M/s Raju Vegesna Infotech and Industries Pvt Ltd., Visakhapatnam v. The Ad CIT, Range-4, Visakhapatnam

ITA 386/VIZ/2009 | 2006-2007
Pronouncement Date: 27-08-2010 | Result: Allowed

Appeal Details

RSA Number 38625314 RSA 2009
Bench Visakhapatnam
Appeal Number ITA 386/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 13 day(s)
Appellant M/s Raju Vegesna Infotech and Industries Pvt Ltd., Visakhapatnam
Respondent The Ad CIT, Range-4, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 27-08-2010
Date Of Final Hearing 25-03-2010
Next Hearing Date 25-03-2010
Assessment Year 2006-2007
Appeal Filed On 14-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.229/VIZAG/2008 ASSESSMENT YEAR : 2005-06 ACIT CIRCLE-4(1) VISAKHAPATNAM RAJU VEGESNA INFOTECH & INDUSTRIES PVT. LTD. VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AACCR 6263K ITA NO.386/VIZAG/2009 ASSESSMENT YEAR : 2006-07 RAJU VEGESNA INFOTECH & INDUSTRIES PVT. LTD. VISAKHAPATNAM AD. CIT RANGE-4 VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI SUBRATA SARKAR DR RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE REVENUE AS WEL L AS THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A). SINCE THESE APPEALS WERE HEARD TOGETHER THESE ARE BEING DISPOSED OF THROUGH THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE HOWEVER PREFER TO ADJUDIC ATE THEM ONE AFTER THE OTHER. ITA NO.229 OF 2008: 2. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2005-06 ON FOLLOW ING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN BOTH FACTS AND IN LAW. 2. THE LD. CIT(A) IS NOT CORRECT IN CONCLUDING THE ACT IVITY OF THE ACTIVITY AS BUSINESS ACTIVITY WHEN THERE IS CLEAR A BSENCE OF ANY ACTIVITY INVOLVING RISK THEREON. 3. THE LD. CIT(A) SHOULD HAVE APPRECIATED THE FACT THA T THE SALE OF LAND AT HYDERABAD WHICH IS LOAN TRANSACTION DURING THE YEAR IS NOT 2 DURING ANY COURSE OF BUSINESS AND SUCH ACTIVITY IS IN THE NATURE OF CAPITAL INVESTMENT AND CORRESPONDINGLY ATTRACT CAPI TAL GAIN/LOSS. 4. THE LD. CIT(A) SHOULD HAVE TAKEN COGNIZANCE OF THE REPORT OF THE INCOME-TAX INSPECTOR IN DETERMINING THE ABSENCE OF AN Y BUSINESS ACTIVITY ON THE LAND HELD BY THE ASSESSEE COMPANY. 5. THE LD. CIT(A) SHOULD HAVE APPRECIATED THE COLOURFU L DEVICE ADOPTED BY THE ASSESSEE BY BRINGING IN NO BUSINESS ACTIVITY AS BUSINESS ACTIVITY HAVING REGARD TO THE HUGE HOUSE PROPERTY INCOME AVAILABLE. 6. ANY OTHER GROUND URGED AT THE TIME OF HEARING. THOUGH NUMBER OF GROUNDS WERE RAISED BY THE REVENUE BUT THEY ALL RELATE TO THE NATURE OF ACTIVITIES UNDERTAKEN BY THE ASSES SEES. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH FILED A RETURN OF INC OME FOR A.Y. 2005-06 ADMITTING A LOSS OF RS.7 80 700/-. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT DURING THE YEAR UNDER CONSIDERATION APART FROM SELLING SOME LAND AT HYDERABAD FOR A LOSS THE ASSESSEE HAD NOT CARRIED ON ANY BUSINESS ACTIVITY. RELYING UPON THE DEFINIT ION OF THE WORD `BUSINESS AS GIVEN U/S 2(13) OF THE ACT THE A.O. CONCLUDED T HAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS ACTIVITY EXCEPT THE SOLITARY TRANSACTIONS OF LAND SALE AT HYDERABAD. AS THE ASSESSEE CLAIMED EXPENDITURE OF DEVELOPMENT OF LAND LOCATED AT VISAKHAPATNAM THE A.O. GOT THE MATTER E XAMINED BY DEPUTING THE INSPECTOR WHO VISITED THE LANDS LOCATED AT RUSHIKO NDA AND MADHURAWADA AND REPORTED THAT WHILE RUSHIKONDA LAND HAD BEEN LEVELE D BOUNDARY WALLS ERECTED BOREWELLS AND PIPELINES INSTALLED AND MANG O PLANTATION UNDERTAKEN AT THE MADHURAWADA LAND ONLY FENCING HAD BEEN DONE. FROM THESE ACTIVITIES THE A.O. HELD THAT ACQUISITION OF LAND BY THE ASSES SEE COMPANY WAS NOT FOR THE PURPOSE OF INDULGING IN ANY REAL ESTATE TRANSAC TION BUT FOR HOLDING THOSE PROPERTIES FOR INVESTMENT PURPOSES. IN VIEW OF THE FACT THAT SALE OF LAND AT HYDERABAD WAS SHOWN AS A DELETION OF AN ASSET FROM THE BLOCK OF ASSET THE A.O. WAS OF THE VIEW THAT ANY LOSS ARISING OUT OF S UCH SALE CAN BE TREATED AS A 3 SHORT TERM CAPITAL LOSS AND NOT A BUSINESS LOSS. S IMILARLY WITH RELATION TO THE CONSULTANCY INCOME RECEIVED BY THE ASSESSEE THE A. O. HELD THAT THE SAME BEING A UNIQUE RECEIPT CAN ONLY BE TREATED AS AN IN COME FROM `OTHER SOURCES. THE A.O. HAS ALSO EXAMINED THE REASONABI LITY OF EXPENDITURES CLAIMED BY THE COMPANY AND RESTRICTED THE CLAIM OF VEHICLE EXPENDITURE SALARY OF THE EMPLOYEES AND TRAVELING EXPENSES UPTO 25% OF THE TOTAL CLAIM AND MADE A DISALLOWANCE OF A SUM OF RS.25 36 231/-. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSIONS THAT AS PER THE DEFINITION OF WORD BUS INESS U/S 2(13) OF THE ACT IF A TRANSACTION FALLS IN ANY OF THE DIFFERENT TERM S USED IN THE SAID DEFINITION I.E. TRADE COMMERCE MANUFACTURE OR ANY OTHER ADVE NTURE OR CONCERN IN THE NATURE OF TRADE COMMERCE OR MANUFACTURE IS BUSINES S. ACQUIRING LAND AT HYDERABAD WITH THE INTENTION OF SETTING UP OF A SOF TWARE DEVELOPMENT UNIT OR TO LEASE IT OUT OF SUCH UNIT IS PURELY A COMMERCIAL DECISION. AFTER PURCHASING SOME BITS OF LAND THE ASSESSEE FOUND THAT OTHER OW NERS OWNED BITS IN BETWEEN THE LAND PURCHASED BY THE ASSESSEE COMPANY WERE NOT WILLING TO SELL THEM. THEREFORE THE ASSESSEE COMPANY SOLD AWAY TH E LAND ACQUIRED BY IT AS THE SAME WAS FOUND NOT VIABLE FOR THE PURPOSE OF WH ICH IT WAS ACQUIRED. THEREFORE THE DECISION OF SALE OF SUCH LAND WAS PU RELY A COMMERCIAL DECISION AND BECAUSE OF BUSINESS CONSIDERATION. RELYING UPO N THE JUDGEMENT OF THE A.P. HIGH COURT IN THE CASE OF CIT VS. HYDERABAD RA CE CLUB CHARITABLE TRUST 262 ITR 194 AND JUDGEMENT OF THE SUPREME COURT IN T HE CASE OF MAZGAON DOCK LIMITED VS. CIT 34 ITR 368 AS WELL AS CIT VS. CALCUTTA NATIONAL BANK LIMITED 37 ITR 171 IT WAS ARGUED THAT AS THE TERM `BUSINESS IS A WORD OF VERY WIDE SCOPE IT IS NEITHER PRACTICABLE NOR DESI RABLE TO MAKE ANY ATTEMPT AT 4 DELIMITING THE AMBIT OF ITS CONNOTATION. EACH CASE HAS TO BE DETERMINED WITH REFERENCE TO PARTICULAR KIND OF ACTIVITY AND OCCUPA TION OF THE PERSON CONCERNED. ANY TRANSACTION WHETHER IT IS CONTINUOU SLY UNDERTAKEN OR ISOLATED TRANSACTIONS CAN BE TREATED ALIKE TO HOLD THAT A PA RTICULAR TRANSACTION IS A BUSINESS. 5. IT WAS FURTHER CONTENDED BEFORE THE CIT(A) THAT T HE EXPENDITURE ON PURCHASE OF LAND WAS IN THE PREVIOUS YEAR SHOWN IN THE BLOCK OF ASSETS. THIS WAS BECAUSE IT WAS BEING IN THE PROCESS OF BEING AC QUIRED. THIS IN ITSELF DOES NOT DISPUTE THE CONTENTION THAT SAME WAS FOR BUSINE SS. IT WAS NOT PURCHASED FOR CONSTRUCTION OF ANY BUILDING OR THE STRUCTURE O F THE COMPANY. IT WAS PURCHASED FOR THE PURPOSE OF CARRYING ON BUSINESS. IT WAS NEVER SHOWN AS AN INVESTMENT. IT IS SO HAPPENED THAT BECAUSE OF PECU LIAR CIRCUMSTANCES OF NON- AVAILABILITY OF ADJACENT LANDS IT HAD TO BE SOLD. WITH REGARD TO THE OBSERVATION OF THE A.O. ON CLAIM OF EXPENDITURE RAISED BY THE A SSESSEE IT WAS CONTENDED THAT ASSESSEE COMPANY WAS STARTED ON A VERY LARGE S CALE AND THE CAPITAL INFUSED WAS NEARLY RS.172.10 CRORES BY AN NRI. THE COMPANY OPERATED AT VARIOUS PLACES INCLUDING VISAKHAPATNAM HYDERABAD A ND BANGALORE. 6. THE CIT(A) EXAMINED THE ISSUE IN THE LIGHT OF DE TAILED FACTS FURNISHED BEFORE HIM AND HAS OBSERVED THAT FROM THE STATEMENT OF ACCOUNTS AS REPRODUCED ABOVE IT IS NOTED THAT IN THE ACCOUNTS THE ASSESSEE HAS ALL ALONG TREATED THE LAND AS BUSINESS ASSET AND NOT AS AN IN VESTMENT. THE CIT(A) ACCORDINGLY HELD THE IMPUGNED LAND TO BE THE BUSINE SS ASSET AND CONCLUDED THAT THOUGH THE TRANSACTION IS SOLITARY AND ISOLATE D THE SAME CONSTITUTE BUSINESS WITHIN THE MEANING OF SECTION 2(13) OF THE ACT. THEREFORE THE A.O. 5 WAS NOT CORRECT IN TREATING THE SAID TRANSACTIONS R ESULTING IN SHORT TERM CAPITAL GAINS/LOSSES. THE RELEVANT OBSERVATION OF THE CIT ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: 4. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS MADE BY THE AR OF THE APPELLANT. I HAVE ALSO EXAMINED THE RELEVANT CASE RECORDS. THE APPELLANT COMPANY WAS I NCORPORATED UNDER THE NAME AND STYLE CREATIVE INDUSTRIES (VIZAG) PVT. LIM ITED ON 26.11.1993 BY THE REGISTRAR OF COMPANIES. SUBSEQUENTLY THE NAME OF TH E COMPANY WAS CHANGED TO THE PRESENT ONE WHICH WAS RECOGNIZED BY THE REGISTRAR OF COMPANIES VIDE CERTIFICATE ISSUED DATED 6.3.2002. FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 THE RETURNS FILED BY THE APPELL ANT COMPANY HAD BEEN ACCEPTED U/S 143(1) AND THE INCOME/LOSS DISCLOSED T HEREIN HAD BEEN ASSESSED AS BUSINESS INCOME/LOSS. FOR THE YEAR UNDER CONSID ERATION IN THE STATEMENT OF INCOME FILED ALONG WITH RETURN OF INCOME THE APP ELLANT HAD ADMITTED INCOME FROM BUSINESS INCOME FROM HOUSE PROPERTY AN D INCOME FROM OTHER SOURCES. THE RENT RECEIVED FROM NALANDA EDUCATIONA L INSTITUTION WAS ADMITTED AS INCOME FROM HOUSE PROPERTY AND THE BANK INTEREST AS WELL AS DIVIDEND RECEIVED FROM COMPANIES WAS ADMITTED AS IN COME FROM OTHER SOURCES. IN SO FAR AS THE BUSINESS INCOME IS CONCE RNED THE LAND TRANSACTION DONE BY THE APPELLANT COMPANY WAS ADMITTED AS BUSIN ESS ACTIVITY. WHILE COMPLETING THE ASSESSMENT THE A.O. FOR THE REASONS DISCUSSED IN PARA 2 OF THIS ORDER TREATED SUCH SALE OF LAND AS SHORT TERM CAPITAL GAIN/LOSS AND CONCLUDED THAT THE APPELLANT DID NOT CARRY ON ANY B USINESS ACTIVITY DURING THEY YEAR UNDER CONSIDERATION. 4.1 PERUSAL OF THE STATEMENT OF ACCOUNT FURNISHED B Y THE APPELLANT ALONG WITH RETURN OF INCOME IT IS NOTICED THAT THE APPELL ANT IS SHOWING LAND AS AN ASSET IN THE SCHEDULE OF ASSETS THE TOTAL VALUE OF WHICH AS ON 31.3.2005 HAS BEEN EXHIBITED AT RS.5 77 30 886/-. DURING THE YEA R UNDER CONSIDERATION THE TOTAL ADDITION TO SUCH LAND HAS BEEN SHOWN AT RS.1 84 27 194/- WHICH COMPRISES OF THE FOLLOWINGS: LAND AT BUTCHUPALLY HYDERABAD ACQUIRED ON 15.4.200 4 RS. 1 54 43 700/- LAND AT BOWERPET HYDERABAD ACQUIRED ON 17.5.2004 RS. 10 66 655/- DEVELOPMENT EXPENSES OF LAND AT MADHURAWADA RS . 95 434/- DEVELOPMENT EXPENSES OF LAND AT RISHIKONDA RS . 18 21 405/- SIMILARLY DURING THE YEAR UNDER CONSIDERATION THE TOTAL DELETION TO SUCH LAND HAS BEEN SHOWN AT RS.53 30 860/-. THE DELETIO N OF SUCH LAND PERTAINS TO SALE OF LAND AT HYDERABAD WHICH REPRESENTS THE COST OF SUCH LAND. THE SAID LAND WAS SOLD FOR RS.52 25 000/- INVOLVING A LOSS O F RS.1 05 860/-. THE PURCHASE COST OF THE SAID LAND AS WELL AS THE SALE VALUE OF THE SAID LAND HAVE BEEN DEBITED AND CREDITED TO THE PROFIT & LOSS ACCO UNT RESPECTIVELY. THE A.O. IS OF THE VIEW THAT ONE SOLITARY ISOLATED TRANSACTI ON OF LAND CANNOT BE TERMED AS BUSINESS ACTIVITY OF THE APPELLANT COMPANY. ON THE CONTRARY THE AR OF THE APPELLANT COMPANY ARGUED THAT THE SAME LAND WAS SOL D FOR BUSINESS CONSIDERATION ONLY AND SUCH ACQUISITION OF LAND HAS NEVER BEEN TREATED AS AN INVESTMENT BY THE APPELLANT COMPANY RATHER THE SAME HAS BEEN TREATED AS BUSINESS ASSETS. FROM THE STATEMENT OF ACCOUNTS AS REPRODUCED ABOVE IT IS 6 NOTED THAT IN THE ACCOUNTS THE APPELLANT HAS ALL AL ONG TREATED THE LAND AS A BUSINESS ASSET AND NOT AS AN INVESTMENT. 4.2 THE DEFINITION OF `BUSINESS AS GIVEN IN SECTIO N 2(13) IS NOT EXHAUSTIVE. THE DEFINITION BEING INCLUSIVE AND NOT EXHAUSTIVE IS INDICATIVE OF EXTENSION AND EXPANSION AND NOT RESTRICTION. THOUGH ORDINARI LY BUSINESS IMPLIES CONTINUOUS ACTIVITY IN CARRYING ON A PARTICULAR TRA DE OR AVOCATION A SINGLE AND ISOLATED TRANSACTION HAS ALSO BEEN HELD TO BE CONCE IVABLY CAPABLE OF FALLING WITHIN THE DEFINITION OF BUSINESS AS BEING AN ADVEN TURE IN THE NATURE OF TRADE PROVIDED THE TRANSACTION BEARS CLEAR INDICIA OF TRA DE. IN FACT THE HONBLE AP HIGH COURT IN THE CASE OF CIT VS. HYDERABAD RACE CL UB CHARITABLE TRUST REPORTED IN 262 ITR 194 OBSERVED AS FOLLOWS: THE WORD `BUSINESS IS ONE OF LARGE AND INDEFINIT E IMPORT. HOWEVER IT CONNOTES SOMETHING WHICH OCCUPIES THE L ABOUR AND ATTENTION OF A PERSON FOR THE PURPOSE OF PROFIT. GENERALLY SPEAKING BUSINESS IS AN ACTIVITY OF A COMMERCIAL N ATURE AND MEANS PRACTICALLY ANYTHING WHICH IS AN OCCUPATION AS DIST INGUISHED FROM A PLEASURE. IF THE TRANSACTION IS A TRADING TRANSACT ION OR AN ADVENTURE IN THE NATURE OF TRADE IT WILL AMOUNT TO BUSINESS WHETHER IT RESULTS IN LOSS OR PROFIT. IT ALSO INCLU DES ADVENTURE IN THE NATURE OF TRADE. THE OBJECT OF THE DEFINITION OF ` BUSINESS IN THE ACT IS TO TREAT THE RECEIPTS FROM AN ADVENTURE ALSO TO TAX JUST AS THE RECEIPTS FROM THE TRADE PROFITS ARE BROUGHT TO TAX. IN EACH CASE HOWEVER ONE HAS TO DETERMINE THE NATURE OF TRANSAC TION ITS VOLUME FREQUENCY CONTINUITY AND REGULARITY. THER E IS NO HARD AND FAST RULE FOR APPLICATION THAT PARTICULAR TRANSACTI ON IS A BUSINESS. ANY TRANSACTION WHETHER IT IS CONTINUOUSLY UNDERTA KEN OR ISOLATED TRANSACTION CAN BE TREATED A LIKE TO HOLD THAT A P ARTICULAR TRANSACTION IS A BUSINESS. 4.3 KEEPING THE MEANING OF `BUSINESS AS STATED IN THE EARLIER PARA IF THE FACTS OF THE APPELLANTS CASE IS EXAMINED IT IS NOT ED THAT THE APPELLANT HAS ALL ALONG TREATED THE ACQUISITION OF LAND AS ACQUISITIO N OF BUSINESS ASSET AND THE SAME HAVE NEVER BEEN TREATED AS AN INVESTMENT. THO UGH THE LAND AT HYDERABAD WAS PURCHASED WITH THE INTENTION TO START A SOFTWARE DEVELOPMENT CENTRE THE REQUIRED AMOUNT OF LAND COULD NOT BE ACQ UIRED AS SOME OF THE SELLERS OF THE LAND REFUSED TO SELL THOSE LANDS. U NDER THESE CIRCUMSTANCES THE APPELLANT HAD TO SELL AWAY THE LAND AT HYDERABAD AS THE SAME WAS NOT VIABLE FOR THE PURPOSES FOR WHICH IT HAD BEEN PURCHASED. IN VIEW OF THESE FACTS IT IS CLEAR THAT THE DECISION TO SELL THE LAND WAS IN THE INTEREST OF BUSINESS AND FOR BUSINESS CONSIDERATION ONLY. THE APPELLANT AS STAT ED EARLIER HAD ACQUIRED SUBSTANTIAL LAND IN DIFFERENT PLACES. THIS IS IN V IEW OF THE FACT THAT OBJECT NO.14 OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE APPELLANT COMPANY SPECIFIED AS UNDER; TO CARRY ON BUSINESS OF BUILDERS CONTRACTORS DE ALERS IN AN MANUFACTURERS OF PREFABRICATED AND PRECAST HOUSES BUILDINGS AND ERECTIONS AND MATERIALS TOOLS IMPLEMENTS MACHIN ERY AND METAL- WARE IN CONNECTION THEREWITH OR INCIDENTAL THERETO AND TO CARRY ON ANY OTHER BUSINESS INCLUDING REAL ESTATE BUSINESS CUSTOMARILY USUALLY AND CONVENIENTLY CARRIED ON THEREWITH. 7 THUS AS PER THE OBJECT CLAUSE THE APPELLANT COMPA NY CAN BE IN THE BUSINESS OF REAL ESTATE TRANSACTIONS. THEREFORE T AKING THE TOTALITY OF THE FACTORS I.E. LAND IS RECOGNIZED AS BUSINESS ASSET ONLY IT HAS NEVER BEEN TREATED AS AN INVESTMENT THE OBJECT CLAUSE PROVIDE S FOR INDULGING IN REAL ESTATE TRANSACTIONS AND THE LAND AT HYDERABAD WAS S OLD FOR BUSINESS CONSIDERATIONS IT IS CONCLUDED THAT THOUGH THE TRAN SACTION IS SOLITARY AND ISOLATED THE SAME CONSTITUTES BUSINESS WITHIN THE M EANING OF SECTION 2(13) OF THE ACT. THEREFORE THE AO IS NOT CORRECT IN TREAT ING THE SAID TRANSACTION AS RESULTING IN SHORT TERM CAPITAL GAIN/LOSS. 7. AGGRIEVED THE REVENUE HAS PREFERRED AN APPEAL B EFORE THE TRIBUNAL AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE A .O. THE LD. D.R. EMPHATICALLY ARGUED THAT THOUGH THE ASSESSEE WAS EN GAGED IN THE BUSINESS OF REAL ESTATE BUT THE SOLITARY TRANSACTION IN LAND AT HYDERABAD WOULD NOT MAKE THE ASSESSEE TO BE INVOLVED IN THE BUSINESS OF SALE AND PURCHASE OF LAND. EXCEPT THE IMPUGNED TRANSACTIONS THE ASSESS EE HAS NOT UNDERTAKEN ANY ACTIVITY IN REAL ESTATE. THEREFORE THE A.O. H AS RIGHTLY HELD THAT THIS LAND WAS KEPT AS AN INVESTMENT AND ON ITS SALE THE ASSES SEE HAS SUFFERED A CAPITAL LOSS. 8. THE LD. COUNSEL FOR THE ASSESSEE BESIDES PLACING A RELIANCE UPON THE ORDER OF THE CIT(A) HAS INVITED OUR ATTENTION TO TH E ASSESSMENT ORDER IN WHICH THE ASSESSING OFFICER HIMSELF HAS RESTRICTED THE EXPENDITURES CLAIMED BY THE ASSESSEE AND ALLOWED IT TO BE THE BUSINESS EXPE NDITURE. MEANING THEREBY THE ASSESSING OFFICER HIMSELF HAS ADMITTED THAT ASSESSEE WAS INVOLVED IN THE BUSINESS OF A REAL ESTATE. THE ACC OUNTS MAINTAINED BY THE ASSESSEE CLEARLY SHOWS THAT THE ASSESSEE HAS KEPT T HIS LAND AS A BUSINESS ASSET ONLY AND NOT AS AN INVESTMENT. THE ASSESSEE COMPANY IS A PRIVATE LIMITED COMPANY AND ITS OBJECT CLEARLY SHOWS THAT H E CAN MAKE SALES AND PURCHASE OF THE PLOTS BUILDINGS HOUSES ETC. IN SU PPORT OF HIS CONTENTION HE INVITED OUR ATTENTION TO OBJECT NO.14 OF THE MEMORA NDUM AND ARTICLES OF ASSOCIATIONS. 8 9. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACE D ON RECORD WE FIND THAT ACCORDING TO OBJECT NO.14 OF THE MEMORANDUM AND ART ICLES OF ASSOCIATION THE ASSESSEE MAY CARRY ON THE BUSINESS OF BUILDER CONT RACTOR DEALERS IN AND MANUFACTURES OF PRE-FABRICATED AND PRE-CAST HOUSES BUILDINGS AND ALSO TO CARRY ON ANY OTHER BUSINESS INCLUDING REAL ESTATE B USINESS I.E. CUSTOMARILY USUALLY CONVENIENTLY CARRIED ON THEREWITH. MEANIN G THEREBY ASSESSEE WAS PERMITTED TO CARRY ON THE BUSINESS IN REAL ESTATE A LSO. IN THE INSTANT CASE THE ASSESSEE HAS PURCHASED THE LAND IN HYDERABAD WHICH WAS SHOWN AS A BUSINESS ASSET IN ITS BOOKS OF ACCOUNT AND THAT LAN D WAS SOLD LATER ON IN WHICH THE ASSESSEE SUFFERED A LOSS. THIS LAND WAS NEVER SHOWN TO BE THE INVESTMENT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE S. THE LAND WAS SOLD UNDER CERTAIN CIRCUMSTANCES AND ALSO TO PROTECT ITS BUSINESS INTEREST. THEREFORE THE LOSS SUFFERED IN SALE OF IMPUGNED LA ND CAN ONLY BE TERMED TO BE THE `BUSINESS LOSS AND NOT A `CAPITAL LOSS. W E HAVE ALSO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAS EXA MINED THE DEFINITION OF BUSINESS IN THE LIGHT OF VARIOUS JUDGEMENTS OF THIS JURISDICTIONAL HIGH COURTS AND THE APEX COURT AND HAS COME TO THE CONCLUSION T HAT UNDER THE TERMS OF BUSINESS AS DEFINED IN SECTION 2(13) IT IS NOT ESS ENTIAL THAT THERE SHOULD BE A SERIES OF TRANSACTION AND EVEN A SINGLE OR ISOLATED TRANSACTIONS MAY CONSTITUTE A BUSINESS. THE MATERIAL CONSIDERATION IS TO SEE T HE INTENTION OF THE ASSESSEES. IN THE INSTANT CASE THE FACTS AVAILABL E ON RECORDS CLEARLY INDICATES THAT THE INTENTION OF THE ASSESSEE IS TO KEEP THE L AND AS A BUSINESS ASSET IN HIS BOOKS OF ACCOUNTS AND NOT AS AN INVESTMENT. TH EREFORE THE TRANSACTION OF SALE OF LAND AT HYDERABAD IS ONLY A BUSINESS TRA NSACTION AND THE LOSS SUFFERED BY THE ASSESSEES IS ALSO BUSINESS LOSS. T HEREFORE WE FIND NO 9 INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS RIGHTL Y ADJUDICATED THE ISSUE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. ACC ORDINGLY WE CONFIRM THE SAME. ITA NO.386 OF 2009: 10. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2006-07 ON A SOLI TARY GROUND THAT THE CIT(A) HAS ERRED IN CONFIRMING THE INCONSISTENT STA ND TAKEN BY THE A.O. THAT THE PROFIT OF SALE OF UNLISTED SHARES OF RS.29 79 1 9 214/- IS ASSESSABLE AS BUSINESS INCOME FOR THE ASSESSMENT YEAR 2006-07 WIT HOUT REALIZING THAT THE SHARES WERE SHOWN AS INVESTMENT OF THE COMPANY IN I TS BALANCE SHEET FOR THE YEAR ENDING 31.3.2005 AND WAS ACCEPTED BY THE REVEN UE IN THE SCRUTINY ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2005 -06. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD . 12. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD AR E THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROPERTY DEVE LOPMENT AND INFRASTRUCTURE DEVELOPMENT ACTIVITIES. FOR THE ASS ESSMENT YEAR 2006-07 THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME DISCLOS ING AN INCOME OF RS.25 34 49 458/-. IN THE RETURN OF INCOME ASSESS EE COMPANY HAS ADMITTED AN INCOME OF RS.22 47 04 019/- UNDER THE HEAD LONG TERM CAPITAL GAIN AND AN INCOME OF RS.3 21 97 775/- UNDER THE HEAD SHORT TERM CAPITAL GAIN. THE SAID CAPITAL GAIN WAS ADMITTED IN THE RETURN OF INC OME ON ACCOUNT OF SALE OF SHARES DEPENDING UPON THE PERIOD OF HOLDING SUCH SH ARES. THE SAID CAPITAL 10 GAIN WAS COMPUTED WITH REFERENCE TO THE SALE OF UNL ISTED SHARES BY THE ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON VERIFICATION OF THE RECORDS THE A.O. NOTICED THAT FOR THE FINANCIAL YEAR 2002-03 AND 2003-04 RELEVANT TO THE ASSESSMENT YEAR 2003-04 AND 2004-05 THE ASSESSEE COMPANY HAD SHOWN THE SHARES AS `STOCK IN TRADE IN THE RELEVANT BALANCE SHEETS. WHEN CONFRONTED IN THE COURSE OF A SSESSMENT PROCEEDINGS ABOUT THE SAID FACT THE ASSESSEE COMPANY SUBMITTED THAT THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY VIDE RESOLUTION D ATED 7.10.2004 DECIDED TO TREAT THE `STOCK IN TRADE AS INVESTMENT AND ACC ORDINGLY THE SAID SHARE HOLDINGS OF THE ASSESSEE COMPANY WAS SHOWN AS INVES TMENT IN THE BALANCE SHEET FILED FOR THE FINANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND THE PROFIT ON SALE WAS CONSIDERED AS CA PITAL GAIN. BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES T HE ASSESSING OFFICER HAS HELD THAT THE SHARES HELD BY THE ASSESSEE COMPANY WHICH WERE SOLD DURING THE PREVIOUS YEAR UNDER CONSIDERATION WERE IN FACT `STOCK IN TRADE OF THE ASSESSEE COMPANY AND THE PROFITS REALIZED ON SALE O F SUCH SHARE IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. 13. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) AND REITERATED ITS CONTENTIONS. IT WAS ALSO CONTENDED ON BEHALF OF TH E ASSESSEES THAT THOUGH THE ASSESSEE HAD KEPT CERTAIN SHARES AS `STOCK IN T RADE BUT THEY WERE NOT TRADED AND FINALLY IN FINANCIAL YEAR 2004-05 THEY WERE CONVERTED INTO AN INVESTMENT AS PER THE RESOLUTION OF THE BOARD OF D IRECTORS. THEREFORE IT WAS NOT PROPER TO SAY THAT ASSESSEE WAS ENGAGED IN TRAD ING OF SHARES IN THE IMPUGNED ASSESSMENT YEAR. 11 14. CIT WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HE CONFIRMED THE ASSESSMENT ORDER AND TREATED THE PROF IT ON SALE OF UNLISTED SHARES AS WELL AS LISTED SHARES AS `INCOME FROM BUS INESS. 15. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSIONS THAT THE ASSESSEE HAS BEEN ACQUIRING SH ARES SINCE A.Y. 2003-04. THE FIRST SALE OF SHARES TOOK PLACE ONLY IN A.Y. 20 06-07. EVEN IN THE SUBSEQUENT YEARS UPTO 2009-10 THERE IS NO FURTHER SALE OF SHARES. THEREFORE IT IS NOT PROPER TO SAY THAT ASSESSEE WA S INVOLVED IN TRADING IN SHARES AND WHATEVER PROFITS IS EARNED BY THE ASSESS EES ON SALE OF SHARES IS A BUSINESS PROFIT. THE SHARES HELD BY THE ASSESSEE C OMPANY WAS OF THOSE PRIVATE LIMITED COMPANIES OF WHICH SHARES ARE NOT F REELY TRANSFERABLE. IN FACT MOST OF THE SHARES WERE NOT PURCHASED BUT WERE ALLO TTED BY THE RESPECTIVE COMPANIES AND FORMED SUBSTANTIAL SHARE HOLDINGS OF THOSE COMPANIES. IT WAS FURTHER CONTENDED THAT IN ORDER TO ACQUIRE THE SHAR ES NO BORROWED FUNDS WERE USED AND IT WAS ACQUIRED OUT OF THE SURPLUS FU NDS OF THE ASSESSEES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT SUBSTANTIAL AMOUNT OF DIVIDENDS WERE RECEIVED IN THE ASSESSMENT YEAR SUBS EQUENT TO 2006-07 AND IT IS ALSO A COMMON KNOWLEDGE THAT WHEN INVESTMENT IS MADE IN AN UPCOMING COMPANY IT TAKES SOME TIME TO REALIZE THE YIELD IN THE FORM OF DIVIDENDS. HE HAS ALSO INVITED OUR ATTENTION TO THE ORDER OF THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005-06 WITH THE SUBMISSIONS THAT T HE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY WAS DISALLOWED BY THE ASSES SING OFFICER ON THE GROUND THAT COMPANY DID NOT CARRY ON ANY BUSINESS I N REAL ESTATE. ONCE THE ASSESSING OFFICER HIMSELF HAS CONCLUDED THAT ASSESS EE WAS NOT INVOLVED IN ANY BUSINESS OF REAL ESTATE THEN HE CANNOT TAKE A CONT RARY VIEW THAT ASSESSEE IS 12 INVOLVED IN THE BUSINESS ACTIVITY OF DEALING IN SHA RES. IT WAS FURTHER CONTENDED THAT DURING THE FINANCIAL YEAR 2004-05 RE LEVANT TO THE ASSESSMENT YEAR 2005-06 THE BOARD OF DIRECTORS OF THE ASSESSE E COMPANY VIDE RESOLUTION DATED 7.10.2004 DECIDED TO TREAT THE `STOCK IN TRAD E AS INVESTMENT AND ACCORDINGLY THE SAID SHAREHOLDINGS OF THE ASSESSEE COMPANY WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET FILED FOR THE FINAN CIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-06. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 WAS FRAMED U/S 143(3) AND THE ASSESSING OFF ICER HAS ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE TO ITS SHAREHOLDING S. ONCE THE REVENUE ITSELF HAS ACCEPTED IN THE IMMEDIATELY PRECEDING YEAR THE SHAREHOLDINGS AS AN INVESTMENT THEY ARE PRECLUDED TO TAKE A CONTRARY V IEW IN THE SUCCEEDING ASSESSMENT YEAR. SO FAR AS SHARES OF RAMANAND INFOT ECH PRIVATE LIMITED ARE CONCERNED THE SHARES WERE ACQUIRED IN A.Y. 2005-06 AND SINCE BEGINNING THEY WERE TREATED AS AN INVESTMENT. THEREFORE IN THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2004-05 THE FACT RELATING TO CONVER SION FROM `STOCK IN TRADE TO INVESTMENT WAS MENTIONED ONLY WITH REGARD TO THE SH ARES OTHER THAN THAT OF SHARES IN RAMANAND INFOTECH PRIVATE LIMITED. 16. THE VERY OBJECT OF THE COMPANY DID NOT CONSIDER THE DEALING IN SHARES AS A BUSINESS ACTIVITY AND THE COMPANY NEVER HAD TH E COMPETENCE OR INFRASTRUCTURE TO CARRY OUT THE BUSINESS OF DEALING IN SHARES ON A REGULAR BASIS. EVEN AS PER CIRCULAR NO.4/2007 THE KNOWLED GE OF CLASSIFICATION OF SHARES INTO `STOCK IN TRADE AND INVESTMENT SHALL B E LEFT TO THE ASSESSEE ALONE. AS PER THE DRAFT INSTRUCTIONS ISSUED BY THE INCOME TAX DEPARTMENT THE SHARES HELD BY THE ASSESSEE COMPANY CLEARLY FAL L IN THE CATEGORY OF INVESTMENTS. HE HAS ALSO PLACED A RELIANCE UPON TH E JUDGEMENT OF THE APEX 13 COURT IN THE CASE OF NEW ERA AGENCIES PRIVATE LIMIT ED VS. CIT 68 ITR 585 IN WHICH IT HAS BEEN HELD THAT THERE IS NO BAR ON CONV ERSION OF `STOCK IN TRADE IN TO INVESTMENT. THEREFORE THE CONVERSION OF SH ARES FROM `STOCK IN TRADE TO INVESTMENT IS NOT PROHIBITED UNDER THE LAW AND T HE ASSESSEE HAD DONE IT WITH THE PRIOR APPROVAL OF THE BOARD OF DIRECTORS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE PROVI SIONS OF SECTION 45(2) WHICH GOVERNS THE MODE OF COMPUTATION OF THE CAPITAL GAIN WHEN CAPITAL ASSET IS CONVERTED IN TO A `STOCK IN TRADE OF A BUSINESS CA RRIED ON BY THE ASSESSEES. BUT THERE IS NO SUCH PROVISION IN THE ACT WHICH GOV ERNS THE MODE OF COMPUTATION OF PROFIT ON CONVERSION OF `STOCK IN TR ADE INTO A CAPITAL ASSET OR AN INVESTMENT. BUT THIS CONVERSION IS RECOGNIZED T O BE A VALID CONVERSION OR LEGALLY PERMISSIBLE BY THE VARIOUS JUDICIAL PRONOUN CEMENTS. WAY BACK IN 1967 THE HONBLE APEX COURT HAS CATEGORICALLY HELD IN THE CASE OF NEW ERA AGENCIES PRIVATE LIMITED (SUPRA) THAT IT IS NO DOU BT THAT A PERSON WHO HAS BEEN A DEALER IN SHARES IN SOME YEARS CAN BE AN INV ESTOR IN SHARES IN SUBSEQUENT YEARS. IT IS ALSO TRUE THAT IT IS POSSI BLE FOR A DEALER IN SHARES TO CONVERT A PART OF ITS `STOCK IN TRADE INTO INVESTM ENTS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE PERIOD OF H OLDING IS THE MAIN RELEVANT FACTOR WHICH DECIDES THE NATURE OF HOLDING S WHETHER IT WAS A `STOCK IN TRADE OR AN INVESTMENT. HE PLACED A RELIANCE U PON THE TRIBUNALS ORDER IN THE CASE SUGAMCHAND C. SHAH VS. ACIT 37 DTR (AHM) 3 45 IN SUPPORT OF ABOVE CONTENTION. THE SIMILAR VIEW WAS EXPRESSED B Y THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT INCOME TAX APP EAL NO.112 OF 2009. IN THAT CASE IT WAS HELD BY BOMBAY HIGH COURT THAT ASS ESSEE CAN MAINTAIN TWO SEPARATE PORTFOLIOS ONE RELATING TO INVESTMENT IN S HARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE DELIVERY BASED 14 TRANSACTIONS SHOULD BE TREATED AS THOSE IN THE NATU RE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM SHO ULD BE TREATED EITHER AS SHORT TERM OR AS THE CASE MAY BE LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. A RELIANCE WAS ALSO PLACED UPON ANOTHER ORDER OF THE TRIBUNAL IN THE CASE OF MANAGEMENT STRUCTURE AND SY STEMS PRIVATE LIMITED VS. ITO 6966 OF 2007 AND THE CIRCULAR NO.4/2007 DAT ED 15.6.2007. IN THIS CASE THE TRIBUNAL HAS PLACED A HEAVY RELIANCE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. CIT 122 TTJ 87 IN WHICH THE TRIBUNAL HAS LAID DOWN CERTAIN GUIDELINES IN THE LIGHT OF CIRCULAR IS SUED BY THE CBDT AND HAS HELD THAT ON THE BASIS OF THESE GUIDELINES THE NAT URE OF HOLDING CAN BE DETERMINED. IN THE CASE OF MANAGEMENT STRUCTURE AN D SYSTEMS PVT. LIMITED THE TRIBUNAL HAS HELD THAT IT IS A MIXED QUESTION O F LAW AND FACTS AND ON THE BASIS OF THE FACTS NATURE OF HOLDING CAN BE DETERMI NED. SIMILAR VIEW WAS EXPRESSED IN ANOTHER ORDER OF THE TRIBUNAL IN THE C ASE OF SARNATH INFRASTRUCTURES PRIVATE LIMITED VS. ACIT 124 ITD 71. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO COMMENTED UPON THE JUDGEMENTS REF ERRED TO BY THE REVENUE AND CONTENDED THAT THE JUDGEMENTS WERE NOT PROPERLY EXAMINED BY THE LOWER AUTHORITIES AND THEY WRONGLY APPLIED THE JUDGEMENTS TO THE PRESENT FACTS OF THE CASE AND MOREOVER THESE JUDGEMENTS ARE DISTINGUISHABLE ON FACTS. BESIDES HE HAS ALSO INVITED OUR ATTENTION TO THE COMPUTATION OF INCOME ANNUAL REPORT FILED BEFORE THE LOWER AUTHOR ITIES WHICH ARE AVAILABLE AT PG.NO.1 TO 89 OF THE COMPILATION OF THE ASSESSEES. 17. IN OPPUGNITION THE LD. D.R. HAS CONTENDED THAT THE ASSESSEE COMPANY IS ENGAGED IN PURCHASE AND SALE OF LANDS ON A CONTI NUOUS BASIS YEAR AFTER YEAR EITHER DIRECTLY OR INDIRECTLY. ASSESSEE COMPA NY HAS BEEN 15 CREATING/ACQUIRING COMPANIES AS SUBSIDIARIES WITH T HE SOLE INTENTION OF HOLDING HUGE EXTENT OF LAND PURCHASED BY THE ASSESSEE COMPA NY AND THIS METHOD WAS ADOPTED TO AVOID THE LEGAL COMPLICATIONS I.E. T O OVERCOME URBAN/AGRICULTURAL LAND CEILING REGULATIONS TO AVO ID PAYMENT OF STAMP DUTY AND REGISTRATION CHARGES ON SALE OF LANDS AND ALSO TO GET BENEFIT OF LONG TERM CAPITAL GAIN BY HOLDING THE ASSET FOR A LESSER PERI OD. THE LAND BEING PURCHASED EITHER IN THE NAME OF THE ASSESSEE COMPAN Y OR IN THE NAME OF THE SUBSIDIARY COMPANY WITH A SOLE INTENTION TO HOLD TH E LAND AS A BUSINESS ASSET AND THESE FACTS ARE CLEARLY EVIDENT FROM THE DIRECT ORS REPORT FOR THE FINANCIAL YEAR 2003-04. IT WAS FURTHER CONTENDED THAT DURING T HE FINANCIAL YEAR 2005- 06 RELEVANT TO THE ASSESSMENT YEAR 2006-07 THE AS SESSEE COMPANY HAS SOLD SHARES OF M/S. RAMANAND INFOTECH PRIVATE LIMITED AND RECEIVED AN AMOUNT OF RS.132 CRORES. THE SHARES WERE ALLOTTED TO THE ASS ESSEE COMPANY DURING THE FINANCIAL YEAR 2004-05. IT WAS FURTHER CONTENDED ON BEHALF OF THE REVENUE THAT ANNUAL REPORT FOR THE FINANCIAL YEAR 2003-04 D ATED 1.9.2004 HAS BEEN PREPARED AFTER THE ALLOTMENT OF ABOVE SHARES IN M/S . RAMANAND INFOTECH PRIVATE LIMITED AND FROM THE ANNUAL REPORT OF THE A SSESSEE COMPANY FOR THE FINANCIAL YEAR 2003-04 AND ITS SUBSIDIARY M/S. RAMA NAND INFOTECH PRIVATE LIMITED FOR THE FINANCIAL YEAR 2004-05 IT IS CLEAR THAT MAIN INTENTION OF THE ASSESSEE COMPANY IN PURCHASING THE SHARES OF M/S. R AMANAND INFOTECH PRIVATE LIMITED WAS TO TAKE CONTROL OF THE PRIME LA ND AND DEVELOP IT AND SALE THE SAME FOR SUBSTANTIALLY HIGHER VALUE. THE MAIN O BJECT OF THE COMPANY IS TO MAKE PROFITS THROUGH BUYING AND SELLING LANDS. THE REFORE THE PROFIT EARNED ON ACCOUNT OF SALE OF LANDS IS A BUSINESS INCOME AN D NOT THE CAPITAL GAIN AS CLAIMED BY THE ASSESSEES. HE HAS ALSO PLACED A REL IANCE UPON THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF VODAFONE IN TERNATIONAL HOLDINGS B.V. 16 VS. UOI AND ANOTHER REPORTED AT 311 ITR 46. THE LD. D.R. FURTHER CONTENDED THAT IF THE FACTS OF THE CASE ARE PROPERLY EXAMINED AND VIEWED ONLY ONE INFERENCE WOULD BE DRAWN THAT ASSESSEE IS DEALING I N SALE AND PURCHASE OF LAND UNDER THE GARB OF TRANSFER OF SHARES OF A PART ICULAR COMPANY. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD AND THE JUDGEMENTS REFERRED TO BY THE PARTIES. FROM A CAREFUL PERUSAL OF THE MEMORANDUM AND ARTICLE OF ASSOCIATION WE FIND THAT THE ASSESSEE W AS ENGAGED IN INFRASTRUCTURE DEVELOPMENT ACTIVITIES BESIDES OTHER ACTIVITIES PRE SCRIBED IN THE OBJECTS OF THE MEMORANDUM OF ASSOCIATION. THE ASSESSEE HAS CLAIME D LONG TERM AND SHORT TERM CAPITAL GAIN IN ITS RETURN OF INCOME ON ACCOUN T OF SALE OF SHARES DEPENDING UPON THE PERIOD OF HOLDING OF SUCH SHARES . THE REVENUE HAS TREATED THE PROFITS EARNED ON SALE OF SHARES AS A B USINESS PROFIT ON THE GROUND THAT THE SHARES WERE KEPT AS `STOCK IN TRADE IN THE BALANCE SHEETS OF THE ASSESSEES FOR EARLIER YEARS. FROM A PERUSAL OF BALANCE SHEET OF EARLIER YEARS I.E. UPTO ASSESSMENT YEAR 2003-04 AND 2004-05 THE ASSESSEE ADMITTEDLY SHOWN THE SHARES AS A `STOCK IN TRADE I N THE RELEVANT BALANCE SHEETS BUT THE IMPUGNED SHARES WHICH WERE SHOWN IN THE `STOCK IN TRADE WERE CONVERTED INTO INVESTMENT BY A RESOLUTION OF T HE BOARD OF DIRECTORS DATED 7.10.2004 AND ACCORDINGLY THE SHARES HOLDING S WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET FOR THE FINANCIAL Y EAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-06. THE RETURN FOR THE ASSESS MENT YEAR 2005-06 WAS FILED SHOWING THE SAID SHARE HOLDINGS AS INVESTMENT IN THE BALANCE SHEET AND THE ASSESSMENT WAS FRAMED U/S 143(3) AND THE TREATM ENT SHOWN BY THE ASSESSEE TO THE SHARE HOLDING WAS ACCEPTED BY THE R EVENUE. MEANING 17 THEREBY IN THE ASSESSMENT YEAR 2006-07 THESE SHAR ES WERE TAKEN AS AN OPENING STOCK OF INVESTMENT. THE NATURE OF THE SHA RE HOLDINGS WAS NOT CHANGED IN THE IMPUGNED ASSESSMENT YEAR. THEREAFTE R THESE SHARES WERE SOLD BY THE ASSESSEE IN MARCH 2006 AND THE ASSESSE E CLAIMED CAPITAL GAINS THEREON. NOW THE QUESTION COMES WHETHER THE CAPITA L GAIN EARNED BY THE ASSESSEE IS A CAPITAL GAIN OR A BUSINESS PROFIT AS CLAIMED BY THE REVENUE. IN ORDER TO DETERMINE THIS ISSUE WE HAVE TO FIRST DEC IDE THE NATURE OF HOLDING; WHETHER THE SHARES WHICH WERE SOLD BY THE ASSESSEE DURING THE YEAR WERE HELD AS A `STOCK IN TRADE OR AS AN INVESTMENT. NO DOUBT UPTO ASSESSMENT YEAR 2004-05 THE ASSESSEE HAS SHOWN THESE YEARS AS A `STOCK IN TRADE IN THE RELEVANT BALANCE SHEET BUT DURING THE PRECEDING YEA R I.E. ASSESSMENT YEAR 2005-06 THESE SHARES WERE CONVERTED INTO AN INVEST MENT BY RESOLUTION OF THE BOARD OF DIRECTORS ON 7.10.2004. NOW THE ISSUE COM ES WHETHER THE CONVERSION OF THE `STOCK IN TRADE INTO INVESTMENT IS POSSIBLE? IN THIS REGARD WE WOULD LIKE TO MENTION HERE THAT THERE IS NO SPEC IFIC PROVISION IN THE INCOME-TAX ACT WHICH GOVERNS THE PROCEDURE FOR CONVE RSION OF THE STOCK IN TRADE INTO INVESTMENT. WHEREAS PROVISIONS OF SECTI ON 45(2) DEALS WITH THE SITUATION VICE-VERSA I.E. CONVERSION OF SHARES HELD IN INVESTMENT INTO `STOCK IN TRADE. BUT THE CONVERSION OF `STOCK IN TRADE INT O THE INVESTMENT IS ALSO POSSIBLE AS RULED BY THE APEX COURT IN THE CASE OF NEW ERA PRIVATE LIMITED VS. CIT (SUPRA). IN THAT CASE THEIR LORDSHIP WHILE DEA LING WITH THE DISTINCTION BETWEEN THE INVESTMENT AND `STOCK IN TRADE HAVE CA TEGORICALLY HELD THAT SHARES HELD IN `STOCK IN TRADE CAN BE CONVERTED IN TO THE INVESTMENT. THE RELEVANT OBSERVATION OF THE HONBLE SUPREME COURT I N PARA NO.4 OF THE AFORESAID JUDGEMENTS ARE EXTRACTED HEREUNDER: IT WAS CONTENDED THAT CIRCUMSTANCES THAT THE APPEL LANT HAD BEEN DEALER IN SHARES FOR SOME YEAR DID NOT PRECLUDE IT FROM BEING AN INVESTOR IN 18 SHARES IN SUBSEQUENT YEARS. IT IS NO DOUBT TRUE TH AT A PERSON WHO HAS BEEN A DEALER IN SHARES IN SOME YEAR CAN BE AN INVESTOR IN SHARES IN SUBSEQUENT YEARS. IT IS ALSO TRUE THAT IT IS POSSIBLE FOR A DE ALER IN SHARES TO CONVERT A PART OF ITS `STOCK IN TRADE INTO THE INVESTMENT. 19. THE NATURE OF HOLDINGS OF SHARES WAS REPEATEDLY EXAMINED BY THE TRIBUNAL AT DIFFERENT POINT OF TIME AND HAS TAKEN A CONSISTENT VIEW THAT NATURE OF HOLDINGS OF THE SHARES BY THE ASSESSEE ALWAYS DE PENDS UPON THE INTENTION OF THE ASSESSEES AND ALSO THE PERIOD OF HOLDING OF THE SHARES. IT WAS ALSO HELD BY THE TRIBUNAL THAT ASSESSEE CAN MAINTAIN BOT H THE PORTFOLIOS I.E. FOR TRADING AND FOR INVESTMENT SIMULTANEOUSLY BUT IS RE QUIRED TO MAINTAIN SEPARATE ACCOUNTS THEREOF. IN THE CASE OF SUGAMCHA ND C. SHAH VS. ACIT 37 DTR (AHM) 345 THE TRIBUNAL HAS HELD THAT THERE CAN NOT BE A FIXED CRITERIA TO DECIDE WHETHER THE ASSESSEE HAS TRADED IN SHARES EV EN THOUGH ASSESSEE HELD THEM AS INVESTMENT. DEMARCATION IS QUITE HAZY; THO UGH IN THE BOOKS HE IS SHOWING ALL THE PURCHASES AS INVESTMENT BUT FREQUEN CY OF TRANSACTION IN SEVERAL CASES IS SO LARGE AND HOLDING PERIOD IN MAN Y CASES IS SO SMALL FROM `0 TO A WEEK OR SO THAT ASSESSEE IS DEFACTO SELLI NG AND PURCHASING SHARES AS A TRADER. HE IS HOLDING SHARES FOR LONG PERIOD IND ICATING THAT THERE ARE HELD AS INVESTMENT. THEREFORE A CRITERIA HAS TO BE FIX ED FOR DETERMINING AS TO WHEN HE IS ACTING AS A TRADER AND WHEN AS AN INVEST OR. ACCORDINGLY IF SHARES ARE NOT HELD EVEN A SAY FOR A MONTH THEN THE INTEN TION IS CLEARLY TO REAP PROFIT BY ACTING AS A TRADER AND DID NOT INTEND TO HOLD THEM AS AN INVESTMENT PORTFOLIO. IF A PERSON INTENDS TO HOLD HIS PURCHASE S OF SHARES AS INVESTMENT HE WOULD WATCH THE FLUCTUATION OF RATES IN THE MARK ET FOR WHICH A MINIMUM TIME IS NECESSARY WHICH IS ESTIMATED AT ONE MONTH. WHERE SHARES ARE HELD FOR MORE THAN A MONTH THEY SHOULD BE TREATED AS AN INVESTMENT AND ON THEIR SALE SHORT TERM CAPITAL GAIN SHOULD BE CHARGED. W HEN THE SHARES ARE HELD 19 FOR LESS THAN A MONTH GAIN ON THEM SHOULD BE TREAT ED AS PROFIT FROM BUSINESS. IN THESE JUDGEMENTS THE TRIBUNAL HAS GO NE TO THE EXTENT IN SAYING THAT THE ENTRIES WITH REGARD TO THE SHARE HOLDINGS ARE NOT RELEVANT TO DECIDE THE NATURE OF SHARE HOLDINGS. NATURE OF SHARE HOLD INGS CAN ONLY BE DECIDED FROM THE INTENTION OF THE ASSESSEE AND THE PERIOD O F HOLDING. THE INTENTION OF THE ASSESSEE CAN BE DECIDED ON THE BASIS OF THE FRE QUENCY IN TRANSACTIONS AND OTHER RELEVANT FACTORS. MEANING THEREBY THE DECLA RATION OF THE NATURE OF SHARE HOLDINGS IN THE BALANCE SHEET OR IN THE BOOKS OF ACCOUNTS ARE NOT THE SOLE FACTOR TO DECIDE THE NATURE OF HOLDINGS. WHAT IS RELEVANT TO DECIDE THE NATURE OF HOLDINGS IS THE PERIOD OF HOLDINGS AND T HE FREQUENCY OF TRANSACTION IN SHARES. 20. IN THE CASE OF SARNATH INFRASTRUCTURE PRIVATE LIM ITED VS. ACIT 124 ITD 71 THE TRIBUNAL HAS ALSO EXAMINED THE SAME ISSUE WH ETHER THE ASSESSEE IS HOLDING THE SHARES AS A `STOCK IN TRADE OR AS AN I NVESTMENT. WHILE DEALING WITH THE ISSUE THE TRIBUNAL HAS EXAMINED THE VARIO US JUDGEMENTS OF APEX COURT AND HIGH COURTS AND ALSO CIRCULAR NO.4 OF 200 7 DATED 15 TH JUNE 2007 THROUGH WHICH INTERNAL GUIDELINES WERE ISSUED TO TH E DEPARTMENT IN ORDER TO DECIDE THE NATURE OF HOLDINGS OF SHARES AND CULLED OUT FOLLOWING PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION/TRANSACTIONS IN QUESTION ARE IN THE NAT URE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSE. 1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/CLOS ING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. 20 2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. NORMALLY MONEY IS BORROWED TO PU RCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. 3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE IS FREQUENT OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE . SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETH ER THE ASSESSEE IS TRADING OR INVESTING. (HIGH TRANSACTIONS AND LOW HO LDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). 4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE. FORMER WILL INDICATE AN INTENTION OF TRADE AND LATTER AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSE NTIAL INGREDIENT OF TRADE. 5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET. IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENT OR WHERE THEY ARE VALUED AT COST OR MARK ET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDICATE THAT IT EMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. 6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION. WHETHER FOR T RADE OR FOR INVESTMENT. IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE ARE S EPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY AND VICE VERSA. 7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE BETWEEN TWO TYPES OF HOLDINGS. IF TH E ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SH OW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY STOCK-IN-TRADE) THEN ON US WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. 8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QU ESTION) FOR INVESTMENT. 9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADE IN THE ITEMS IN QUESTION AND WHETHER THE ASSE SSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE T HAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS IF IT IS CLAIMED THAT IT IS DEA LING AS A TRADER IN THAT ITEM. WHETHER IT HAD SUCH IN INTENTION (TO CARRY ON ILLEG AL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE. 10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO.4/ 2007 OF 15.6.2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCO UNT FOR EACH TYPE THERE 21 ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO I NTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 21. THE SIMILAR VIEW WAS ALSO EXPRESSED IN THE CASE OF MANAGEMENT STRUCTURES AND SYSTEMS PRIVATE LIMITED VS. ITO ITA NO.6966/MUMBAI/2007 AFTER FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CA SE OF SARNATH INFRASTRUCTURES PVT. LTD. (SUPRA). THE SIMILAR VIEW WAS ALSO AGAIN EXPRESSED BY THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT 122 TTJ (MUMB AI) 87. IN THAT CASE THE A.O. EXAMINED THE FREQUENCY OF TRANSACTIONS AND ALS O VOLUME THEREON. THE A.O. WAS OF THE OPINION THAT AS A FREQUENCY OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WAS VERY HIGH WITH LARGE VOLUME OF SHA RES AND AS FAR AS INVESTMENT OF THE FUNDS WERE BORROWED AND UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES THAT PARTAKES THE CHARACTER OF A BUSINESS ACTIVITY. IT WAS ALSO FOUND THAT IN RESPECT OF TRANSACTIONS WHERE NO DELIVERY HAD TAKEN PLACE THE SAME HAS BEEN SQUARED UP ON THE SAME DAY AND TH E PROFIT AND LOSS RESULTING THERE FROM WAS SHOWN AS A BUSINESS INCOME /LOSS. IN RESPECT OF THE DELIVERY BASED TRANSACTIONS IT WAS FOUND THAT PERIO D OF HOLDING IN MOST OF THE SHARES WAS VERY LESS. THE A.O. THEREFORE TREATED T HE ENTIRE TRANSACTIONS OF THE SALE AND PURCHASE AS TRADING IN SHARES AND TREA TED THE INCOME AS BUSINESS INCOME. WHEN THE MATTER REACHED BEFORE TH E TRIBUNAL THE TRIBUNAL HAS HELD AFTER TAKING INTO ACCOUNT THE VARIOUS JUDG EMENTS THAT THERE IS NO MATERIAL BROUGHT IN BY THE REVENUE TO SHOW THAT SEP ARATE ACCOUNTS OF TWO PORTFOLIOS ARE ONLY A SMOKE SCREEN AND THERE IS NO REAL DISTINCTION BETWEEN THE TWO TYPES OF HOLDINGS. THIS COULD HAVE BEEN DO NE BY SHOWING THAT THE INTERMINGLING OF SHARES AND TRANSACTIONS THE DISTIN CTION SOUGHT TO BE CREATED 22 BETWEEN TWO TYPE OF PORTFOLIOS IS NOT REAL BUT ONLY ARTIFICIAL AND ARBITRARY. THEREFORE IN ABSENCE ANY MATERIAL TO THE CONTRARY A ND ON APPRECIATION OF THE CUMULATIVE EFFECT OF SEVERAL FACTORS PRESENT THE S URPLUS IS CHARGEABLE TO CAPITAL GAINS ONLY AND THE ASSESSEE IS NOT TO BE TR EATED AS A TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN INVESTMENT PORTFO LIOS. THE RELEVANT OBSERVATION OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: WHEN WE EXAMINE THE FACTS OF THE PRESENT CASE WE F IND THAT THE ASSESSEE IS DEALING IN SHARES BOTH AS A TRADER AS W ELL AS INVESTOR. IT HAS KEPT SEPARATE ACCOUNTS FOR BOTH TYPES OF DEALINGS. VALU ATION OF HOLDINGS HAS BEEN DONE AT COST (FOR INVESTMENT PORTFOLIO). AT LEAST THERE IS NO ALLEGATION OR MATERIAL TO COME TO THE CONCLUSION THAT VALUATION O F INVESTMENT PORTFOLIO HAS BEEN DONE ON COST OR NET REALIZABLE VALUE WHICHEVE R IS LOW. THE SHARES WHICH ARE SOLD OUT OF INVESTMENT PORTFOLIO THIS YE AR WERE PURCHASED TWO TO THREE YEARS AGO SHOWING THAT ASSESSEE HAD INTENTION WHILE PURCHASING THEM TO HOLD THEM. THEY WERE REFLECTED IN THE BALANCE S HEET AS INVESTMENT. THE ASSESSEE HAS ENJOYED DIVIDEND INCOME AND DECLARED T HE SAME IN RETURN OF INCOME. THE FREQUENCY OF SUCH PURCHASE OR SALE IN THIS PORTFOLIO IS NOT LARGE ENOUGH TO DOUBT THAT THIS PORTFOLIO IS ONLY A DEVIC E TO PAY LESSER TAXES BY PARKING SOME STOCK-IN-TRADE IN INVESTMENT PORTFOLIO . WE NOTICE THAT IN TRADING PORTFOLIO THE ASSESSEE HAD PURCHASED DURING THE YEA R SHARES WORTH RS.21 38 353 AND SAME SHARES WERE SOLD FOR RS.23 89 805. THERE WAS NEITHER OPENING STOCK NOR CLOSING STOCK. IN INVEST MENT PORTFOLIO OPENING STOCK OF SHARES WAS RS.19 22 203 AND CLOSING STOCK WAS RS.46 23 274 WHEREAS SALES OUT OF INVESTMENT PORTFOLIO WERE RS.3 1 80 423. IT SHOWS THAT TURNOVER TO STOCK RATIO IN INVESTMENT PORTFOLIO IS VERY LOW AS COMPARED TO THAT IN TRADING PORTFOLIO. FURTHER THERE IS NO MATERIAL TO SHOW THAT THESE S HARES IN THE INVESTMENT PORTFOLIO WERE ALSO TRADED IN THE SAME A ND LIKE MANNER AS THOSE WHICH WERE IN STOCK-IN-TRADE PORTFOLIO. THE BOARD OF DIRECTORS HAS PASSED RESOLUTIONS FOR MAKING INVESTMENT WHEREAS MEMORANDU M OF ASSOCIATION HAS ONLY AUTHORIZED TO CARRY OUT TRADE IN SHARES. IT CL EARLY SHOWS INTENTION OF THE ASSESSEE TO MAINTAIN A SEPARATE INVESTMENT PORTFOLI O. ALL THE SALES OUT OF THIS PORTFOLIO ARE IDENTIFIABLE TO PURCHASES MADE IN THI S PORTFOLIO. IN OUR CONSIDERED VIEW THE ASSESSEE HAS DISCHARGED ITS PR IMARY ONUS BY SHOWING THAT IT IS MAINTAINING SEPARATE ACCOUNTS FOR TWO PO RTFOLIOS AND THERE IS NO INTERMINGLING. THE ONUS NOW SHIFTED ON THE REVENUE TO SHOW THAT SEPARATE ACCOUNTS OF TWO PORTFOLIOS ARE ONLY A SMOKE SCREEN AND THERE IS NO REAL DISTINCTION BETWEEN TWO TYPES OF HOLDINGS. THIS CO ULD HAVE BEEN DONE BY SHOWING THAT THERE IS INTERMINGLING OF SHARES AND T RANSACTIONS AND THE DISTINCTION SOUGHT TO BE CREATED BETWEEN TWO TYPES OF PORTFOLIOS IS NOT REAL BUT ONLY ARTIFICIAL AND ARBITRARY. THEREFORE IN A BSENCE OF ANY MATERIAL TO THE CONTRARY AND ON APPRECIATION OF CUMULATIVE EFFECT OF SEVERAL FACTORS PRESENT (AS CULLED OUT ABOVE ON THE BASIS OF AUTHORITIES DE SCRIBED) WE HOLD THAT THE SURPLUS IS CHARGEABLE TO CAPITAL GAINS ONLY AND ASS ESSEE IS NOT TO BE TREATED 23 AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN INVESTMENT PORTFOLIO. AS A RESULT THIS GROUND OF THE ASSESSEE IS ALLOWED . 22. THE VIEW TAKEN BY THE TRIBUNAL WAS APPROVED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT ITA NO.1 121 OF 2009. THE COPY OF THE SAME IS PLACED ON RECORD AT PG.NO.99 TO 102. 23. IN THE LIGHT OF PROPOSITION LAID DOWN BY THE DIF FERENT BENCHES OF THE TRIBUNAL AND THE DIFFERENT HIGH COURTS AND THE APEX COURT WE ARE OF THE VIEW THAT DETERMINING FACTOR FOR THE NATURE OF HOLDING I S NOT ONLY THE ENTRY SHOWN BY THE ASSESSEE. IT DEPENDS UPON VARIOUS OTHER FAC TORS INCLUDING THE INTENTION OF THE ASSESSEE FREQUENCY IN TRANSACTION S AND THE PERIOD OF HOLDING. IN ORDER TO DETERMINE THE NATURE OF HOLDING IN THE C ASE WE EXTRACT THE DETAILS OF SHARES PURCHASED AND SOLD AND THE PERIOD OF HOLD ING AS UNDER:- SHARES OF DT. OF PURCHASE TOTAL NO. OF SHARES COST OF ACQUISITION (IN RS.) DT OF SALE SALE VELUE (IN RS.) RAMANAND INFO 28.8.2004 2 509 998 750 099 980 28.10.05 1 237 791 819 -DO- BETWEEN 5.1.05 TO 31.3.05 166700 5 009 420 28.10.05 82 207 195 BIRAJA FERRO ALLOYS 21.10.02 116 500 34 950 000 22.03.06 466 000 -DO- 08.11.03 50 000 15 000 000 22.03.06 200 000 -DO- 12.3.05 200 100 60 030 000 22.03.06 800 400 BRAHMINI FERRO ALLOYS 21.10.02 116 500 34 950 000 22.03.06 466 000 -DO- 08.11.03 50 000 15 000 000 22.03.06 200 000 -DO- 12.03.05 216 800 65 040 000 22.03.06 867 200 24. THE REVENUES MAIN GRIEVANCE IS THAT UNDER THE GARB OF TRANSFER OF SHARES OF THE SUBSIDIARY COMPANIES THE ASSESSEE HAS TRANSFERRED THE LAND. THE QUESTION ARISE WHETHER IT IS BARRED UNDER THE L AW? IF THE COMPANYS HOLDINGS ARE TRANSFERRED FROM ONE HAND TO OTHER ON LY THE CONTROLLING 24 MANAGEMENT CAN BE CHANGED BUT THE ASSETS OF COMPANI ES REMAIN WITH THAT PARTICULAR COMPANY. COMPANY ITSELF IS A JURISTIC E NTITY AND WHATEVER PURCHASES ARE IN THE NAME OF THE COMPANY IT WILL R EMAIN WITH THE COMPANY AND IT CANNOT BE TRANSFERRED TO SOME OTHER PERSON. THE MANAGEMENT OF THE COMPANY CAN ONLY BE SHIFTED FROM ONE HAND TO OTHER ON THE BASIS OF MAJOR SHARE HOLDINGS. THEREFORE WE DO NOT FIND ANY FORC E IN THE ARGUMENTS OF THE REVENUE THAT UNDER THE GARB OF TRANSFER OF SHARES L AND ARE BEING SOLD BY THE ASSESSEE. MOREOVER THIS ARGUMENT IS RAISED FIRST TIME BEFORE THE TRIBUNAL. WE THEREFORE ARE NOT INCLINED TO ENTERTAIN THE SAME . BEFORE THE LOWER AUTHORITIES REVENUES MAIN CASE IS THAT ASSESSEE H ELD THE SHARES AS `STOCK IN TRADE IN EARLIER YEARS AND ONLY IN THE IMMEDIATELY PRECEDING YEAR IT WAS CONVERTED INTO THE INVESTMENT. HENCE THE CONVERSIO N IS NOT PROPER AND WHATEVER PROFIT OR LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF SALE OF SHARES IT WAS MERELY A BUSINESS LOSS. IN ORDER TO ADDRESS THIS ISSUE WE HAVE TO EXAMINE THE DETAILS OF SHARES WITH RESPECT TO FREQU ENCY OF TRANSACTIONS AND THE PERIOD OF HOLDINGS. ON A CAREFUL PERUSAL FROM THE DETAILS WE FIND THAT MAJORITY OF THE SHARES WERE PURCHASED DURING THE FI NANCIAL YEAR 2002-03 TO 2003-04 AND THEY WERE SOLD IN MARCH 2006 EVEN AFTE R MORE THAN 2 YEARS. SOME SHARES OF BRAHMANI FERRO ALLOYS AND RAMANAND I NFOTECH WERE PURCHASED IN MARCH 2005 BUT THEY WERE ALSO SOLD ON 22 ND MARCH 2006. MEANING THEREBY THE SHARES WERE SOLD AFTER A GAP O F A CONSIDERABLE PERIOD. THEREFORE IT IS VERY UNREALISTIC TO HOLD THAT ASSE SSEE WAS ENGAGED IN TRADING OF SHARES. HE HAS SOLD THE SHARES ONLY AT 2 OCCASI ONS ONE AT 28.10.2005 AND OTHER AT 22.3.2006. IF WE EXAMINE THE FREQUENCY OF TRANSACTIONS AND THE PERIOD OF HOLDINGS ONLY ONE INFERENCE WOULD BE DRA WN THAT ASSESSEE HAS KEPT THESE SHARES AS AN INVESTMENT. THE DISPUTE IS RAIS ED ONLY WITH REGARD TO THE 25 CONVERSION OF SHARES FROM `STOCK IN TRADE TO INVES TMENT BUT THIS CONTROVERSY HAS BEEN ANSWERED BY THE APEX COURT THROUGH ITS JUD GEMENT IN THE CASE OF NEW ERA AGENCIES PRIVATE LIMITED (SUPRA) IN WHICH I T WAS HELD THAT THE CONVERSION OF SHARES FROM `STOCK IN TRADE TO INVES TMENT IS POSSIBLE AS THERE IS NO BAR UNDER THE LAW. MOREOVER THIS CONVERSION WAS MADE ON THE BASIS OF THE BOARD RESOLUTION DATED 7.10.2004 AND THE INITIA L COST OF SHARES WAS TAKEN AS A COST OF THE INVESTMENT OF SHARES. MOREOVER D URING THE PRECEDING ASSESSMENT YEAR 2005-06 THE REVENUE ITSELF HAS ACC EPTED THE NATURE OF TREATMENT GIVEN TO THE SHARE HOLDINGS BY THE ASSESS EES. ONCE THE SHARE HOLDINGS WERE TAKEN AS INVESTMENT AT THE OPENING DA Y IN THE ASSESSMENT YEAR 2006-07 ITS NATURE CANNOT BE CHANGED AT THE WHIMS OF THE REVENUE THEREFORE FROM ANY ANGLE IF THIS CASE IS VIEWED ONL Y ONE INFERENCE WOULD BE DRAWN THAT THESE SHARES WERE HELD TO BE AN INVESTME NT AND WHATEVER PROFIT AND LOSS ON ITS SALE IS OCCURRED IT WAS ONLY A CAP ITAL GAIN/LOSS. THEREFORE THE CLAIM RAISED BY THE ASSESSEE IS IN ACCORDANCE WITH THE LAW AND WE FIND NO INFIRMITY THEREIN. ACCORDINGLY WE SET ASIDE THE O RDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASS ESSEES. 25. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED AND THAT OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27.8.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 27 TH AUGUST 2010 26 COPY TO 1 THE ACIT CIRCLE-4(1) VISAKHAPATNAM 2 M/S. RAJU VEGESNA INFOTECH & INDUSTRIES PVT. LTD. NO.10-27-2/21 FLAT NO.104 LAKSHMII APARTMENTS WALTAIR VISAKHAPATNAM 3 THE CIT VISAKHAPATNAM 4 THE CIT(A)-I VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM