LIMITED COMPANIES IN WHICH THE APPELLANT WAS A SHAR EHOLDER. THE BALANCE GAINS OF RS.40344 ARE ON ACCOUNT OF SHARES OF PUBIC LISTE D COMPANIES. THE APPELLANT HAS MADE DETAILED SUBMISSIONS ON EACH AND EVERY GROUND RAISED BY THE ASSESSING OFFICER. IN THE WRITTEN SUBMISSION S THE APPELLANT HAS EXPLAINED THE PURPOSE OF ACQUIRING THE CAPTIONED SHARES OF TH E TWO PRIVATE LIMITED. THE ASSESSEES EXPLANATION IS REPRODUCED HEREUNDER: THE PURPOSE OF MAKING INVESTMENT IN THE ABOVE RE FERRED COMPANIES HAS BEEN DETAILED HEREIN BELOW: THE THREE FAMILIES OF CAPT V W KATRE. CAPT S. C. B ATRA AND CAPT AC. L3ATRA GOT TOGETHER IN L 979. AS STATED ABOVE AND STARTED BUSINESS ACTIVITIES AT MUMBAI IN AREAS OF VARIOUS SERVICES TO SHIPPING INDUSTRY S UCH AS SHIPPING AGENCY. MARINE FREIGHT (CONTAINER LEASING, SHIP MANAGEMENT ETC. THE BUSINESS ACTIVITY IN MUMBAI TURNED OUT QUITE SUCCESSFUL AND THE PROMO TERS KIND THAT THERE WAS SCOPE TO EXPAND THE BUSINESS COUNTRYWIDE. HOWEVER B EING FIRST GENERATION ENTREPRENEURS. THEY WERE RESTRAINED BY LACK OF CAPI TAL AS WELL AS MANAGERIAL RESOURCES. THEREFORE THEY WERE ON THE LOOK OUT FOR BUSINESS ASSOCIATES IN SOUTH INDIA. THEY CAME ACROSS TWO ENTREPRENEURS IN CHENNAI ONE MR. B. VIKRAM AND CAPT HIRUDAYARAJ. AFTER NEGOTIATIONS, THESE TWO GENTLEM EN INVITED CAPT KATRE. CAPT A. ATRA AND CAPT S. BATRA TO JOIN WITH THEM SO AS T O INCREASE THE BUSINESS OF THEIR COMPANIES. THUS CAPT V W KATRE. CAPT S C BAT RA AND CAPT .. A.C. BATRA JOINED WITH THEM AS SHAREHOLDERS IN TWO OF THEIR CO MPANIES NAMELY MARINE CONTAINER SERVICES (SOUTH) P. LIMITED AND BAY CONTA INER TERMINAL P. LIMITED. CAPT KATRE, CAPT A. BATRA AND CAPT S. BATRA COMMEN CED THEIR ASSOCIATION WITH THEM PURELY IN ADVISORY CAPACITY. HOWEVER, CAPT H IRUDAYARAJ AND MR. B. VIKRAM REMAINED FULLY IN CHARGE OF DAY-TO-DAY OPERA TIONS OF THESE COMPANIES. CAPT HIRUDAYARAJ PREMATURELY DIED OF CANCER IN YE AR 1985 AND THEREAFTER THE DAY-TODAY BUSINESS REMAINED IN THE HANDS OF MR . B. VIKRAM. IN THE YEAR I 1990, MR B. VIKRAM DIED IN A ROAD ACCIDENT IN TAMI LNADU. THUS BOTH THESE ORIGINAL PROMOTERS WERE NO MORE ALIVE BY BEGINNING OF YEAR 1991. THUS THERE WAS A MANAGEMENT VACUUM IN RUNNING OF THESE TWO COMPANIES, WHICH HAD EARLIER BEEN ASSISTED BY CAPT V W KATRE, CAPT A C BATRA AND CAPT S. BATRA. THESE COMPANIES HAD ACHIEVED REASONABLE SUCC ESS WITH ASSISTANCE AND GUIDANCE OF CAPT V W KATRE, CAPT S. C. L3ATRA AND C APT A.C. BATRA. WITH BOTH THE ORIGINAL PROMOTERS (WITH NO HEIRS CAPABLE OF RUNNIN G THESE BUSINESSES) BEING NO 4 MORE ALIVE, THE COMPANIES WOULD HAVE FACED A VIRTUA L EXTINCTION, IF THE MANAGEMENT WAS NOT TAKEN OVER BY SOMEBODY WHO UNDER STOOD THE BUSINESS OF THESE TWO COMPANIES. THEREFORE, CAPT V.W.KATRE, CA PT S.C. BATRA AND CAPT A.C.BATRA DECIDED TO TAKE OVER THE COMPANIES INCLUD ING ITS ENTIRE SHAREHOLDING AND ASSUMED THE ROLE OF PROMOTERS. ACCORDINGLY THE SHAREHOLDING OF BOTH LATE CAPT HIR UDAYARAJ AND LATE MR. B. VIKRARN WAS TAKEN OVER. AFTER THE PROCESS OF SMOOT H MANAGEMENT TRANSITION, WHICH LASTED QUITE SOME TIME, IT WAS DECIDED BY NEW PROMOTERS TO INCREASE THE SHARE CAPITAL OF THE COMPANIES AS THE SAME WAS FOUN D TO HE NECESSARY TO ENSURE GROWTH AND STABILITY. DIRECTOR OF THE APPELLANT COMPANY, CAPT V W. KATRE PARTICIPATED IN THE ENHANCED CAPITAL OF THESE TWO COMPANIES THROUGH THE APPELLANT COMPANY. PACIFIC HOLDINGS P. LIMITED. THE INVESTMENT IN THES E TWO COMPANIES WAS MADE WITH EXPRESS PURPOSE OF CONTROLLING INTEREST IN THE SE TWO COMPANIES. IHE MOTIVE BEHIND MAKING THE VESTMENT IN THE CAPTIONED SHARES WAS, THEREFORE, NOT TO TRADE IN THOSE SHARES. THE APPELLANT COMPANY WAS A MERE INVESTMENT VEHICLE FOR KATRE FAMILY TO INVEST. BOTH THE INVESTEE COMPANIES WERE FORMED AS AND HAVE ALWAYS BEEN IN EXISTENCE AS PRIVATE LIMITED COMPANIES WITH RESTRICTIONS ON T RANSFER OF SHARES. THE APPELLANT HAS GIVEN AN EXPLANATION THAT THE SA ID SHARES WERE MEANT FOR LONG TERM INVESTMENT AND NOT ACQUIRED FOR THE PURPO SE OF TRADING IN THEM. THE HOLDING PERIOD FOR OVER YEARS PROVES THE FACT. THE MOTIVE OF ACQUISITION OF THE SHARES AT THE MATERIAL TIME IS TO THESE FOR LONG TE RM PURPOSES AND AS A MATTER OF INVESTMENT AND NOT TO DEAL IN THEM. THE INVESTME NTS WERE MADE WITH THE SPECIFIC PURPOSE OF HOLDING CONTROLLING INTEREST VI Z. 33% OF INVESTEE COMPANIES. ALL THE ABOVE FACTS GO TO PROVE THAT THE PURPOSE OF THE ACQUIRING THE SAID SHARES WAS NOT TO TRADE BUT TO HOLD THE SAME AS INV ESTMENT FOR MAINTAINING THE CONTROLLING INTEREST IN THE INVESTEE COMPANIES FOR LONG TERM. FURTHER AS THE INVESTMENT ARE IN UNLISTED PRIVATE COMPANIES WHICH HAVE THE RESTRICTIVE CLAUSES IN THEIR ARTICLES FOR TRANSFER, THE PROPOSITION OF THE ASSESSING OFFICER THAT THE APPELLANT HAD HELD THE SHARES FOR TRADING AND DEALI NG IS HARD TO SUSTAIN. 7. AS FAR AS THE DISCLOSURE IN THE ACCOUNT AS STOC K IN TRADE GOES THE APPELLANT HAS ADMITTED THAT IT HA BEEN A MISTAKE TO DISCLOSE ITS STOCK IN TRADE IN THE BALANCE SHEET AND NOT AS INVESTMENT. BESIDES THAT THE APPELLANT ALSO SUBMITTED THAT THE DISCLOSURE IN THE BALANCE SHEET IS NOT CON CLUSIVE EVIDENCE IN DECIDING WHETHER THE SHARES ARE STOCK IN TRADE OR INVESTMENT ,. THE APPELLANT HAS SUBMITTED THAT IT IS SETTLED POSITION IN LAW THAT T HE NOMENCLATURE USED IN THE ACCOUNTS ARE NOT DETERMINATIVE OF THE NATURE OF THE TRANSACTION AND RELIES ON THE FOLLOWING CASES: (A) THE JURISDICTIONAL BOMBAY HIGH COURT IN CASE OF FORT PROPERTIES PRIVATE LIMITED VS COMMISSIONER OF INCOME TAX REPORTED IN 20 8 ITR 232. 5 (B) THE GUJARAT HIGH COURT REPORTED IN 283 ITR 338 IN THE CASE OF CIT V REWASHANKAR KOTHARI .01ST OF BOTH CASES HAS EARLIER BEEN DISCUSSED. (C) THE LENGTH OF PERIOD OF HOLDING THE SHARES WIL L BE A GUIDE TO DETERMINE WHETHER THE HOLDING OF THE SHARES WOULD CONSTITUTE INVESTMENT. THE SHORTER THE PERIOD, THE GREATER THE PRESUMPTION THAT, THE TRANS ACTIONS ARE BUSINESS TRANSACTIONS. IN THIS CASE, THE SHARES WERE HELD FO R A PERIOD FOR ALMOST TEN YEARS AND HENCE THIS IMPORTANT CRITERIA HAS TO BE FACTORE D IN DETERMINING THE POSITION AS TO WHETHER THE SHARES WERE HELD AS INVESTMENTS O R STOCK IN TRADE. THE .SHARE IN QUESTION WERE ACQUIRED BY THE APPELLANT COMPANY IN YEARS 1992.93 AND INDEED THE MATTER IS ALMOST TEN YEARS OLD AT THE TI ME OF THEIR DISINVESTMENTS BY THE APPELLANT. FT IS AN UNDISPUTED FACT THAT THE AP PELLANT HAS HELD THE SHARES FOR ALMOST TEN YEARS AND PERIODICALLY RECEIVED DIVIDEND AND BONUS SHARES ON THE SAME. THIS FACT SEEMS TO BE HAVE BEEN COMPLETELY LO ST ON THE ASSESSING OFFICER. EVEN THE INCOME TAX ACT DOES PRESCRIBE THAT SHARES H ELD FOR OVER 12 MONTHS WOULD BE LONG TERM ASSETS. HERE IN THE PRESENT CASE , THE APPELLANT HAD HELD ON TO ITS INVESTMENTS FOR OVER 10 YEARS. THE CONDUCT O F THE APPELLANT IN HOLDING ON TO THE SHARES IN QUESTION FOR OVER A DECADE SHOWS T HAT THE SHARES WERE ALWAYS HELD AS INVESTMENTS AND THE ASSESSING OFFICER HAS C OMPLETELY IGNORED THIS FACT AND THE POSITIVE INFERENCES FLOSSING FROM SUCH A CO NDUCT. THE DETERMINATION WOULD HAVE TO BE BASED ON THE TOTALITY OF FACTS AND FURTHER THE SALE HAS RESULTED IN GAIN WOULD NOT ALSO MAKE IT A TRADING TRANSACTIO N AS DISTINGUISHED FROM INVESTMENTS. THE ABOVE ISSUE CAME UP FOR CONSIDERATION BEFORE T HE SUPREME COURT IN CIT VS HOLCK LARSEN REPORTED IN 160 ITR 67 IN THE SAID CASE ALSO, THE ASSESSEE DEALT IN SHARES AND THE QUESTION WAS WHETHER THE TRANSACT ION RELATING TO SHARES WERE ONE OF CAPITAL OR IN THE REVENUE ACCOUNT. THE FACTS ARE IDENTICAL TO THE QUESTION IN THE PRESENT CASE: THE SUPREME COURT HELD THAT THE TOTALITY OF THE FA CTS HAVE TO BE BORNE IN MIND AND DECIDED THAT IN SPITE OF BUY AND SALE TRAN SACTIONS SPREAD OVER SIX YEARS, IT STILL DID NOT CONSTITUTE TRADING AND IN STEAD DECLARED THAT ALL THESE TRANSACTIONS WERE CAPITAL IN NATURE. IN FACT THE SUPREME COURT STATED THAT CONSIDERATION OF ALL RELEVANT FACTS INVOLVES APPR ECIATION OF ALL THE FACTS IN THEIR 6 PROPER PERSPECTIVE. IF THAT IS NOT DONE, IT CANNOT BE SAID THAT THERE HAS BEEN CONSIDERATION OF ALL RELEVANT FACTORS (D) THE ISSUE WHETHER THE SHARES IN QUESTION WAS H ELD AS INVESTMENTS OR STOCK IN TRADE IS A MIXED QUESTION OF LAW AND FACT A ND NEEDS TO BE ASCERTAINED AND GATHERED FROM THE CONDUCT AND COURSE OF DEALING S OF THE APPELLANT WITH REFERENCE TO THOSE SHARES. IN ORDER TO ASCERTAIN W HETHER THE SHARES IN QUESTION ARE HELD AS INVESTMENTS OR AS STOCK IN TRADE, THE C ONDUCT OF THE APPELLANT IS SIGNIFICANT. THIS IS BASED ON THE QUESTION WHETHE R A TRANSACTION (IN THIS CASE PURCHASE AND SALE AFTER 10 YEARS OF THE SHARES IN Q UESTION) CONSTITUTES A TRANSACTION IN THE NATURE OF INVESTMENT OR TRADE. T HE SUPREME COURT CONSIDERED THIS QUESTION IN G.VENKATASWAMI NAIDU & CO. V. THE COMMISSIONER OF INCOME-TAX REPORTED IN 35 ITR 594 AND SET OUT THE T ESTS FOR ASCERTAINING THE NATURE OF THE TRANSACTION, WHICH IS EXTRACTED HEREUN DER: SOME OF THE INDICIA FOR TESTING WHETHER THE TRANS ACTION WAS A TRANSACTION IN THE NATURE OF INVESTMENT OR A,, ADVENTURE IN T HE NATURE OF TRADE, ARE (I) WAS THE PURCHASE A TRADE AND WHERE THE PURCHASE OF THE COMMODITY AND ITS RESALE ALLIED TO HIS USUAL TRADE OR BUSINES S INCIDENTAL TO IT? (II) WHAT WAS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT QUANTITY WAS IT PURCHASED AND RESOLD? (III) DID THE PURCHASER, BY ANY ACT SUBSEQUENT TO THE PUR CHASE, IMPROVE THE QUALITY OF THE COMMODITY PURCHASED AND THEREBY MAKE IT MORE READILY RESALABLE? (IV) WHAT WERE THE INCIDENTS ASSOCIATED WIT H THE PURCHASE AND RESALE? (V,) WERE THEY SIMILAR TO THE OPERATIONS USUALLY AS SOCIATED WITH TRADE OR BUSINESS? (VI) ARE THE TRANSACTIONS OF PURCHASE AND SALE REP EATED? WITH REGARD TO THE PURPOSE OF SELLING THE SHARES OF THE TWO PRIVATE LIMITED COMPANIES. THE APPELLANT HAS SUBMITTED THAT IN YEAR 2002, ON 23RD MAY (2002) CAPT V.W. KATRE R EACHED THE AGE OF SIXTY AND WANTED GRADUALLY WITHDRAW FROM THE RIGORS OF RUNNIN G A COMPETITIVE BUSINESS. SO HE APPROACHED CAPT A.C. BATRA AND CAPT S. C. BAT RA, BOTH OF WHOM ARE YOUNGER THAN HIM WITH A REQUEST THAT THEY AND THEIR FAMILIES TAKE OVER THE SHARES OF THESE TWO COMPANIES FROM THE APPELLANT CO MPANY NAMELY PACIFLC HOLDINGS P. LIMITED AND RELIEVE HIM OF HIS INVOLVEM ENT IN THESE TWO COMPANIES. SINCE THERE WAS NO INTEREST FOR CAPT V W K.ATRE TO TAKE ACTIVE PART IN AFFAIRS OF 7 MARINE CONTAINER SERVICES (SOUTH) P. LIMITED AND HA Y CONTAINER TERMINAL P. 1IMITCD. IT DID NOT MAKE BUSINESS SENSE FOR THE APP ELLANT COMPANY MERELY TO CONTINUE AS SHAREHOLDERS OF THESE TWO COMPANIES WHI CH WOULD NOT ALSO HAVE RESULTED IN CONTINUING CONTROL ON THE AFFAIRS OF TH ESE TWO COMPANIES. 1-LENCE APPELLANT COMPANY THOUGHT IT FIT TO ENTIRELY DISASS OCIATE WITH THESE TWO COMPANIES AND SELL THE SHARES IN A MANNER PROVIDED IN THE ARTICLE OF ASSOCIATION OF THESE TWO COMPANIES. ON AND AROUND JUNE 2002, A SETTLEMENT CUM ARRANGEME NT WAS ARRIVED AT BETWEEN THE THREE PROMOTERS FAMILIES. PURSUANT TO THE SAID SETTLEMENT, THE APPELLANT SOLD OF THE SHARES THE TWO COMPANIES VIZ MARINE CONTAINER AND BAY TERMINAL TO THE OTHER PROMOTER FAMILIES. AMONG OTHE R THINGS, ONE OF THE MAIN PURPOSES IN REACHING THE SETTLEMENT WAS TO ANY POSS IBLE FUTURE DISPUTES BETWEEN THE THREE GROUP OR THEIR HEIRS. THUS THE MOTIVE BEHIND TRANSFER OF INVESTMENT WAS N OT WITH A VIEW TO MAKE PROFITS BUT TO RE-ALLOCATE THE SHARES BETWEEN THE F AMILIES TO ACHIEVE FULL CONTROLLING INTEREST IN THE TWO COMPANIES TO BATRA FAMILIES. THUS HAVING EXPLAINED THE PURPOSE OF INVESTMENT AN D PURPOSE OF DISPOSAL OF SHARES OF THE PRIVATE LIMITED COMPANIES THE APPELLA NT HAS FURTHER SUBMITTED THAT 1. APART FROM THE PURCHASE OF THE SHARES IN HUGE LO T IN 1993 THERE HAVE BEEN NO FURTHER TRANSACTIONS IN THESE SHARES. 2. DIVIDEND HAS BEEN THE MAIN SOURCE OF INCOME OVE R THE YEARS. 3. THE SHARES ARE OF PRIVATE LIMITED COMPANIES AND CANNOT BE HELD AS STOCK- IN-TRADE AS THEY DO NOT HAVE ANY MARKET. 4. THE SHARES ARE OF COMPANIES WHICH ARE RELATED A S THEY HAVE COMMON DIRECTORS. 5. WITH REGARD TO THE OTHER SHARES ALSO THE APPELL ANT SUBMITS THAT THERE ARE NO TRANSACTIONS IN THOSE SHARES SUBSEQUENT TO ITS A CQUISITION IN 1992-93. 8. ON GOING THROUGH THE SUBMISSIONS OF THE APPELLA NT AND THE VIEWS HELD BY THE AO IT IS OBSERVED THAT THE MAIN CONTENTION OF THE A O WAS RELATED TO THE SHARES HAVING BEEN SHOWN AS STOCKINTRADE IN THE BALANCE SHEET AND ACCORDINGLY THEIR TREATMENT SHOULD BE STRICTLY CONSIDERED AS BU SINESS INCOME SINCE THE ISSUE OH INVESTMENT WAS NOT AT ALL VALID. HOWEVER, THE AP PELLANT HAS ADMITTED IN HIS SUBMISSIONS THAT DUE TO SPECIAL CIRCUMSTANCES AND A LSO BONAFIDE ERROR ALL THE SHARES I.E. THOSE WHICH WERE RELATING TO THE PRIVAT E COMPANIES AS WELL AS THOSE RELATING TO REPUTED LISTED COMPANIES WERE TOGETHER SHOWN AS STOCK-IN-TRADE. FOR VARIOUS REASONS WHICH HAVE BEEN PUT FORWARD BY THE APPELLANT IT IS CLEAR THAT THE NATURE OF SHARE HOLDING OF PRIVATE SHARES I.E. BAY CONTAINER TERMINAL 8 PVT. LTD. AND MARINE CONTAINERS SERVICES PVT. LTD., WERE QUALITATIVELY DIFFERENT THAN THOSE OF RPG TELECOM, ESSAR GUJARAT AND L&T. T HE SHARES OF RELATED COMPANIES WHICH WERE HELD FOR PURPOSES OF HAVING C ONTROLLING INTEREST IN THE SHARE CAPITAL AND ALSO HAVING RESTRICTIONS OF TRADI NG NEED TO BE TREATED DIFFERENTLY THAN OTHER SHARES. THE APPELLANT HAS AL SO ELABORATELY DISCUSSED THAT THERE WAS NO INTENTION OR MOTIVE, NEITHER ANY POSSI BILITY IN EASILY TRADE IN THE SHARES OF PRIVATE LIMITED COMPANIES. THE CBDT CIRCULAR HAS SET DOWN VARIOUS TESTS TO AN ALYSE WHETHER SHARES SHOULD BE STOCK IN TRADE OR AS INVESTMENT. THE SAME HAS ALSO BEEN DISCUSSED ELABORATELY IN THE ABOVE PARAGRAPHS. IT HAS ALSO BE EN HELD THAT WHILE ARRIVING AT A DECISION REGARDING THE NATURE OH SHARE TRANSAC TIONS, A HOLISTIC VIEW NEEDS TO BE TAKEN AND NO SINGLE CRITERIA SHOULD BE CONSID ERED SUFFICIENT FOR TREATMENT OF SHARE TRANSACTION UNDER HUSHES INCOME OR CAPITAL GAINS. ON GOING THROUGH THE ASSESSMENT ORDER IT IS SEEN T HAT THE AO HAS NOT APPRECIATED THE EXACT NATURE OF THE SHARES PERTAINI NG TO PVT. LTD. COMPANIES HELD BY THE APPELLANT. HE HAS ALSO IGNORED THE SPE CIAL CIRCUMSTANCES UNDER WHICH THE COMPANY HAD ACCEPTED THAT AN ERROR HAD BE EN MADE WHILE CLASSIFYING SUCH SHARES OF PRIVATE LIMITED COMPANIES UNDER THE- HEAD OF STOCK-IN-TRADE EVEN THOUGH THEY WERE IN THE NATURE OF INVESTMENT. I AM IN AGREEMENT WITH THE AO TO THE EXTENT OF SHARES OF LISTED COMPANIES WHIC H ARE INTRINSICALLY DIFFERENT IN NATURE SO FAR AS THEIR TRADABILITY AND PURPOSE O F HOLDING IS CONCERNED. THE VERY PURPOSE OF ACQUISITION OF SUCH SHARES IS OFTEN TO MAKE QUICK PROFIT AND THE SAME CANNOT BE COMPARED WITH ACQUISITION OF NON MAR KETABLE SHARES. N LIGHT OF THE ABOVE DISCUSSIONS, VARIOUS JUDICIAL PRONOUNC EMENTS, CI3IYI CIRCULARS AND TESTS AND APPLYING THEM ON THE FACTS AND CIRCUMSTAN CES OF THE THIS CASE, I HOLD THAT THE TRANSFER OF SHARES WHICH HAVE BEEN HELD BY THE APPELLANT AS A HOLDING COMPANY. I.E. BAY CONTAINER TERMINAL PVT. LTD. AND MARINE CONTAINERS SERVICES PVT. I TD SHOULD BE TREATED AS SALE OF INVESTMENTS WHILE THE TRANSACTION OF SHARES WHICH WERE LISTED AND WERE EASILY TRADABLE I .E. RPG TELECOM, ESSAR GUJARAT AND L.&T ETC. IN THE MARKET SHOULD BE TREAT ED AS BUSINESS INCOME. THEREFORE GROUND NO 1 IS PARTLY ALLOWED. 3. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), T HE ASSESSING OFFICER IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. IN OUR CONSIDERED VIEW, IT IS ONLY ELEMENTARY THA T THE TREATMENT ACCORDED TO A TRANSACTION IN THE BOOKS OF ACCOUNT, BY ITSELF, CANNOT BE DECISIVE OF ITS TRUE NATURE. 9 THEREFORE, NOTHING CONCLUSIVE REALLY TURNS ON THE FAC T THAT THE SHARES IN THESE TWO PRIVATE LIMITED COMPANIES WERE HELD AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE SHARES WERE IN PRIVATE LIMITED COMPANIES AN D COULD NOT HAVE BEEN, THEREFORE, FREELY TRANSFERABLE. AN ASSET WHICH IS FREE LY TRANSFERABLE CANNOT BE IN THE NATURE OF STOCK IN TRADE, UNLIKE, FOR EXAMPLE, SHARES IN LISTED COMPANIES WHICH CAN BE FREELY BOUGHT AND SOLD IN STOCK EXCHANGES OR EVEN IN O FF MARKET TRANSACTIONS. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSEE HAS GIVEN AN EXP LANATION FOR INVESTMENT IN THESE SHARES AND NO INCONSISTENCIES HAVE BEEN FOUND IN T HE SAID EXPLANATION. IN VIEW OF ALL THESE FACTORS, AS ALSO IN THE LIGHT OF CIT (A)S DETAILED REASONING FOR HOLDING THESE SHARES AS INVESTMENTS-WHICH COULD NOT BE CONTROVER TED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE SHARES HELD BY THE ASSESSEE IN MARINE CONTAINER SERVICES PVT LTD., AND BAY CONTAINER TERMINAL PVT :LTD., WERE NOT TRADING ASSETS AND THE CI T(A) WAS JUSTIFIED IN HOLDING THAT GAIN ON SALE OF THESE SHARES ARE REQUIRED TO BE T REATED AS LONG TERM GAINS. 6. FOR THE REASONS SET OUT ABOVE, WE APPROVE THE CONCL USIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 18 TH NOVEMBER 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XIX MUMBAI 4. COMMISSIONER OF INCOME TAX, 7 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI