Commissioner Of Income-Tax Coimbatore v. M/S.supriya Investments Pvt.ltd., Coimbatore – 641 018

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.09.2007 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN AND THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) Nos.374 and 375 of 2004 Commissioner of Income-taxCoimbatore.... AppellantVs.M/s.Supriya Investments Pvt.Ltd.,Coimbatore – 641 018....Respondent. Tax Case Appeal Nos.374 and 375 of 2004 are filed underSection 260-A of the Income-tax Act, 1961 against the orders of theIncome-tax Appellate Tribunal, 'C' Bench, Chennai made inI.T.A.Nos.939 and 940(Mds)/1998 for the assessment years 1994-95and 1995-96. T.C (A) Nos.374 and 375/2004 against the order of the Commissionerof Income Tax, Coimbatore dated 26.3.1998 ITA No.1416(9) 97-98(CBE) against the order of the Assistant Commissioner of Income TaxCompany Circle-1 Coimbatore dated 3.3.2000 PAN/GIR NO.CY-2326Assessment year 1995-96 and 1994-95. For Appellant : Mr.Muralikumaran, Sr.Standing Counsel for Income-tax. For Respondent : Mr.Philip George JUDGMENT (Judgment of the Court was made by CHITRA VENKATARAMAN,J.) These tax case appeals are filed in respect of the assessmentyears 1994-95 and 1995-96 at the instance of the revenuechallenging the correctness of the order of the Income-taxAppellate Tribunal made in I.T.A.Nos.939 and 940/Mds/98 on thequestions of law stated below: "1. Whether on the facts and in the circumstancesof the case, the Income-tax Appellate Tribunal was rightin setting aside the order of the Commissioner of Incomehttps://hcservices.ecourts.gov.in/hcservices/ Tax under Section 263 on the grounds that theCommissioner of Income Tax could not consider the taxeffect of two assessment years together? 2. Whether on the facts and in the circumstances ofthe case that the Income Tax Appellate Tribunal wasright in holding that the income/loss arising from thetransactions in shares of the assessee was income/lossunder the head "capital gains" in spite of the fact thatthe assessee was showing the income/loss as businessincome/loss all along? 2. In the return filed for the assessment year 1994-95 and1995-96, the assessee claimed loss on the sale of shares asbusiness loss. The assessing authority rejected the claim of theassessee and treated the same as capital loss. It may be seen herethat as regards the prior year, the assessment was completedtreating the loss on the sale of shares as business loss. 2. The Commissioner of Income-tax in exercise of the powersunder Section 263 of the Income-tax Act revised the order ofassessment taking the view that the shares sold by the assesseemust be held as "capital investment". Consequently, the profitarising on the sale of the shares must be taken as "capital assets"inviting the provisions of "capital gains". The Commissioner ofIncome-tax pointed out that the assessee has been indulging infrequent purchase and sale of shares and consequently she took aview that the transactions have to be assessed as "business loss"as against "capital loss" granted by the assessing authority. TheCommissioner further pointed out that the assessee is an investmentcompany dealing in shares. Consequently, going by the nature of thebusiness carried on by the assessee, the Commissioner of Income-taxset aside the assessment order with a direction to assess the"income/loss" from the transaction in shares as "businessloss/income" for the assessment years 1994-95 and 1995-96. 3. Aggrieved by the said order of revision passed by theCommissioner of Income Tax, the assessee preferred appeals beforethe Income Tax Appellate Tribunal contending that what had beenheld by them was only a capital asset. The assessee company wascarrying on business as an investment company and the same had beendisclosed as so in the balance sheet. Most of the shares had beenheld for a long time and therefore placing reliance on the decisionof the Calcutta High Court in the case of KARAMCHAND THAPAR ANDBROTHERS VS. COMMISSIONER OF INCOME-TAX reported in (1978) 115 ITR255, the assessee contended that the sale of shares were to beassessed only under the head "capital gains". Considering the losssuffered, the same had to be treated as capital loss. 4. The Tribunal considered the claim of the assessee and therevenue and pointed out that on the undisputed facts right frominception, the assessee had never shown the value of the sharesheld by it as "stock in trade" or "current assets" in its balancesheet and they had shown the same only as "investment". It alsopointed out that for the assessment year upto 1994-95, the assesseeclaimed profit or loss on the sale of shares as "businessincome/loss" and only in the assessment year 1995-96, it hadadmitted the profit on sale of shares as "capital gains" in thereturn. However, for the assessment year 1994-95, the assessingauthority rejected the claim of the assessee as "business income"and treated the income as "capital gains/loss" and for the nextassessment year 1995-96, the assessee had followed the sameprinciple, realising the correctness of the view expressed by theassessing authority in terms with the memorandum of the company.The Tribunal, by placing reliance on a decision of the SupremeCourt in the case of RAJA BAHADUR KAMAKHYA NARAIN SINGH VS. C.I.T.(1970) 77 ITR 253 (SC), held that the decision to treat the incomearising on the sale of shares as "business income" must primarilyrest on the aspect that the assessee should have intention to carryon business in shares as the trading activity. Applying the lawdeclared by the Supreme Court, the Tribunal pointed out that theassessee never showed the value of the share held by it eitherunder "current assets" or under "stock-in-trade" in its balancesheet and it had been consistently shown by the assessee as"investment" in the balance sheet. The intention of the assessee isclear that the assessee was holding the shares only as investmentsand it was not holding the shares as a "stock-in-trade" or "currentassets" to deal in them. Ultimately the Tribunal came to theconclusion that what was realised by the assessee on the sales ofthe shares was only "capital asset" resulting in "capital gain". Inthese circumstances, the Tribunal allowed the appeals of theassessee. 5. Aggrieved by this the revenue has come on appeal beforethis Court contending that the conduct of the assessee right fromthe beginning shows that he intended to keep the shares only as a"stock in trade" as such, being current assets, the Tribunalcommitted error in its view that it is a "capital asset" attractingliability as "capital gains". 6. We do not find any force in the argument made by thelearned counsel for the revenue. 7. The reading of the order passed by the Tribunal shows thatit was an undisputed fact that right from the inception theassessee had never shown the value of the shares held by it eitherunder "current assets" or under "stock in trade". However, thecounsel for the revenue without getting over this finding of factinsisted that the Tribunal misdirected itself in holding that thesale of the shares should be treated as "capital asset". A readingof the Tribunal order and applying the law laid down by thehttps://hcservices.ecourts.gov.in/hcservices/ 7. The reading of the order passed by the Tribunal shows thatit was an undisputed fact that right from the inception theassessee had never shown the value of the shares held by it eitherunder "current assets" or under "stock in trade". However, thecounsel for the revenue without getting over this finding of factinsisted that the Tribunal misdirected itself in holding that thesale of the shares should be treated as "capital asset". A readingof the Tribunal order and applying the law laid down by thehttps://hcservices.ecourts.gov.in/hcservices/ Supreme Court in 77 ITR 253 referred supra shows that factually theassessee had been dealing with the shares as an "investment". Beingan investment company it is not uncommon for a person like that ofan assessee to have a back up of an investment as capital in itsbusiness. No material has been placed before this Court to questionthe correctness of the Tribunal's finding of fact on the admittedfacts that the assessee was holding that investments as a capitalasset and that in the absence of any finding as to the intentionof the assessee to carry on business in shares as a tradingactivity, we do not find any justification in the contention ofthe revenue. Considering the material placed before this Court, wedo not find any justification to disturb the finding arrived at bythe Tribunal and in these circumstances, the appeals are dismissed. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.uskTo1. The Asst.Registrar,Income-tax Appellate Tribunal Bench CRajaji Bhavan, III Floor, Besant Nagar,Chennai.902. The Commissioner ofIncome-tax Coimbatore. 3. The Asst.Commissioner of Income TaxCompany Circle-I, Coimbatore1 cc to Mr.N. Muralikumaran, Advocate,Sr. 55226 Tax Case (Appeal) Nos.374 and 375 of 2004 KK (CO)kk 24/9