Calcutta H.C : the learned Tribunal below committed substantial error of law by not analyzing the facts of the instant case to determine whether the income of the assessee was required to be treated as income from business and not short-term capital gain since the main motive of the assessee was to earn profit by trading on shares rather than to earn dividend by investing the same

High Court Of Calcutta

CIT, Kolkata-III vs. Merlin Holding (P.) Ltd.

Section : 45, 28(i)

Assessment years : 2005-06 and 2006-07

Girish Chandra Gupta And Arindam Sinha, JJ.

IT Appeal No.101 Of 2011

May 12, 2015


1. The Court : The subject matter of challenge in the appeal is a judgment and order dated 18th October, 2010 pertaining to the assessment years 2005-06 and 2006-07. The Assessing Officer was of the opinion that the activity which, according to the assessee, was on investment account amounted to business activity and, therefore, he treated the short-term capital gains of Rs. 1,01,00,000/- approximately as business income.

2. Aggrieved by the order the assessee preferred an appeal. The appellate authority came to the conclusion that the claim put forward by the assessee was correct and the refusal on the part of the Assessing Officer to accept the short-term capital gains was incorrect.

3. To be precise, the views expressed by the C.I.T. were as follows:—

” 4.1. I have gone through the assessment order and the submission of the appellant. The observations of Assessing Officer that the Managing Director of the appellant company is also a director in a share brokerage company which has acted as a share broker for the appellant company is not relevant. In fact a known broker is more convenient to carry out share transactions without putting pressure on appellant’s own resources. The appellant is a certified Non-banking financial concern. Apparently the main activities of the appellant are giving loans and taking loans and investing in shares and securities. Assessing Officer has not differentiated the purpose of purchase of shares purchased and held for more than one year and shares purchased and held for less than one year. The sale of share after holding it for more than one year and sale of the same share before one year cannot change the motive of purchase from investment to trading. The motive is determined at the time of purchase and not at the time of sale. Appellant has applied its own capital and reserve funds to acquire the shares and has earned reasonable dividend on such investment even though the constituent shares of such portfolio of investment have kept changing and resulting in some times long term and some times short term capital gain or loss. Assessing Officer has shown speculation loss on Future and Options and spot market and an investor will not indulge in speculative transactions. In fact the transactions in the Future and Option are not considered as speculative even by legislature from Assessment Year 2006-07. Further, the motive of appellant is well defined by appellant in the books of account and accordingly income from shares traded under future and option or speculative cash market transactions is shown as speculative business income/loss and income from delivery based share transaction is shown as Capital Gain. It is well accepted principle that an investor can have share transactions with a motive of making investment as well as trading if they are separately shown in books of account. In fact the separate treatment of delivery based purchase and sale of shares under the Investment portfolio and sale under future and options etc. with profit motive by appellant is the only reliable evidence available to show that the transactions related to delivery based purchase and sale of shares resulting in capital gain are entered into with the intention of investment. As far as volume of transactions is concerned, it can only be an indicative factor but it cannot be a determinative factor in analyzing any transaction. In current days, change in portfolio is required on the basis of performances of the companies in various industrial and other sectors and volatile share market. The volume of purchase and sale of shares under investment is only incidental to the necessary changes required in maintaining a healthy investment portfolio of shares in a volatile share market.

4.2. In the guidelines of circular no. 4/2007 of CBDT, it is mentioned that no single principle would be decisive and the total effect of all the principles should be considered. Therefore, considering all the factors as mentioned above, I direct assessing officer to treat the income of Rs. 1,01,78,590/- as short term capital gain and apply the rate as per law. “

3.1 The learned Tribunal in concurring with the views expressed by the C.I.T.(Appeals) dismissed the appeal preferred by the Revenue. The Revenue has once again come up with an appeal before us. The following questions were formulated;—

“(1) Whether the learned Tribunal below committed substantial error of law by not analyzing the facts of the instant case to determine whether the income of the assessee was required to be treated as income from business and not short-term capital gain since the main motive of the assessee was to earn profit by trading on shares rather than to earn dividend by investing the same.

(2) Whether the learned Tribunal below committed substantial error of law in not relying upon the decision of the Tribunal in the case of ACIT Circle 7 Kol v. Jet Age Securities Pvt. Ltd. for the assessment year 2005-2006 which squarely applies to the facts of the present case. “

4. Mr. Saraf, learned advocate, appearing for the appellant/revenue contended that there are more than one thousand transactions in the year which is not in consistence with the conduct of an investor. The dividend earned is restricted to less than Rs. 2,50,000/- and the trading was for Rs. 9 crores approximately. The Managing Director of the assessee is also a Managing Director of a company which deals in dealings of shares only as a share broker. There was also evidence to show that the assessee indulged in a speculative activities.

5. The income during the assessment year 2005-06 on account of shares was more than Rs. 3 crores whereas the income from monies lent and advanced was slightly more than Rs. 1,00,000,00/-.

6. These are the facts and circumstances, which according to him, go to show that the assessee primarily was in the business of dealing in shares rather than in the business of investment. The frequency of transaction highlighted by Mr. Saraf is not decisive on either side. Frequency alone cannot show that the intention was not to make an investment. The legislature has not made any distinction on the basis of frequency of transaction. The benefit of short-term capital gain can be availed for any period of retention upto 12 months. Although a ceiling has been provided but there is no indication as regards the floor, which can be as little as one day. When that is the position in law and the investor has adduced proof to show that some transactions were intended to be business transaction, some transactions were intended to be by way of investment and some transactions were by way of speculation and the revenue has not been able to find fault from the evidence adduced then the mere fact that there were 1000 transactions in a year or the mere fact that the majority of the income was from the share dealing or that the Managing Director of the assessee is also a Managing Director of a firm of share brokers cannot have any decisive value. The question essentially is a question of fact. The CIT Appeal and the learned Tribunal have concurrently held against the views of the Assessing Officer. On the basis of the submissions made by the learned Advocate for the appellant, it is not possible to say that the views entertained by the CIT Appeal or the learned Tribunal were not a possible view. Therefore, the judgment cannot be said to be perverse.

7. Mr. Saraf added that the learned Tribunal does not appear to have examined the issue and merely endorsed the view of the CIT Appeal. It can be pointed out that an Appellate Authority is not ordinarily required in law to give its own reasons when the Appellate Authority is in agreement with the views expressed by the judgment under examination. If any authority is needed, reference may be made to the judgment in the case of R.P. Bhatt v. Union of India AIR 1986 SC 1040, wherein the following views were expressed:—

” It is not the requirement of Art. 311(2) of the Constitution of India or of the Rules of natural justice that in every case the appellate authority should in its order state its own reasons except where the appellate authority disagrees with the findings of the disciplinary authority. “

8. The position might have been different if Mr. Saraf were in a position to demonstrate that any point was urged which the learned Tribunal left undecided.

9. Mr. Saraf lastly submitted that the matter may be remanded to the learned Tribunal. From the tenor of the submissions made by Mr. Saraf noted above, it appears that the case of the revenue is that in the facts of the case the finding that the income was earned from investment could not have been recorded. If that is the proposition then it is for the revenue to show that such a finding is not possible in law. That was not even suggested. What remains then is a question of appreciation of evidence, which has already been done. No fruitful purpose is likely to be served by remanding the matter. We do not find any issue, which has remained unattended.

10. For the aforesaid reasons, we hold that the judgment under challenge is not perverse. The question formulated need not be answered because they have not been formulated in the manner they should have been. The question for determination is whether the judgment of the learned Tribunal is perverse, that question is answered in the negative.

11. The appeal is, thus, dismissed.

[Citation : 375 ITR 118]

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