Itxa/220/2006 Of Madhu Impex Private Ltd v. Deputy Commissioner Of Income Tax Circle 5(4), Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAXAPPEAL NO. 220 OF 2006 INCOME TAX Madhu Impex Private Ltd. ... Appellant. V/s. Dy.Commissioner of Income-Tax. ... Respondent. S.S.Shetty with A.K.Jasani for the appellant. None for the respondent. CORAM : DR.S.RADHAKRISHNAN CORAM : DR.S.RADHAKRISHNAN CORAM : DR.S.RADHAKRISHNAN and V.C.DAGA, JJ. and V.C.DAGA, JJ. DATED : 14th November 2008. DATED : 14th November 2008. DATED : 14th November 2008. P.C. : P.C. :---- ---- . Heard learned counsel for the appellant. None for the respondent though served. 2. The above appeal raises following question of law: (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in confirming the order of the CIT(A) holding that the profit arising on sale of impugned shares were taxable as business profit? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in rejecting the claim of the Appellant that the profit on sale of said shares were taxable under the head ‘Capital Gains’? (iii) Whether on the facts and in the circumstances of the case and in law, the conclusion of the Tribunal was contrary to the facts on record? (iv) Whether on the facts and in the circumstances of the case and in law and keeping in view the intention of the Appellant and the consistent stand taken by it in the past, the conclusion of the Tribunal to tax the profit on sale of shares as business profit is sustainable in law? 3. We have perused the assessment order, the order passed by the Commissioner of Income Tax as well as the order passed by the Income Tax Appellate Tribunal. The Tribunal has recorded categorical findings in paragraph- 11 as under: ".....Admittedly, the interest paid in earlier years was claimed and allowed as business expenditure. The assessee claimed the same as business expenditure in this year also. the learned CIT(A) has also given a finding that investment in shares have been made from borrowed funds. However, for the year under consideration, since no business activity of trading carried on and only commission was earned by the assessee, the expenditure has been disallowed. This possess a question i.e. if the investment in the shares were done from borrowed funds then how the expenditure of interest of such funds was claimed and allowed as business expenditure in earlier years. Thus, the obvious conclusion is that the assessee himself treated such investment activity as of business nature and claimed the deduction following the ratio of the case of R.P.Modi cited supra in all years. Thus, we are of the considered opinion that the decision of the learned CIT(A) is in accordance with law as far as the nature of sale transactions is concerned. However, the finding of the learned CIT(A) to allow the interest expenditure on the funds which were deployed in the shares on such dividend was received is not in accordance with law because it is the expectancy of earning which is material for allowance of expenditure. Thus, in our considered opinion, the profit on sale of shares is rightly held as business profit - 3 - by the learned CIT(A) and, therefore, we confirm the findings of the learned CIT(A) in this regard and no benefit of indexation will be available to the assessee. However, in our considered opinion, the finding of the learned CIT(A) to allow interest only on borrowed funds utilized in the investment of shares which yielded dividend is not in accordance with law, therefore, we reject the same and hold that interest on borrowed funds utilized in the investment of shares is an allowable expenditure....." received is not in accordance with law because it is the expectancy of earning which is material for allowance of expenditure. Thus, in our considered opinion, the profit on sale of shares is rightly held as business profit - 3 - by the learned CIT(A) and, therefore, we confirm the findings of the learned CIT(A) in this regard and no benefit of indexation will be available to the assessee. However, in our considered opinion, the finding of the learned CIT(A) to allow interest only on borrowed funds utilized in the investment of shares which yielded dividend is not in accordance with law, therefore, we reject the same and hold that interest on borrowed funds utilized in the investment of shares is an allowable expenditure....." 4. In view of the above categorical findings, no substantial question of law is involved. Appeal is, therefore, dismissed. (V.C.DAGA, J.) (DR.S.RADHAKRISHNAN, J.) (V.C.DAGA, J.) (DR.S.RADHAKRISHNAN, J.)