The Pr. Commissioner Of Income Tax(Central v. Adar Cyrus Poonawalla

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL (IT) NO. 226 OF 2016 The Pr. Commissioner of Income Tax(Central)..Appellant Versus Adar Cyrus Poonawalla ..Respondent ................... Mr. Tejveer Singh for the AppellantMr. Tejveer Singh for the Appellant Mr. Percy Pardiwalla, Senior Counsel a/w Mr. Atul Jasani for theRespondentMr. Percy Pardiwalla, Senior Counsel a/w Mr. Atul Jasani for theRespondent ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : NOVEMBER 19, 2018. P.C.: 1.This appeal is filed by the Revenue to challenge an Order dated 30.1.2015 passed by the Income Tax AppellateTribunal, Pune Bench “B”, Pune. Following questions arepresented for our consideration: i. Whether on the facts and circumstances of the case and inlaw, the Hon'ble ITAT was justified in law, by holding that the profit onsale of shares of M/s. City Parks Pvt Ltd as capital gain when therewas a clear cut adventure in the nature of trade on the part of theassessee? ii.Whether on the facts and circumstances of the case and inlaw, without prejudice to the above ground, the Hon'ble ITAT wasjustified in holding that the capital gain on account of sale of shares of M/s. City Parks Pvt Ltd is long term capital gain when theunderlying asset which got transferred due to sale of shares was'Land and holding period of which was less than 36 months? iii.Whether on the facts and circumstances of the case and inlaw, the Hon'ble ITAT was justified in not upholding the finding of theAO that transaction of sale of shares of HCL Technologies Ltd reflectactive involvement of the assessee as a 'trader', rather than as aninvestor i.e transaction in the shares of HCL Technologies Ltd is abusiness transaction? iv. Whether on the facts and circumstances of the case and inlaw, without prejudice to the above ground, the Hon'ble ITAT wasjustified in not upholding the stand of the Assessing Officer that themotive for carrying out the aforesaid set of transaction in the sharesof HCL Technologies Ltd., was to incur loss on account of bonusstriping and then set off such loss against the long term capital gainaccruing to the assessee on sale of shares of City Park Pvt Ltd with amotive to evade tax? Learned counsel for the Revenue mainly concentrated on Questions (i) and (iii) for our consideration. 2.Brief facts are as follows:- 2.1The respondent – assess is an individual. For theassessment year 2007-08, the assess had filed return ofincome tax which was taken in scrutiny by the AssessingOfÏcer. During the such scrutiny assessment, the AssessingOfÏcer noticed two transactions:- the first one was the sale of shares by the assessee of one City Park Pvt Ltd. The saidcompany had allotted 6,66,333 shares to Shri. Cyrus S.Poonawalla (assessee's father) on 27.1.2006 on par @ Rs.10/- per share. Remaining 667 shares were allotted to himon 9.6.2006. All these 6,67,000 shares were received by theassessee as a gift from his father on 1.9.2006. The assesseesold the said shares during the period relevant to theassessment year under consideration. 2.2During the same period, the assessee had entered intoanother transaction namely purchasing and sale of HCLTechnologies Ltd. Between 28.2.2007 to 13.3.2007, theassessee purchased 4,71,517 shares of the said company fora total consideration (inclusive of brokerage) of Rs. 29.36Crores (rounded off). On 12.2.2007, HCL Technologiesannounced bonus issue of shares in the ratio of one share forevery one share held and the record date was fixed as16.3.2007. The assessee, accordingly, received equalnumber of bonus shares. Later on, between 15.3.2007 to28.3.2007, the assessee sold 4,71,517 shares of HCLTechnologies for a consideration of Rs. 14.28 Crores (rounded off). This resulted into a loss of Rs. 15.01 Crores (roundedoff) which the assessee claimed as short term capital loss. off). This resulted into a loss of Rs. 15.01 Crores (roundedoff) which the assessee claimed as short term capital loss. 2.3.The assessee claimed to set off the capital gain earnedin the process of sale of shares of City Part Pvt Ltd againstthe capital loss suffered by him in the process of sale of theshares of HCL Technologies. The Revenue objected to thisclaim of the assessee mainly on the ground that both thetransactions were in the nature of assessee's businesstransactions. The objection of the Revenue was that theassessee had entered into the transactions of purchase andsale of shares of HCL Technologies in order to avoid taxliability. Revenue contends that the decision of the SupremeCourt in the case of Commissioner of Income Tax Vs.Walfort Shares & Stock Brokers (P) Ltd reported in(2010) 326 ITR 1 (SC) would not apply. The AssessingOfÏcer having passed an order of assessment accordingly,the issue reached the Tribunal against the judgment of CIT(Appeals). The CIT (Appeals) had held that the first of thetransaction of the assessee i.e sale of shares of City Parks PvtLtd was not a business transaction, however, he ruled to the contrary in respect of the transaction in the case of HCLTechnologies. The Tribunal rejected the Revenue's appealand allowed the assessee's appeal essentially holding thatneither of the two sets of transactions were in the nature ofbusiness venture. According to the Tribunal, the assesseewas not in the business of buying and selling shares andtherefore, the assessee's claim for set off or loss against thegain was permissible. It is against this order that theRevenue has filed the present Income Tax Appeal. 3.We have heard learned counsel for the parties atconsiderable length and with their assistance perused thedocuments on record. With respect to the transaction in thecase of City Parks Pvt Ltd, the Tribunal noted that theassessee had not acquired the shares through his ownvolition. That such shares were held previously by his fatherand were gifted to the assessee. The father had also heldthe shares as investment. The Tribunal also noted that CityParks Pvt Ltd was an unlisted Pvt Ltd Company and therefore,its shares were not freely marketable or tradable. TheTribunal was of the opinion that the Revenue failed to bring on record any material to show that the assessee wasactively trading in shares. 4.With respect to the assessee's transaction of purchaseand sale of HCL Technologies, the Tribunal referred to thedecision of the Supreme Court in the case of Walfort Share &Stock Brokers (P) Ltd (supra) and also took into considerationthe legislative changes in Section 94 of the Income Tax Actwhich were discussed in the said judgment and held that thetransaction in question was not hit by the said provision. 5.With respect to the Revenue's contention that thetransaction was in the nature of business, the Tribunalrejected the same inter alia observing that whether aparticular transaction is an adventure in the nature of tradeor is an investment simplicitor is a mixed question of law andfacts, however, a common thread is that no single test isconclusive and overall view has to be taken looking to thefacts and circumstances of each case. With respect to thecase in hand, the Tribunal noted that in the scrutinyassessment for the preceding as well as succeeding assessment years, the profit on sale of shares earned by theassessee has been accepted by the Revenue as capital gain.Even with respect of the gain on sale of bonus shares of HCLTechnologies, in the subsequent years, the Revenueaccepted the same as capital gain. The Tribunal also notedthat there was no material on record to suggest that theassessee has set up any organized structure or infrastructurefor his business of trading in shares. The assessee wasotherwise full time engaged in other gainful activities. assessment years, the profit on sale of shares earned by theassessee has been accepted by the Revenue as capital gain.Even with respect of the gain on sale of bonus shares of HCLTechnologies, in the subsequent years, the Revenueaccepted the same as capital gain. The Tribunal also notedthat there was no material on record to suggest that theassessee has set up any organized structure or infrastructurefor his business of trading in shares. The assessee wasotherwise full time engaged in other gainful activities. 6.In our opinion, the entire issue hinges on the questionwhether the transactions in question were in the nature ofbusiness transactions or holding of shares by the assesseewas purely in the nature of investment. Surely, the Revenuecannot object to legitimate tax planning. Legitimately, if theassessee had claimed set off of loss against the gain in saleof shares, the Revenue cannot frown upon the same simplyby pointing out that in the process, the assessee reduced histax liability. The Tribunal has examined both the transactionsextensively. With respect to the first transaction of sale ofshares in City Parks Pvt ltd., the Tribunal noted that the shares were gifted by his father who himself had held theshares as investment. The company was unlisted Pvt LtdCompany. There was no material on record to suggest thatthe assessee had entered into the business venture in theprocess. Likewise in the second transaction also, the Tribunalnoted that the Revenue has, in the preceding and succeedingassessment years, accepted, the sale of shares by theassessee as investment and the proceed was treated ascapital gain. With respect to HCL Technologies, when theassessee sold the bonus shares in the later year, theRevenue treated the gain as capital gain. We are broadly inagreement with the view of the Tribunal. There is no materialto hold that the assessee was in the business of buying andselling shares. In our opinion, no question of loss, therefore,arises. The Income Tax Appeal is dismissed. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]