Better Value Holdings P.Ltd., v. DCIT,

ITA 1417/PUN/2008 | 2004-2005
Pronouncement Date: 16-12-2010 | Result: Allowed

Appeal Details

RSA Number 141724514 RSA 2008
Assessee PAN AAACB7594H
Bench Pune
Appeal Number ITA 1417/PUN/2008
Duration Of Justice 2 year(s) 1 month(s) 11 day(s)
Appellant Better Value Holdings P.Ltd.,
Respondent DCIT,
Appeal Type Income Tax Appeal
Pronouncement Date 16-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 16-12-2010
Assessment Year 2004-2005
Appeal Filed On 05-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I C SUDHIR JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NOS 1417 & 1418/PN/08 (ASSTT. YEARS: 2004-05 & 2005-06) BETTER VALUE HOLDINGS P. LTD. PUNE APPELLANT PAN AAACB7594H VS. DY. COMMISSIONER OF INCOME-TAX CIR. 1(1)PUNE RESPONDENT APPELLANT BY : SHRI C H NANIWADEKAR RESPONDENT BY : SHRI A S SINGH ORDER PER G S PANNU A.M: BOTH CAPTIONED APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER O F INCOME (APPEALS)-I PUNE DATED 1.8.2008 AND 17.9.2008 PERTAINING TO AS SESSMENT YEARS 2004- 05 AND 2005-06 RESPECTIVELY. IN BOTH APPEALS SIMIL AR ISSUE HAS BEEN RAISED THEREFORE WE FIND IT EXPEDIENT TO PASS A COMMON OR DER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. IN BOTH THE APPEALS SOLITARY GRIEVANCE RAISED BY THE ASSESSEE IS TO THE EFFECT THAT THE AUTHORITIES BELOW HAVE ER RED ON FACTS AND IN LAW IN TREATING THE PROFIT ON SALE OF SHARES AND UNITS OF MUTUAL FUNDS AS INCOME ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS AS AGAINST THE HEAD CAPITAL GAINS CANVASSED BY THE ASSESSEE. IT WAS A COMMON POINT ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 2 BETWEEN THE PARTIES THAT FACTS AND CIRCUMSTANCES IN BOTH THE YEARS STAND ON AN IDENTICAL FOOTING AND IN TERMS THEREOF THE RIVA L COUNSELS MADE THEIR SUBMISSIONS WITH REFERENCE TO THE RECORDS FOR THE A SSESSMENT YEAR 2004-05. THE RIVAL SUBMISSIONS HAVE BEEN HEARD AND THE RELEV ANT MATERIAL PERUSED. 3. WE ACCORDINGLY CONSIDER ITA NO 1407/PN/08 PERTA INING TO THE ASSESSMENT YEAR 2004-05 TO APPRECIATE THE FACTS AND THE CONTROVERSY INVOLVED. FOR THE ASSESSMENT YEAR 2004-05 THE ASSE SSEE COMPANY FILED A RETURN OF INCOME ON 29.10.2004 WHICH WAS ACCOMPANI ED BY AUDITED BALANCE SHEET PROFIT AND LOSS ACCOUNT ETC. DECLARING AN I NCOME OF RS 2 93 62 740/-. THE INCOME SO RETURNED INTER ALIA CONSISTED OF IN COME FROM SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN OF RS 16 93 757/- AND RS 3 59 14 921/- RESPECTIVELY. THE SHORT TERM CAPITAL GAIN WAS ON REDEMPTION OF MUTUAL FUND UNITS AND IN SO FAR AS THE LONG TERM C APITAL GAIN WAS CONCERNED THE SAME WAS ON ACCOUNT OF SALE OF SHARES OF M/S KI RLOSKAR BROTHERS LTD. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROC EEDINGS SHOW CAUSED THE ASSESSEE AS TO WHY THE GAIN ON SALE OF SHARES B E NOT TREATED AS BUSINESS INCOME AND TAXED ACCORDINGLY. THE PRIMARY REASON AD VANCED BY THE ASSESSING OFFICER IN THE SHOW CAUSE NOTICE DATED 11 .12.2006 WAS TO THE EFFECT THAT ACCORDING TO HIM ASSESSEE WAS DEALING IN VARIOUS SCRIPS AND THE FREQUENCY OF PURCHASING AND SELLING OF SHARES WAS REGULAR AND RECURRING. IT WAS OBSERVED THAT THE PURCHASE AND SALE OF SHARES W AS NOT EFFECTED THROUGH ANY PORTFOLIO MANAGER AND THAT DURING THE YEAR UND ER CONSIDERATION THE ONLY ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS DEALING IN SHARES AND SECURITIES. IN RESPONSE ASSESSEE SUBMITTED BEFORE THE ASSESSING O FFICER THAT IT WAS AN INVESTMENT COMPANY AND WAS BASICALLY THE HOLDING CO MPANY FOR INVESTMENTS MADE BY THE PROMOTER FAMILY IN KIRLOSKAR GROUP OF C OMPANIES. IT WAS EXPLAINED THAT THE INVESTMENTS MADE BY THE ASSESSEE COMPANY ARE ONLY IN ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 3 KIRLOSKAR GROUP OF COMPANIES AND THAT SUCH INVESTME NTS HAVE BEEN MADE ONLY WITH AN INTENT OF HAVING OWNERSHIP AND CONTROL IN THE GROUP COMPANIES; THAT DURING THE YEAR UNDER CONSIDERATION SALE OF SH ARES WAS UNDERTAKEN ONLY IN RESPECT OF ONE GROUP ENTITY NAMELY M/S KIRLOSK AR BROTHERS LTD.; THAT THE INVESTMENTS ARE NEVER MEANT TO BE TRADED SO AS TO E ARN BUSINESS PROFITS INASMUCH AS IT WAS CONTENDED THAT ASSESSEE NEVER PU RCHASED AND SOLD SHARES IN THE OPEN SHARE MARKET; THAT SHARES OF M/S KIRLOSKAR BROTHERS LTD. SOLD DURING THE YEAR TO ANOTHER GROUP COMPANY WAS A PART OF RE-STRUCTURING OF INVESTMENTS WITHIN THE GROUP. IN SO FAR AS THE SHOR T TERM GAIN ON MUTUAL FUND UNITS WAS CONCERNED IT WAS EXPLAINED THAT IT WAS M ERELY A CASE OF SUBSCRIPTION AND REDEMPTION OF UNITS AND NOT PURCHA SE AND SALE OF SECURITIES. THE ASSESSEE COMPANY EXPLAINED THAT IT HAD MERELY P ARKED ITS SURPLUS FUNDS IN THE MUTUAL FUND UNITS TILL OPPORTUNITIES FOR BET TER DEPLOYMENT OF FUNDS AROSE AND THERE WAS NO INTENTION OF CARRYING OUT ANY SYST EMATIC TRADING ACTIVITY. IT WAS THUS CONTENDED THAT THE SAID SHORT TERM PARKING WAS MADE PURELY ON THE INVESTMENT ACCOUNT AND THEREFORE INCOME FROM THE REDEMPTION OF UNITS AS WELL AS ON SALE OF SHARES HAS BEEN CORRECTLY DECLAR ED AS CAPITAL GAINS. 4. THE AFORESAID SUBMISSIONS OF ASSESSEE DID NOT F IND FAVOUR WITH THE ASSESSING OFFICER. AS PER THE ASSESSING OFFICER THE ASSESSEE HAS BEEN REPEATEDLY SELLING AND PURCHASING MUTUAL FUND UNITS AND ALSO THE SHARES AND THEREFORE THE TRANSACTIONS WERE LIABLE TO BE CONSI DERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. IN PARAGRAPH 5.1 O F THE ASSESSMENT ORDER ASSESSING OFFICER NOTED THAT ASSESSEE HAD PURCHASED SHARES OF COMPANIES OTHER THAN KIRLOSKAR GROUP ALSO. SECONDLY IT HAS B EEN NOTICED IN PARAGRAPH 5.1 THAT DURING THE YEAR ASSESSEE SOLD A LARGE CHU NK OF UNITS OF MUTUAL FUNDS. AS PER THE ASSESSING OFFICER MUTUAL FUND UN ITS SOLD DURING THE YEAR INCLUDED UNITS BROUGHT FORWARD FROM EARLIER YEARS A ND ALSO SHARES AND UNITS ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 4 PURCHASED DURING THE YEAR. THE ASSESSING OFFICER FU RTHER NOTED THAT ASSESSEE HAD PLEDGED SOME OF ITS INVESTMENTS AS SEC URITY FOR THE LOANS RAISED BY VARIOUS GROUP COMPANIES. IT WAS ALSO NOTE D THAT AFTER EFFECTING THE SALES THE AMOUNTS REALISED WERE AGAIN PUT INTO THE PURCHASE OF SHARES/UNITS WHICH REFLECTED A SYSTEMATIC AND ORGANIZED TRADING ACTIVITY. APART FROM THE AFORESAID ASSESSING OFFICER OBSERVED THAT DURING T HE YEAR UNDER CONSIDERATION ASSESSEE HAS EARNED MAJOR INCOME FROM A SINGLE ACTIVITY OF SALE AND PURCHASE OF SHARES. REFERENCE WAS MADE TO CERTAIN JUDICIAL PRONOUNCEMENTS NOTABLY JUDGMENT OF THE HONBLE SUP REME COURT IN THE CASE OF CIT V SUTLEJ COTTON MILLS SUPPLY AGENCY LTD . 100 ITR 706 (SC) AND ON THAT BASIS IT WAS OBSERVED BY THE ASSESSING OFF ICER THAT EVEN IN A CASE WHERE A SINGLE PURCHASE AND SALE WAS UNDERTAKEN TH E HONBLE SUPREME COURT UPHELD THAT THE SAME TANTAMOUNTS TO AN ADVENT URE IN THE NATURE OF TRADE WHEREAS CASE OF THE ASSESSEE WAS ON A WORSE FOOTING INASMUCH AS ASSESSEE HAD PURCHASED AND SOLD LARGE NUMBER OF SHA RES/UNITS IN RESPECT OF A NUMBER OF COMPANIES. THEREFORE ASSESSING OFFICER CONCLUDED THAT SHARE DEALINGS UNDERTAKEN BY ASSESSEE WAS A SYSTEMATIC AC TIVITY CARRIED OUT WITH A PROFIT MOTIVE AND CANNOT BE SAID TO BE AN INVESTMEN T ACTIVITY BUT WAS ESSENTIALLY A TRADING/BUSINESS ACTIVITY. ACCORDINGL Y ASSESSING OFFICER HELD THAT THE INCOME DECLARED BY ASSESSEE BY WAY OF SHOR T TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AMOUNTING TO RS 16 93 757/- AND RS 3 59 14 921/- RESPECTIVELY WAS LIABLE TO BE ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. AGGR IEVED WITH THE ORDER OF THE ASSESSING OFFICER ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 5. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ASSESSEE ASSAILED THE ORDER OF ASSESSING OFFICER BO TH IN LAW AND ON FACTS. ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 5 BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AS SESSEE POINTED OUT THAT ASSESSEE WAS A HOLDING COMPANY OF THE KIRLOSKAR GRO UP AND AS SUCH ALL THE INVESTMENTS ARE ONLY IN KIRLOSKAR GROUP OF COMPANIE S OR ITS ASSOCIATES; THAT THE INVESTMENTS WERE MADE WITH AN INTENT OF HAVING AN OWNERSHIP AND CONTROL OF GROUP COMPANIES AND WERE NEVER MEANT TO BE TRADE D IN A SYSTEMATIC AND ORGANIZED MANNER WITH A VIEW TO EARN TRADING/ BUSIN ESS PROFITS; THAT NEVER IN THE PAST AND NOR DURING THE YEAR UNDER CONSIDERATIO N ASSESSEE HAD PURCHASED AND SOLD SHARES IN THE OPEN MARKET WITH A VIEW TO CARRY ON A A TRADING ACTIVITY; THAT ASSESSEE BEING A CONSTITUEN T COMPANY OF THE KIRLOSKAR GROUP WAS BOUND BY CERTAIN RESTRICTIONS AS PER THE GUIDELINES OF SEBI AND IT COULD NOT FREELY TRADE IN THE SHARES HELD BY IT. F URTHER IT WAS CONTENDED THAT THE SHARES OF M/S KIRLOSKAR BROTHERS LTD. WHICH WER E SOLD BY THE ASSESSEE DURING THE YEAR WERE SOLD TO ANOTHER GROUP COMPANY AS A PART OF RESTRUCTURING OF INVESTMENTS WITHIN THE GROUP. THES E SHARES WERE ACQUIRED BY THE ASSESSEE IN THE YEAR 1999 AND 2000 AND THUS EV EN OTHERWISE WERE HELD FOR A CONSIDERABLE PERIOD AND THE INCOME FROM SALE THEREOF WAS CORRECTLY SHOWN AS CAPITAL GAINS. IT WAS FURTHER SUBMITTED TH AT THE ENTIRE SHORT TERM CAPITAL GAIN WAS IN RESPECT OF MUTUAL FUND UNITS AN D NONE OF THESE WERE IN RESPECT OF SHARES. ASSESSEE FURTHER SUBMITTED THAT IT WAS A CASE OF SUBSCRIPTION AND REDEMPTION OF UNITS AND NOT OF A PURCHASE AND SALE. ASSESSEE PARKED THE SURPLUS FUNDS AVAILABLE WITH IT WITH VARIOUS MUTUAL FUNDS IN THE MONTH OF JANUARY 2004 AND ONCE BETTER OPPOR TUNITIES FOR BETTER DEPLOYMENT OF THESE FUNDS AROSE THE SAID UNITS WER E REDEEMED AND USED IN MARCH 2004 FOR PURCHASING SHARES OF GROUP COMPANIES AS WELL AS ADVANCING ICDS TO OTHER COMPANIES FOR A BETTER RETURN THAN TH AT OFFERED BY MUTUAL FUNDS. THUS ACCORDING TO THE ASSESSEE THE SUBSCRIPTION T O THE UNITS OF MUTUAL FUNDS AND THEIR REDEMPTION THEREAFTER WAS A PURE CA SE OF SHORT TERM ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 6 INVESTMENT FOR A TEMPORARY PERIOD OF 2/3 MONTHS AND THERE WAS NO INTENTION OF CARRYING OUT ANY ORGANISED TRADING ACTIVITY. AC CORDING TO ASSESSEE SUCH SHORT TERM PARKING WAS PURELY ON INVESTMENT ACCOUNT AND THUS THE INCOME WAS CORRECTLY SHOWN AS CAPITAL GAINS. 6. IT WAS FURTHER SUBMITTED BY ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT ON A PERUSAL OF SCHEDU LE 5 OF THE BALANCE SHEET IT WOULD BECOME APPARENT THAT ASSESSEE HAD SOLD THE UNITS WHICH WERE BROUGHT FORWARD FROM PAST YEAR AND THE SAME WE RE SHOWN AS INVESTMENTS IN THE EARLIER YEAR. IT WAS ALSO SUBMIT TED THAT THE OBSERVATION OF ASSESSING OFFICER IN PARAGRAPH 5.1 OF HIS ORDER THA T CERTAIN SHARES WERE PLEDGED AS SECURITY FOR BANK LOANS WAS OF NO RELEVA NCE TO THE ISSUE AT HAND AND EVEN OTHERWISE THE SAID FACT WOULD GO TO SHOW T HAT ASSESSEE INTENDED TO HOLD THE SHARES FOR A LONG TIME AT LEAST DURING TH E TENURE OF THE LOAN AND NOT INTENDED TO TRADE IN THESE SHARES. IT WAS FURTHER S UBMITTED THAT THE CONCLUSION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS BEEN PURCHASING SHARES/UNITS AND AFTER EFFECTING THE SALE OF THE SA ME IS GOING BACK THE SAME AGAIN IN PURCHASING OF SHARES/UNITS WAS DEVOID OF ANY SUBSTANCE AND WAS MADE ON COMPLETE MISUNDERSTANDING OF THE FACTS. THE ASSESSEE REITERATED THAT THE COMPANY BEING A KIRLOSKAR GROUP COMPANY AC TED AS HOLDING COMPANY FOR GROUP INVESTMENTS AND THE INVESTMENTS I N THE GROUP COMPANIES WERE MADE NOT FOR THE PURPOSE OF TRADING BUT TO HA VE CONTROL AND EARN DIVIDENDS. NEVER IN THE PAST EVEN ON A SINGLE OCCA SION THE COMPANY HAD TRADED IN THE SHARES. 7. AS REGARDS THE CASE LAWS CITED BY THE ASSESSING OFFICER IT WAS SUBMITTED THAT THE SAME ESSENTIALLY DEALT WITH THE CONCEPT OF BUSINESS AND ADVENTURE IN THE NATURE OF TRADE ETC. AND THAT NONE OF THEM WAS APPLICABLE TO THE FACTS OF ITS CASE. ACCORDING TO THE ASSESSEE THE COURTS HAVE HELD THAT ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 7 THE MOTIVE BEHIND THE TRANSACTIONS WILL BE A GUIDIN G FACTOR I.E. WHETHER THE MOTIVE IS EARNING PROFITS FROM TRADING OR EARNING R ETURNS THAT WOULD BE RELEVANT. IN VIEW OF THE FACTS BROUGHT OUT BY THE A SSESSEE SUCH AS PERIOD OF HOLDING PURPOSE OF HOLDING THE CIRCUMSTANCES UNDE R WHICH SALES WERE MADE TREATMENT IN THE ACCOUNTS PAST HISTORY ETC. IT WAS CONTENDED THAT THE PURPOSE OF ASSESSEES HOLDING WAS TO EARN A RETURN ON THE INVESTMENTS AND NOT MAKING PROFIT ON SALE. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF SUTLEJ COTTON MILLS SUPPLY AGENCY LTD.(SUPRA) WAS MISPLACED AS IN THAT CASE THERE WAS A FINDING OF FACT THAT THE ASSESSEE IN THE PAST ALSO WAS FO UND TRADING IN THE SHARES WHEREAS IN THE ASSESSEES CASE THE FACTS WERE DIAME TRICALLY OPPOSITE AND THUS THE DECISION WAS NOT APPLICABLE TO THE ASSESS ES CASE. 8. ALL THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE COMMISSIONER OF INCOME-TAX (APPEALS ). AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS) THOUGH THE AS SESSEE HAD SOLD SHARES OF A SINGLE COMPANY NAMELY KIRLOSKAR BROTH ERS LTD. BUT EVEN A SINGLE TRANSACTION IN SHARES COULD CONSTITUTE A BUS INESS ACTIVITY AS PER THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (SUPRA). REGARDING THE TREATMENT OF PURCHASE OF SHARES AS INVESTMENT IN BOOKS OF ACCOUNT THE COMMISSION ER OF INCOME-TAX (APPEALS) OBSERVED THAT THE SAME IS NOT DETERMINATI VE OF THE CHARACTER OF A TRANSACTION. THE COMMISSIONER OF INCOME-TAX (APPEAL S) ALSO NOTED THAT THE ONLY ACTIVITY UNDERTAKEN DURING THE YEAR AND ALSO I N THE PAST WAS PURCHASE AND SALE OF SHARES AND MUTUAL FUND UNITS. FOR ALL T HE ABOVE REASONS THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SUSTAINED THE ACTION OF THE ASSESSING OFFICER IN TAXING THE SHORT TERM AND LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS INCOME FROM BUSINESS. ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 8 9. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE VARIED SUBMISSIONS. EXPLAINING THE BACKGROUND IT W AS POINTED OUT THAT THE ASSESSEE COMPANY WAS FORMED IN 1989 AND ITS SHAREHO LDERS BELONG TO ONE FAMILY OF KIRLOSKARS. THE ASSESSEE COMPANY HAS INVE STED IN SHARES OF KIRLOSKAR GROUP COMPANIES FOR LONG AND HAS NEVER TR ADED SUCH SHARES IN THE MARKET INASMUCH AS NO SHARES OF THE KIRLOSKAR GROU P COMPANIES HAVE BEEN SOLD IN THE MARKET. FURTHER THE SHARES ARE SHOWN A S INVESTMENTS IN THE BOOKS OF ACCOUNT AND THE SAME HAVE BEEN VALUED AT COST SINCE INCEPTION. IT HAS ALSO BEEN POINTED OUT THAT WHENEVER SALES HAVE OCCURRED IN THE PAST OR EVEN IN THE YEAR UNDER CONSIDERATION THE SAME HAS BEEN MADE TO ONLY GROUP COMPANIES AND NOT TO OUTSIDERS IN THE MARKET. IT WA S POINTED OUT THAT THE ASSESSEE COMPANY IS A NON BANKING FINANCIAL COMPANY (NBFC) REGISTERED WITH THE RESERVE BANK OF INDIA AND IS ALSO REGISTER ED WITH SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) AS A PROMOTER COMPAN Y IN THE KIRLOSKAR GROUP OF COMPANIES. OUR ATTENTION WAS ALSO INVITED TO PAGE 16 OF THE PAPER BOOK WHEREIN IS PLACED THE INVESTMENT POLICY OF TH E ASSESSEE COMPANY AS ADOPTED BY ITS BOARD OF DIRECTORS IN ITS MEETING ON 1.4.2002 AND WHICH HAS BEEN DECLARED TO THE STATUTORY AUTHORITIES WHICH P ROVIDES THAT THE OBJECTIVE IS TO INVEST IN THE SECURITIES OF KIRLOSKAR GROUP COMP ANIES AND ALL INVESTMENTS SHALL BE LONG TERM INVESTMENTS UNLESS SPECIFIED OT HERWISE. FURTHER ATTENTION WAS INVITED TO PAGES 17 TO 54 OF THE PAPER BOOK SHO WING THE TRANSACTIONS DONE IN VARIOUS SHARES HELD BY THE ASSESSEE COMPANY TO POINT OUT THAT NONE OF THE SHARES HAVE BEEN SOLD IN THE MARKET; AND TH AT THE ASSESSEE HAS PURCHASED THE SHARES ONLY OF KIRLOSKAR GROUP OF COM PANIES AND WHENEVER SALES HAVE BEEN EFFECTED THEY HAVE BEEN TO GROUP C OMPANIES IN ORDER TO RESTRUCTURE THE INVESTMENTS OR TO COMPLY WITH THE S EBI GUIDELINES REGARDING THE PERCENTAGE OF PROMOTER SHAREHOLDING. IT IS POIN TED OUT THAT IN THE ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 9 ASSESSMENT YEAR 2002-03 SALE OF THE SHARES OF KIRL OSKAR OIL ENGINES LTD. WAS MADE TO A GROUP COMPANY AS PART OF RESTRUCTURIN G OF INVESTMENTS AND SUCH GAIN WAS DECLARED AND ACCEPTED BY THE ASSESSIN G OFFICER AS INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS VIDE ORD ER UNDER SECTION 143(3) OF THE ACT DATED 25.1.2005. IT IS ALSO POINTED OUT THA T SIMILAR SURPLUS ACCRUING IN ASSESSMENT YEAR 2003-04 HAS ALSO BEEN ACCEPTED AS I NCOME UNDER THE HEAD CAPITAL GAINS BY THE ASSESSING OFFICER VIDE ORDER UNDER SECTION 143(3) DATED 28.7.2005. ON THIS POINT IT WAS ALSO POINTED OUT THAT IN THE PAST YEARS ASSESSEE HAS BEEN HELD TO BE AN INVESTOR OF SHARES AND THERE IS NO CHANGE OF CIRCUMSTANCES IN THIS YEAR TO WARRANT A DEPARTUR E. 10. IT IS FURTHER POINTED OUT THAT THE INTENTION O F THE ASSESSEE WAS TO ACQUIRE AND CONTROL THE SHARE HOLDINGS IN KIRLOSKAR GROUP OF COMPANIES AND THERE IS NO INTENTION TO UNDERTAKE TRADING IN SHARE S. IT HAS BEEN POINTED OUT FROM THE DETAILS IN THE PAPER BOOK AT PAGES 17 TO 5 4 THAT THE INVESTMENTS HAVE BEEN MADE AND HELD BY THE ASSESSEE COMPANY FOR MORE THAN 10 YEARS IN MAJORITY OF THE CASES. IN SUM AND SUBSTANCE THE CLAIM OF THE LEARNED COUNSEL IS THAT THERE WAS NO JUSTIFICATION FOR THE LOWER AUTHORITIES TO HAVE ASSESSED THE IMPUGNED GAIN AS BUSINESS INCOME HAVI NG REGARD TO THE CONDUCT OF THE ASSESSEE. 11. WITH REGARD TO THE OBSERVATION OF THE ASSESSIN G OFFICER THAT THE ASSESSEE HAS PURCHASED SHARES OF COMPANIES OTHER T HAN KIRLOSKAR GROUP I.E. ASHOK LEYLAND BHARAT FORGE. COTTON GREAVES ET C. IT WAS POINTED OUT THAT THE SAME ARE INSIGNIFICANT IN NUMBER AND HAVE NOT BEEN PURCHASED DURING THE YEAR UNDER CONSIDERATION IN ANY CASE; T HAT THESE SHARES WERE PURCHASED BY THE ASSESSEE COMPANY IN THE YEAR 2000- 01 OR EVEN EARLIER AND THE COMPANY CONTINUES TO HOLD THESE SHARES EVEN PRESENTLY. IT WAS THEREFORE CONTENDED THAT THIS ASPECT WOULD NOT DEF EAT THE PLEA OF THE ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 10 ASSESSEE THAT THE GAINS IN QUESTION ARE ASSESSABLE AS CAPITAL GAIN. IN SO FAR AS THE INCOME FROM REDEMPTION OF UNITS IS CONCERNED IT WAS POINTED OUT THAT THE SAME WAS DONE PURELY AS AN INVESTMENT ACTIVITY AND NOT AS A TRADING ACTIVITY. 12. IN SO FAR AS THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER IS CONCERNED IT WAS POINTED OUT THAT THE SAME DO N OT APPLY TO THE FACTS OF THE PRESENT CASE AND INSTEAD THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ARA TRADING INVESTMENTS P LTD. VIDE IT A NO 499/PN/08 DATED 31.8.2009 FULLY COVERS THE CONTROVERSY IN FAVOUR OF THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE TRIBUNAL IN THE CASE OF ARA TR ADING INVESTMENTS P LTD (SUPRA) HAS TAKEN INTO CONSIDERATION THE CASE LAWS REFERRED TO BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER. APART FROM THE AFORESAID RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: (I) CIT V GOPAL PUROHIT ITA NO 1121 OF 2009 DATED 6.1.2010 (BOM.) (II) GOPAL PROHIT V JCIT (2009) 122 TTJ (MUM) 87 (III) SARNATH INFRASTRUCTURE (P) LTD V. ACIT (2009) 120 TTJ (LUCK.) 216 13. ON THE OTHER HAND THE LEARNED DEPARTMENTAL RE PRESENTATIVE APPEARING FOR THE REVENUE POINTED OUT THAT IN THE P AST YEARS THE DEPARTMENT DID NOT QUESTION THE NATURE OF SHARES ACQUIRED BY T HE ASSESSEE AND THEREFORE THE POSITION ACCEPTED IN THE EARLIER YEA R COULD NOT BE HELD AGAINST THE ASSESSING OFFICER WHILE CONSIDERING THE NATURE OF IMPUGNED TRANSACTIONS IN THIS YEAR AS THE SAME ARE ASSESSABLE UNDER THE H EAD BUSINESS. IT IS POINTED OUT THAT THE PRINCIPLE OF RES JUDICATA IS N OT APPLICABLE TO THE INCOME- TAX ASSESSMENT PROCEEDINGS.. APART FROM REITERATING THE REASONING TAKEN BY THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOM E-TAX (APPEALS) WHICH HAVE BEEN ALREADY NOTED IN THE EARLIER PARAGRAPHS A ND ARE NOT BEING ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 11 REPEATED FOR THE SAKE OF BREVITY THE LEARNED DEPAR TMENTAL REPRESENTATIVE VEHEMENTLY RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (SUPR A) AND ALSO AN UNREPORTED DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF AJINKYA ELECTROMELT PVT. LTD. VIDE ITA NO 1519/PN/08 DATED 30.7.2010 IN SUPPORT OF THE CASE OF THE REVENUE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. WE HAVE ALSO PERUSED THE RELEVANT MATERIAL TO WHICH OUR ATT ENTION HAS BEEN DRAWN DURING THE COURSE OF THE HEARING AS WELL AS THE AUT HORITIES CITED AT BAR AND PROCEED TO DISPOSE OF THE DISPUTE AS UNDER. IN THE INSTANT CASE THE DOMINANT ISSUE IS WHETHER THE GAIN ARISING TO THE ASSESSEE O F RS 3 59 14 921/-ON THE SALE OF SHARES OF KIRLOSKAR BROTHERS LTD. IS ASSESS ABLE AS LONG TERM CAPITAL GAIN OR BUSINESS INCOME. THE ASSESSEE COMPANY IS UN DISPUTABLY A PART OF KIRLOSKAR GROUP OF COMPANIES AND IT IS HOLDING SHAR ES OF VARIOUS MANUFACTURING/BUSINESS COMPANIES OF THE KIRLOSKAR G ROUP. IT HAS ALSO BEEN PLEADED WITHOUT CONTROVERSION BY THE REVENUE THAT THE ASSESSEE IS REGISTERED WITH THE RESERVE BANK OF INDIA AS A NBFC AND HAS BEEN DECLARED AS A PROMOTER-ENTITY FOR THE KIRLOSKAR GROUP COMPAN IES WITH THE SEBI. AT PAGES 17 TO 54 OF THE PAPER BOOK SCRIP-WISE DETAIL OF PURCHASES AND SALES EFFECTED BY THE ASSESSEE DURING THE ASSESSMENT YEAR S 2001-02 TO 2004-05 HAVE BEEN PLACED. IT TRANSPIRES FROM THE SAID DETAI LS THAT IN THE ASSESSMENT YEAR 2001-02 THE ASSESSEE HAD PURCHASED 25499 SHARE S OF KIRLOSKAR OIL ENGINES LTD. MAINLY AND 0.96 FRACTIONAL SHARES WERE SOLD ON ACCOUNT OF MERGER OF A COMPANY M/S SHIVAJI WORKS LTD. WITH SAI D INVESTEE COMPANY. IN THE ASSESSMENT YEAR 2002-03 ASSESSEE PURCHASED 511 833 SHARES OF KIRLOSKAR OIL ENGINES LTD. AND SOLD 1449585 SHARES WHICH IS STATED TO BE AS A PART OF RESTRUCTURING OF INVESTMENTS WITHIN THE G ROUP. THE SURPLUS RESULTING ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 12 ON SUCH SALE HAS BEEN ACCEPTED BY THE ASSESSING OFF ICER AS CAPITAL GAIN VIDE ASSESSMENT UNDER SECTION 143(3) DATED 25.1.200 5 (SUPRA). SIMILARLY IN ASSESSMENT YEAR 2003-04 ALSO THE GAIN RESULTING ON SALE OF SHARES OF KIRLOSKAR FERROUS INDUSTRIES LTD. HAS BEEN ACCEPTED AS CAPITAL GAIN. AS PER PAGE 24 OF THE PAPER BOOK SHARES OF KIRLOSKAR FERR OUS INDUSTRIES LTD HAVE BEEN PURCHASED IN THE ASSESSMENT YEARS 2002-03 AND 2003-04 UNDER THE CREEPING ACQUISITION TO HAVE CONTROLLING INTEREST I N THE SAID GROUP COMPANY. IN ASSESSMENT YEAR 2003-04 SALE OF 175000 OF SUCH SHAR ES WAS NECESSITATED AS THE ASSESSEE HAD CROSSED 5% HOLDING LIMIT PROVID ED AS PER SEBI GUIDELINES. THE SURPLUS RESULTING ON THE SALE OF SU CH SHARES IN THE PAST I.E. IN ASSESSMENT YEAR 2003-04 HAS ALSO BEEN ACCEPTED AS A N INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS BY THE ASSESSING OFF ICER VIDE ASSESSMENT ORDER DATED 28.7.2005K PASSED UNDER SECTION 143(3) OF THE ACT. ON THIS POINT IT IS ALSO PERTINENT TO NOTE THAT SINCE PAST THE ASSESSEE HAS DEPICTED THE SHARES ACQUIRED AS INVESTMENTS IN ITS BOOKS O F ACCOUNT AND SUCH POSITION HAS NOT BEEN REPUDIATED BY THE REVENUE IN THE PAST AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. BEFORE WE PROCEED TO EXAMINE THE EFFICACY OF THE ACTION OF THE ASSESSING OFFICER IN TREATING LONG TERM CAPITAL GAIN AS BUSINESS INCOME IN THE YEAR UNDER CONSIDERA TION IN CONTRAST TO THE POSITION ACCEPTED IN PAST IT WOULD BE WORTHWHILE T O NOTE THAT HAVING REGARD TO AFORESAID FACTUAL MATRIX OF THE PAST THE ONUS WAS CLEARLY ON THE REVENUE TO ESTABLISH THAT THE IMPUGNED TRANSACTIONS UNDERTAKEN DURING THE YEAR WERE LIABLE TO BE TAXED AS BUSINESS INCOME AND NOT AS CAPITAL GAIN. IN COMING TO SUCH A PREMISE WE ARE GUIDED BY THE JUDGMENT OF TH E HONBLE SUPREME COURT IN THE CASE OF JANKI RAM BAHADUR RAM V. CIT 57 ITR 21 (SC). THUS IT WOULD HAVE TO BE EXAMINED AS TO WHETHER THE REVENUE HAS DISCHARGED SUCH ONUS. ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 13 IN THE PRESENT CASE THE ONLY CONTENTION RAISED BY THE REVENUE IS THAT IN THE PAST YEARS THE NATURE OF THE TRANSACTIONS WA S NOT EXAMINED BY THE ASSESSING OFFICER AND FURTHER THAT THE PRINCIPLES O F RES JUDICATA DO NOT APPLY TO THE INCOME-TAX PROCEEDING SINCE EACH ASSESSMENT YEAR IS AN INDEPENDENT UNIT OFASSESSMENT. WHILE THERE CANNOT BE ANY QUARREL WITH THE PROPOSITION THAT THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME-TAX PROCEEDINGS YET IT IS A TRITE LAW THAT IT IS IMPER MISSIBLE FOR THE REVENUE TO DEPART FROM AN ACCEPTED POSITION IN A SUBSEQUENT YE AR WITHOUT POINTING OUT ANY CHANGE ON FACTS AND IN LAW BECAUSE THE PRINCI PLES OF CONSISTENCY ARE AS MUCH APPLICABLE TO THE INCOME-TAX PROCEEDINGS PART ICULARLY IN THE CASE OF THE SAME ASSESSEE OF-COURSE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES REMAINING IDENTICAL. IN FACT ON THIS ASPECT THE L EARNED COUNSEL FOR THE APPELLANT REFERRED TO A RECENT JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA).THE ISSUE IN THE SAID CASE WAS WHETHER THE INCOME ON SALE OF SHARES WAS ASSESSABLE AS CAPITAL GAIN OR BUSINESS INCOME WITH ASSESSEE CANVASSING THAT THE SAME WAS ASSESSABLE AS CAPITAL GAINS. THE TRIBUNAL ACCEPTED THE STAND OF THE ASSE SSEE THAT THE INCOME WAS ASSESSABLE AS CAPITAL GAINS IN VIEW OF THE CONSIS TENT PRACTICE OF THE PAST YEARS OF TREATING SIMILAR TRANSACTIONS AS INVESTMEN T TRANSACTIONS AND THE FACTS AND CIRCUMSTANCES HAD REMAINED IDENTICAL DURI NG THE YEAR IN QUESTION. THE HONBLE HIGH COURT AFFIRMED THE ORDER OF THE TR IBUNAL ON THE PRINCIPLES OF CONSISTENCY AND IN OUR VIEW THE RATIO OF THE SAID JUDGMENT IS FULLY APPLICABLE IN THE INSTANT CASE. THE NATURE OF ACTIVITIES AND THE MANNER OF KEEPING RECORDS PRESENTATION OF SHARES AS INVESTMENT IN AL L THE YEARS AND THE INTENTION TO ACQUIRE THE SHARES TO EXERCISE CONTROL OVER GROUP COMPANIES ETC. HAS REMAINED CONSISTENT IN THIS CASE TOO AND THERE FORE WE FIND NO JUSTIFICATION FOR THE REVENUE TO ADOPT A DIVERGENT APPROACH AS NO CHANGE IN ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 14 LAW OR ON FACTS HAS BEEN BROUGHT OUT TO SUPPORT THE DEPARTURE FROM ACCEPTED POSITION OF THE PAST. 15. IN ANY CASE IN OUR CONSIDERED OPINION WHERE ASSETS ARE PURCHASED WITH A VIEW TO OBTAIN CONTROL THE PROFIT FROM SALE OF THOSE ASSETS WOULD BE ON CAPITAL ACCOUNT AND IT WOULD NOT AMOUNT TO A BUSINESS ACTIVITY. IN THIS CONNECTION A GAINFUL REFERENCE CAN BE MADE TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF RAMESHWAR PRAS AD V CIT 87 ITR 421 (SC) WHEREIN A REFERENCE WAS MADE TO AN EARLIER J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF RAMNARAIN SONS (P)LTD. VS. CIT 41 ITR 534 (SC) AND IT HAS BEEN HELD AS UNDER: THE HIGH COURT IN ARRIVING AT THE CONCLUSION THAT THE SHARES IN QUESTION HAD BEEN PURCHASED NOT WITH A VIEW TO OBTAIN THE MANAGI NG AGENCY BUT AS A STOCK-IN- TRADE HAS REFERRED TO THE FACT THAT THE ASSESSEE TO OK LOAN FOR THE PURCHASE OF THOSE SHARES AND SUBSEQUENTLY TRANSFERRED 43 700 SHARES O UT OF 62 500 SHARES. THIS CIRCUMSTANCE AS OBSERVED BY THIS COURT IN THE CASE OF RAMNARAIN SONS (P.) LTD. V CIT (1961) 41 ITR 534 538 (SC) WOULD NOT BY ITSEL F GO TO SHOW THAT THE PURCHASE OF SHARES WAS NOT TO FACILITATE THE ACQUISITION OF THE MANAGING AGENCY. IN THAT CASE THE APPELLANT COMPANY WAS A DEALER IN SHARES AND SECURI TIES AND CARRIED ON BUSINESS AS MANAGING AGENTS FOR SOME COMPANIES. IN ORDER TO ACQ UIRE THE MANAGING AGENCY OF A TEXTILE MILL THE APPELLANT COMPANY PURCHASED FROM SASSOON DAVID AND CO. WHO WERE THE MANAGING AGENTS THEREOF 1507 SHARES OF TH E MILL AT RS 2 321-8-0 PER SHARE AT A TIME WHEN THE MARKET PRICE OF THE SHARES WAS RS 1 610. THE REMAINING 1 000 SHARES OF THE MILL HELD BY SASSOON DAVID AND CO. WERE ACQUIRED BY THE DIRECTORS OF THE APPELLANT COMPANY. TWO MONTHS LATE R THE APPELLANT COMPANY SOLD 400 OF THOSE SHARES AT A LOSS OF RS 1 78 438. THE S AID LOSS WAS CLAIMED AS A TRADING LOSS. QUESTION AROSE IN THIS CONTEXT WHETHER THE PU RCHASE OF SHARES COULD BE REGARDED AS ACQUISITION OF STOCK-IN-TRADE. DEALING WITH THE ABOVE QUESTION THIS COURT OBSERVED: BY PURCHASING THE SHARES WHICH FACILITATED ACQUISI TION OF THE MANAGING AGENCY A CAPITAL ASSET WAS ACQUIRED AND MERELY BEC AUSE THE MANAGING AGENCY COULD BE UTILIZED FOR EARNING PROFIT THE AC QUISITION OF THE SHARES WHICH LED TO THE ACQUISITION OF THE MANAGING AGENCY COULD NOT IN THE ABSENCE OF AN INTENTION TO TRADE IN THOSE SHARES B E REGARDED AS ACQUISITION OF STOCK-IN-TRADE OF THE SHARE BUSINESS. THE APPELL ANTS HAD UNDOUBTEDLY PURCHASED THE SHARES OF THE DAWN MILLS WITH MONEY B ORROWED AT INTEREST BUT THAT CIRCUMSTANCE BY ITSELF DOES NOT EVIDENCE A N INTENTION TO TRADE IN THE SHARES. NOR IS THE FACT THAT THE APPELLANTS ARE DEA LERS IN SHARES AND THEIR MEMORANDUM OF ASSOCIATION AUTHORIZES THEM TO CARRY ON BUSINESS IN SHARES OF ANY IMPORTANCE IN THE CIRCUMSTANCES OF THE CASE. IT WAS FURTHER OBSERVED: SUBSEQUENT DISPOSAL OF SOME OUT OF THE SHARES BY T HE APPELLANTS COULD ALSO NOT CONVERT WHAT WAS A CAPITAL ACQUISITION INTO AN ACQUISITION IN THE NATURE OF TRADE. WE ARE THEREFORE OF THE VIEW THAT THE ANSWER GIVE N BY THE HIGH COURT TO QUESTION NO (I) WAS NOT CORRECT. IN OUR OPINION THERE WAS M ATERIAL FOR THE FINING THAT THE SHARES IN QUESTION HAD BEEN PURCHASED BY THE ASSESS EE WITH A VIEW TO ACQUIRE THE ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 15 MANAGING AGENCY AND CONTROL OF THE INDIA UNITED MIL LS LTD. AND THAT THE SHARES DID NOT CONSTITUTE THE STOCK-IN-TRADE OF THE ASSESSEE. IN THE INSTANT CASE IT IS AN ADMITTED POSITION THA T THE MAIN ACTIVITY OF THE ASSESSEE IS TO PURCHASE SHARES OF THE KIRLOSKAR GRO UP COMPANIES WITH THE PURPOSE TO ACQUIRE AND RETAIN CONTROL OVER THE GROU P COMPANIES. WE SAY SO FOR THE REASON THAT ON PERUSAL OF THE TRANSACTIONS FOR FOUR ASSESSMENT YEARS OF 2001-02 TO 2004-05 AS PLACED AT PAGES 17 TO 54 O F THE PAPER BOOK NEVER HAS THE ASSESSEE PURCHASED SHARES OF A COMPANY OTHE R THAN KIRLOSKAR GROUP OF COMPANIES AND THE SHARES SO PURCHASED HAVE NOT B EEN SOLD TO ANY ENTITY OTHER THAN ITS OWN GROUP COMPANIES. THESE FACTUAL A SPECTS HAVE BEEN CONSISTENTLY PLEADED BY THE ASSESSEE BEFORE THE LOW ER AUTHORITIES WITHOUT ANY CONTROVERSION. THIS BRINGS US TO THE QUESTION A S TO WHETHER THE ACTIVITY UNDERTAKEN BY THE ASSESSEE FOR MAKING INVESTMENT IN GROUP COMPANIES SO AS TO ACQUIRE AND RETAIN CONTROL OVER THE GROUP COM PANIES COULD CONSTITUTE A BUSINESS. IN OUR CONSIDERED OPINION THE INTENTION OF THE ASSESSEE IS NOT TO EARN PROFITS ON TRADING OTHERWISE IT WOULD HAVE EA RNED PROFITS BY SELLING SUCH SHARES TO NON-GROUP ENTITIES AND THE FACT THAT THE SAME HAVE BEEN SOLD ALWAYS TO AN ANOTHER GROUP CONCERN IN THE PAST AND ALSO DURING THE YEAR UNDER CONSIDERATION SHOWS ABSENCE OF ANY INTENTION TO TRADE IN THE SHARES THE DOMINANT OBJECTIVE BEING TO ACQUIRE AND EXERCIS E CONTROL OVER THE GROUP COMPANIES. UNDOUBTEDLY IN ORDER TO DETERMINE WHETH ER A PERSON CARRIES ON BUSINESS IN A PARTICULAR COMMODITY OR NOT DEPENDS U PON THE VOLUME FREQUENCY CONTINUITY AND TRANSACTIONS OF PURCHASE AND SALE IN SUCH CLASS OF GOODS BUT TO ESTABLISH A TRANSACTION TO BE OF BUSI NESS NATURE THE PRESENCE OF A MOTIVE TO EARN PROFITS BY TRADING IN SUCH A CO MMODITY IS PERTINENTLY REQUIRED TO BE PRESENT. ON FACTS WE FIND SUCH A MO TIVE BEING ABSENT IN THE PRESENT CASE AS OUR AFORESAID DISCUSSION SHOWS. W E MAY ALSO OBSERVE HERE THAT MERELY BECAUSE TRANSACTIONS RESULT IN A SURPLUS PROFIT IN THE HANDS ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 16 OF THE ASSESSEE BY ITSELF WOULD NOT BE CONCLUSIVE OF THE FACT THAT THE ACTIVITY HAS BEEN UNDERTAKEN AS A BUSINESS VENTURE. 17. THE ARGUMENT PUT-FORTH BY THE ASSESSING OFFICE R WAS THAT ASSESSEE WAS DEALING IN A NUMBER OF SCRIPS AND THE FREQUENCY OF PURCHASE AND SALE OF SHARES WAS REGULAR AND RECURRING. ALTHO UGH THE SAID FACTOR BY ITSELF IS NOT A DECISIVE OR CONCLUSIVE TEST AS HEL D BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF H. HOLCK LARSEN V CIT 85 ITR 2 85 (BOM) WHICH STOOD AFFIRMED BY THE HONBLE SUPREME COURT IN THE CASE O F CIT V H HOLCK LARSEN 160 ITR 67 (SC) HOWEVER ON FACTS ALSO WE FIND LI TTLE SUPPORT FOR SUCH A PROPOSITION IN THE PRESENT CASE. AGAIN REFERRING TO THE SCRIP-WISE DETAILS OF TRANSACTIONS CARRIED OUT FOR THE FOUR ASSESSMENT YE ARS PLACED IN THE PAPER BOOK PAGES 17 TO 54 IT IS SEEN THAT IN SO FAR AS T HE PURCHASES ARE CONCERNED THE TRANSACTIONS HAVE BEEN MADE ON MULTI PLE DAYS. FOR INSTANCE DURING THE YEAR UNDER CONSIDERATION PURCHASES OF S HARES OF KIRLOSKAR BROTHERS LTD. HAVE BEEN UNDERTAKEN IN 28 DAYS FOR B UYING 349408 SHARES. HOWEVER SALE OF 350000 SHARES HAS BEEN MADE ON A S INGLE INSTANCE WHICH AS EXPLAINED WAS MADE TO A GROUP COMPANY IN ORDER TO COMPLY WITH THE NBFC NORMS OF RESERVE BANK OF INDIA. SIMILARLY DUR ING THE YEAR ASSESSEE HAS PURCHASED 898000 SHARES OF KIRLOSKAR PNEUMATIC COMPANY LTD IN SIX INSTANCES BUT NO SALE HAS BEEN UNDERTAKEN. SIMILAR LY IN THE CASE OF SHARES OF PUNE INDUSTRIAL HOTELS LTD 4498 SHARES HAVE BEE N PURCHASED IN 25 DAYS WHILE SALE OF 10000 SHARES HAS BEEN MADE IN A SINGL E INSTANCE AND AS EXPLAINED THE SAME HAS BEEN UNDERTAKEN TO COMPLY W ITH NBFC NORMS OF RESERVE BANK OF INDIA. SIMILARLY SHARES OF KIRLOSK AR SYSTEMS LTD HAVE BEEN PURCHASED DURING THE YEAR IN 43 INSTANCES BUT NO S ALE HAS BEEN UNDERTAKEN. SIMILARLY SHARES OF KIRLOSKAR PROPRIETARY LTD. HAV E BEEN PURCHASED ONCE DURING THE YEAR WITH NO SALE. TO THE SAME EFFECT IS THE SHARES ACQUIRED OF ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 17 KIRLOSKAR KISAN EQUIPMENTS LTD. WITH NO SALES MADE . WE ARE ONLY HIGHLIGHTING THE INSTANCES TO POINT OUT THAT WHILE ASSESSEE HAS BEEN ACQUIRING SHARES ON MULTIPLE OCCASIONS IN THE YEAR THE SALES HAVE NOT BEEN SO MADE. IN FACT SALES HAVE BEEN EFFECTED IN A SINGLE LOT W HENEVER IT HAS TAKEN PLACE AND THAT TOO IN ORDER TO COMPLY WITH STATUTORY REQ UIREMENTS. IN FACT IN OUR CONSIDERED OPINION ACQUIRING OF SHARES ON MULTIPLE DAYS ONLY SUPPORTS THE DECLARED OBJECTIVE OF THE ASSESSEE OF ACQUIRING AND EXERCISING CONTROL OVER GROUP COMPANIES AND COUPLED WITH A FEW OR INSIGNIFI CANT INSTANCES OF SALES AND THAT TOO TO GROUP COMPANIES CANNOT BE VIEWED AS SHARE DEALINGS DONE BY THE ASSESSEE FREQUENTLY AND IN A RECURRING MANNE R SO AS TO BE REGARDED AS A TRADING ACTIVITY. THEREFORE EVEN ON FACTS WE FIND NO JUSTIFICATION FOR THE ASSESSING OFFICER TO HOLD THAT THE ACTIVITY OF PURC HASE AND SALE OF SHARES HAVE BEEN CARRIED OUT REGULARLY RECURRINGLY AND IN AN ORGANIZED MANNER SO AS TO CONSTITUTE A TRADING ACTIVITY. THE OTHER OBSERVATION OF THE ASSESSING OFFICER IS T O THE EFFECT THAT THE ASSESSEE HAS NOT EFFECTED PURCHASE AND SALE OF SHAR ES THROUGH A PORTFOLIO MANAGER WHICH IN OUR VIEW IS OF NO RELEVANCE TO A DJUDICATE THE CONTROVERSY. ANOTHER ASPECT BROUGHT OUT BY THE ASSESSING OFFICER IS THAT THE SURPLUS RESULTING WITH THE ASSESSEE ON PURCHASE AND SALE OF SHARES AND UNITS WAS AGAIN DEPLOYED TO EFFECT PURCHASE OF SHARES AND TH EREFORE IT WAS A TRADING ACTIVITY. IN OUR VIEW THIS ASPECT IS NOT SINGULARL Y MATERIAL TO DEPART FROM THE EARLIER ACCEPTED POSITION OF THE ASSESSEE BEING AN INVESTOR IN SHARES. IN FACT MAXIMIZATION OF PROFITS CANNOT BE A SINGULAR FACTOR TO DETERMINE THE MOTIVE OF ACQUISITION WHICH HAS TO BE GATHERED FROM OVERALL FACTS AND CIRCUMSTANCES OF A CASE. 18. IN OUR CONSIDERED OPINION IN THE PRESENT CASE WHERE THE TRANSACTION OF SALE OF SHARES OF KIRLOSKAR BROTHERS LTD. HAS BEEN UNDERTAKEN ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 18 AS A PART OF ASSESSEES OVERALL ACTIVITIES OF NURSI NG THE INVESTMENTS OF PROMOTER FAMILY IN THE KIRLOSKAR GROUP COMPANIES AN D TO ACQUIRE AND EXERCISE CONTROL ON SUCH COMPANIES SURPLUS ARISING THEREFROM CANNOT CONSTITUTE INCOME ASSESSABLE UNDER THE HEAD PROFIT S AND GINS OF BUSINESS. THEREFORE THE AUTHORITIES BELOW ERRED IN LAW AND ON FACTS DURING THE YEAR IN CONSTRUING LONG TERM CAPITAL GAIN EARNED BY THE ASS ESSEE AS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 19. BEFORE PARTING WE MAY REFER TO THE CASE LAWS RELIED UPON BY THE REVENUE BEFORE US. FIRSTLY RELIANCE WAS PLACE D ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF AJINKYA E LECTROMELT P. LTD (SUPRA). IN THE SAID CASE FACTS WERE THAT ASSESSEE COMPANY WAS A DEALER IN VARIOUS STEEL ITEMS AND DERIVING BUSINESS INCOME THEREOF. T HE ASSESSEE PURCHASED SHARES OF CERTAIN STEEL COMPANIES AND EARNED SHORT TERM CAPITAL GAIN ON SALE OF SUCH SHARES. THE ASSESSING OFFICER TREATED SUCH SHORT TERM CAPITAL GAINS AS BUSINESS INCOME WHICH WAS AFFIRMED BY THE TRIBU NAL. IN COMING TO SUCH DECISION THE TRIBUNAL NOTED THAT ASSESSEE UNDERTOO K THE TRANSACTIONS IN SHARES OF STEEL COMPANIES ON THE BASIS OF ITS KNOWL EDGE ABOUT THE STEEL COMPANIES AND WAS GUIDED SOLELY BY CONSIDERATION OF EARNING PROFIT OUT OF SUCH TRANSACTIONS. IT WAS ALSO FOUND ON FACTS TH AT THE SHARES SO PURCHASED WERE INTENDED TO BE SOLD AS AND WHEN PRICES WERE TO GO UP IN ORDER TO MAXIMIZE PROFITS. THE TRIBUNAL ALSO NOTED THAT THE AVERAGE PERIOD OF SHARE HOLDING WORKED OUT TO SIX MONTHS OR SO AND THAT SHA RES WERE FOUND TO HAVE BEEN PURCHASED WHEN PRICES WERE LOW AND SOLD IN QUI CK SUCCESSION AS SOON AS THE PRICES WENT UP. THE TRIBUNAL ALSO OBSERVED T HAT THE ASSESSEE COULD NOT ESTABLISH ANY SUDDEN EMERGENCY OR OPPORTUNITY C ALLING FOR READY MONEY BY SELLING THE SHARES AFTER HOLDING THEM FOR A SHOR T PERIOD AND IN THE ABSENCE OF ANY SUCH OCCASION IT WAS PRESUMED THAT THE OBJECTIVE WAS TO ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 19 TRADE IN SHARES AND MAKE PROFITS. FOR ALL THE AFORE SAID FACTORS THE TRIBUNAL AFFIRMED THE CONCLUSION OF THE ASSESSING OFFICER TH AT THE TRANSACTIONS WERE INDICATIVE OF THE ASSESSEE BEING ENGAGED IN THE ACT IVITY OF TRADING IN SHARES AND ACCORDINGLY INCOME WAS HELD TO BE ASSESSABLE U NDER THE HEAD BUSINESS INCOME. 20. QUITE CLEARLY THE FACT POSITION IN THE INSTAN T CASE STANDS ON AN ENTIRELY DIFFERENT FOOTING. FIRSTLY IN THIS CASE IT IS NOBODYS CASE THAT THE SHARES HAVE BEEN PURCHASED WHEN THE PRICES WERE LO W AND SOLD IMMEDIATELY THEREAFTER BECAUSE OSTENSIBLY THE ASSES SEE HAS BEEN ACQUIRING SHARES AND IT HAS HELD THOSE SHARES FOR A SUFFICIE NTLY LONG PERIOD AND WHEREVER SALES WERE UNDERTAKEN SAME HAS ALSO BEEN MADE TO GROUP CONCERNS. IN CONTRAST TO THE CASE OF AJINKYA ELECTR OMELT P LTD (SUPRA) ASSESSEE HAS NOT UNDERTAKEN SALES IN A SHORT PERIOD OF TIME TO ANY OUTSIDER SO AS TO INFER PROFIT MOTIVE OR TRADING IN SUCH SHA RES. THE AVERAGE PERIOD OF SHARE HOLDING IN THE PRESENT CASE IS SUFFICIENTLY L ONG AND IS IN CONTRAST TO THE AVERAGE PERIOD OF SIX MONTHS NOTED BY THE TRIBUNAL IN THE CASE OF AJINKYA ELECTROMELT P LTD.(SUPRA). MOREOVER IN THIS CASE THE MOTIVE OF THE ASSESSEE BEING TO ACQUIRE AND EXERCISE CONTROL OVER GROUP CO MPANIES IS FACTUALLY EMERGING WHICH WAS NOT SO IN THE CASE IN AJINKYA E LECTROMELT P LTD (SUPRA) AND THEREFORE FOR ALL THE ABOVE REASONS WE FIND THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF AJINKYA ELECTROMELT P LTD. IS INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. 21. THE SECOND JUDGMENT VEHEMENTLY RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS SUPPLY AGE NCY LTD (SUPRA). WE HAVE CAREFULLY PERUSED THE SAID DECISION. THE ASSESSEE B EFORE THE HONBLE SUPREME COURT WAS A PUBLIC COMPANY AND HELD SHARES IN A SISTER CONCERN ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 20 WHICH WERE ACQUIRED IN THE PAST. IN THE YEAR BEFORE THE HONBLE SUPREME COURT THE ASSESSEE SOLD CERTAIN SHARES AT A PROFIT AND THE SAME WAS HELD TO BE IN THE NATURE OF BUSINESS ADVENTURE BY THE REVEN UE WHICH WAS AFFIRMED BY THE TRIBUNAL. ONE OF THE MATERIAL FACTOR TO COME TO SUCH CONCLUSION WAS THAT ASSESSEE WAS FOUND TO BE A DEALER IN SHARES IN THE PAST YEARS AND FURTHER THAT IN ONE OF THE EARLIER YEARS A LOSS IN DEALING OF SHARES WAS ALSO CLAIMED AS BUSINESS LOSS AND ALLOWED. OTHER FACTORS WERE ALSO ENUMERATED TO COME TO A FACTUAL CONCLUSION THAT THE TRANSACTIO N WAS AN ADVENTURE IN THE NATURE OF TRADE. FACTUALLY SPEAKING THE FACTS IN T HE PRESENT CASE ARE QUITE DIFFERENT. IN THIS CASE THE PAST POSITION IN-FACT POINTS TO THE ASSESSEE HAVING BEING CONSIDERED AS AN INVESTOR OF SHARES AND NOT A DEALER IN SHARES WHICH WAS NOT THE CASE BEFORE THE HONBLE SUPREME COURT. HENCE THE JUDGMENT OF THE HONBLE SUPREME COURT DOES NOT APPLY TO THE FAC TS OF THE PRESENT CASE. MOREOVER AS OBSERVED BY THE HONBLE SUPREME COURT IN THE SAID CASE THE QUESTION WHETHER PROFIT FROM SALE OF THE SHARES WAS A REVENUE OR A CAPITAL RECEIPT IS A MIXED QUESTION OF LAW AND FACTS AND THEREFORE EACH CASE HAS TO BE DECIDED ON ITS OWN PECULIAR FACTS. IN THE PRESEN T CASE HAVING REGARD TO THE PECULIAR FACTS BROUGHT OUT IN THE EARLIER PART OF THIS ORDER IN OUR VIEW THE POSITION CANVASSED BY ASSESSEE HAS TO SUCCEED. 22. IN THE RESULT WE SET ASIDE THE ORDER OF THE C OMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO TREAT LONG TERM CAPITAL GAIN AS SUCH AND NOT TO TREAT IT AS A BUSINESS INCOME. 23. NOW WITH REGARD TO SHORT TERM CAPITAL GAIN OF RS 16 93 757/- DECLARED BY THE ASSESSEE ON ACCOUNT OF UNITS OF MUT UAL FUNDS THE SAME HAS BEEN TREATED BY THE ASSESSING OFFICER AS INCOME FRO M BUSINESS. THE CASE MADE OUT BY THE ASSESSEE IS THAT INVESTMENTS IN A M UTUAL FUND IS TEMPORARILY MADE TO PARK SURPLUS FUNDS FOR A BETTER RETURN AND THERE WAS NO INTENTION OF ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 21 CARRYING OUT ANY SYSTEMATIC TRADING ACTIVITY. IT WA S POINTED OUT THAT MUTUAL FUND UNITS ARE NOT EASILY TRADABLE IN THE MARKET AN D IN ANY CASE ASSESSEE HAD PUT THE FUNDS IN MUTUAL FUND UNITS FOR A PERIOD OF TWO TO THREE MONTHS AS A SHORT TERM INVESTMENT AS IT YIELDED BETTER RETUR N AND THAT THE SAME WAS JUST LIKE AN INVESTMENT IN BANK DEPOSITS. ON THIS ASPECT ALSO WE FIND THAT HAVING REGARD TO THE DISCUSSION IN THE FOREGOING PARAGRAPH S OSTENSIBLY THERE IS NO INTENTION EMERGING TO ACT AS A TRADER SO AS TO ASSE SS THE SURPLUS ON REDEMPTION OF MUTUAL FUNDS AS A BUSINESS INCOME. TH US ON THIS ASPECT ALSO WE UPHOLD PLEA OF THE ASSESSEE THAT SUCH INCO ME IS ASSESSABLE AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 24. RESULTANTLY THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO TREAT THE LONG TERM CAPITAL GAIN OF RS 3 59 14 921/- AND SHORT TER M CAPITAL GAIN OF RS 16 93 757/- RESPECTIVELY AS SUCH AND NOT TO TREAT THEM AS BUSINESS INCOME. 25. RESULTANTLY THE APPEAL OF THE ASSESSEE IS ALL OWED. 26. NOW WE TAKE UP APPEAL IN ITA NO1418/PN/08 WHI CH IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I PUNE DATED 17.9.2008 WHICH IN TURN HAS ARISEN FROM AN ORDER DATED 31.12.2007 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE ACT PERTAINING TO THE ASSESSMENT YEAR 2005-06. 27. IT WAS A COMMON GROUND BETWEEN THE PARTIES THA T THE ISSUE INVOLVED IN THIS APPEAL IS IDENTICAL TO THAT CONSID ERED BY US FOR THE ASSESSMENT YEAR 2004-05 AND THEREFORE OUR CONCLUSI ON THEREIN WOULD APPLY MUTATIS MUTANDIS TO THIS YEAR ALSO. ACCORDINGLY FOR THE DETAILED REASONS GIVEN BY US IN THE FOREGOING PARAGRAPHS OF THIS ORD ER FOR THE ASSESSMENT YEAR 2004-05 WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT AND DIRECT THE ASSESSING O FFICER TO TREAT LONG TERM ITA NOS 1417 &1418/PN/08 BETTER VALUE HOLDINGS P. LTD. PUNE 22 CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS SUCH A ND NOT TO TREAT IT AS A BUSINESS INCOME. 29. RESULTANTLY BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16TH DAY OF DE CEMBER 2010. SD/- SD/- (I C SUDHIR) (G.S. PA NNU) JUDICIAL MEMBER ACCOUNTA NT MEMBER PUNE DATED: 16TH DECEMBER 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT 3) THE CIT (A)I PUNE. 4) THE CIT I PUNE. 5) THE DEPARTMENTAL REPRESENTATIVE B BENCH I.T.A.T. PUNE. BY ORDER TRUE COPY ASST. REGISTRAR I.T.A.T. PUNE B