By Sri K v. Aravind, Advocate

IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 13[th]day of January 2015 PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANTI THE HON’BLE MR. JUSTICE B. VEERAPPA ITA No. 218 of 2009 BRHTIWHR Ll.The Commissioner ot Income Tax. C.R. Building Queens Road| Bangalore iaThe Assistant Commissioner of [Income-Tax Circle — 11(3) C.R. Building Queens Road|BangaloreBangalore .. Appellant (By Sri K. V. Aravind, Advocate) ANT) M/s. Kumergode Investments Ltd.,No.68/A, H. Siddaiah Road| Bangalore — 560 027 ...Respondent (By Sri A. Shankar & Sri Lava, Advocates) This ITA filed U/s. 260A of I.T. Act, 1961 arising out of|order dated 12-12-2008 passed in ITA No.836/Bang/2008|for Assessment year 2003-04. praying to (i) formulate the|substantial questions of law stated therein; (ii) allow the|appeal and set aside the order passed by the ITAT Bangalorein ITA No.836/BNG/2008, dated 12-12-2008 confirming the|order of the Appellate Commissioner and confirm the order|passed by the Assistant Commissioner of Income Tax, Circle-11(3), Bangalore. | ThisITA|comingOT)forhearingthisN. KUMAR J.,delivered the following: day, JU DBGMENT The Revenue has preferred this appeal against the)order passed by the Tribunal setting aside the order passedby the Commissioner under Section 263 of the Income TaxAct, 1961, restoring the order of the Assessing Authority. oOThe Assessee Company is in the business of|financial investments. During the year 2003-04, the assesseecompany earned capital gain of Rs.1,23,70,071/- from saleof shares and set off the same as against long term capitalloss brought forward to the assessment year 1997-98 to theextent of Rs.30,53,944/-. While verifying the returns filed for the earlier years, it was found that the assessee Companyhad already set off part of such loss which is broughtforward from the assessment year 1997-98 to the extent ofRs.2,17,/778/-. The assessee Company had not consideredthis while calculating the Long Term Capital Gains for theassessment year 2003-04. The assessee Company admittedthe said fact. Therefore the assessee-Company’s claim ofRs.30,93,944/- was reduced to Rs.26,32,222/- and it wasallowed as set off from the capital gain received during theassessment year 2003-04. | 3.The Commissioner of Income Tax invoking his|jurisdiction under Section 263 of the Income Tax Act, issueda notice calling upon the assessee to show cause as to whythe amount claimed as Capital Gain should not be treated asincome from business. The assessee filed their objectionstatement and pointed out the shares sold during thefinancial year 2002-03 was one solitary transaction and theshares sold were acquired a decade back and has been reflected in the audited accounts as investments and it was|never been considered as a part of stock in trade. Thereforeit was contended that the income from sale of shares cannotbe construed as business income. Over-ruling the objectionsthe Commissioner proceeded to hold that the order passedby the Assessing Officer is erroneous and prejudicial to theinterest of the Revenue and therefore the Assessing Officer|was directed to make a fresh assessment in the light of theobservations made in the order. Aggrieved by the said order,the assessee preferred an appeal to the Tribunal. 4The order passed by the Commissioner and the|directions issued therein clearly indicate the questionwhether the shares sold by the assessee was in the course ofthe business or was it a capital gain, has to be ascertainedby him. Therefore it is clear that the Commissioner wasunable to determine whether the assesse’s sole transactionleading to rendering of long term capital gains was whether part of assessee’s income holding shares as stock-in-trade oras investment. | 4The order passed by the Commissioner and the|directions issued therein clearly indicate the questionwhether the shares sold by the assessee was in the course ofthe business or was it a capital gain, has to be ascertainedby him. Therefore it is clear that the Commissioner wasunable to determine whether the assesse’s sole transactionleading to rendering of long term capital gains was whether part of assessee’s income holding shares as stock-in-trade oras investment. | 5The view as taken by the Assessing Authority isa possible view. When two views are possible, one which issustainable in law was accepted by the Assessing Authorityand the same cannot be considered as erroneous by theCommissioner. Theretore the order of the Commissioner wasset aside on the ground that the order passed by theAssessing Authority is not erroneous. Aggrieved by the saidorder, the Revenue is in appeal. 6.The appeal was admitted to consider the|following substantial questions of law: 1.Whether the Tribunal was correct in holding thatthe assessee has sold the shares in a solitarytransaction and the sqme was not treated asStock in trade, the income arising from sale ofShares has to be assessed under the head.‘Capital Gains’, hence the order of assessment 1s — D2 not erroneous and prejudicial to the interest of therevenue? Whether the Tribunal was correct in holding thatthe income from sale of shares has to beassessed under the head ‘Capital Gains’ whenthe Assessing Officer has not applied his mindregarding the activities carried on by _ thassessee and objections of the assessee stated inthe memorandum of association before arriving ata conclusion that the income has to be assessedunder the head ‘Capital Gains’? TT.The material on record clearly establishes thatthe share which is sold by the assessee was held by theassessee a decade back which has been reflected in theaudited account as investment. It was never considered aspart of stock-in-trade. It was a solitary transaction. In thelight of this undisputed facts, when a possible view is takenby the Assessing Authority and accepted the case of theassessee that it has resulted in capital gains, as rightly heldby the Tribunal, the Commissioner was in error in treating it as a business income. In fact, he was not able to make uphis mind and he has remanded the matter back to theAssessing Authority to find out whether it constitutes capitalgain or business income. 8.In those circumstances, the Commissioner had|no justification to invoke Section 263 of the Income Tax Actto initiate proceedings. The order passed by the Tribunal isjust and legal and do not call for any interference. The|substantial questions of law is answered in favour of the|assessee and against the Revenue.No merit, appeal isDismissed. Sd/-)JUDGESd/-)JUDGE Ksp/-