COLOMA COMMERCIAL CO. LTD., Kolkata v. ACIT, Central Circle-XXVIII,Kol, Kolkata

ITA 585/KOL/2009 | 2006-2007
Pronouncement Date: 14-05-2010

Appeal Details

RSA Number 58523514 RSA 2009
Assessee PAN AABCC2781Q
Bench Kolkata
Appeal Number ITA 585/KOL/2009
Duration Of Justice 1 year(s) 27 day(s)
Appellant COLOMA COMMERCIAL CO. LTD., Kolkata
Respondent ACIT, Central Circle-XXVIII,Kol, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Assessee
Bench Allotted C
Tribunal Order Date 14-05-2010
Date Of Final Hearing 24-02-2010
Next Hearing Date 24-02-2010
Assessment Year 2006-2007
Appeal Filed On 17-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C . D. RAO AM] I.T.A. NO.585/KOL/2009 ASSESSMENT YEAR: 2006-07 COLOMA COMMERCIAL CO. LTD. -VS- ASSTT. COMMISSIO NER OF INCOME-TAX (PA NO. AABCC 2781 Q) CENTRAL CIRCLE-XXVIII KOL KATA. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI M. P. THARD RESPONDENT BY : SRI NEERAJ SINGH O R D E R PER D. K. TYAGI JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 30.01.2009 FOR ASSESSMENT YEA R 2006-07 ON THE SOLE GROUND OF UPHOLDING THE ACTION OF THE AO THAT THE GAIN OF RS. 69 56 024/- WAS BUSINESS INCOME AND NOT A CAPITAL GAIN. 2. BRIEFLY STATED FACTS AS OBSERVED BY THE AO ARE T HAT THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WAS CREDITED AS PROFIT ON SALE OF INVE STMENT . BUT ASSESSEE WAS FOUND TO HAVE TREATED THE PROFIT AS LONG TERM CAPITAL GAIN E XEMPT U/S. 10(38) OF THE I. T. ACT. THE AO ISSUED A SHOW CAUSE NOTICE ASKING WHY SUCH PROFI T SHOULD NOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE . THE REPLY OF THE ASSESSEE WAS THAT IT IS A NON-BANKING FINANCE COMPANY WHICH MAKES LONG TERM INVESTMENTS AS WELL A S TRADING IN SHORT TERM HOLDINGS. THE COMPANY HAS ITS OWN FUNDS FOR EITHER PURPOSES. THE AO FOUND NO SUBSTANCE IN THIS REPLY OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT FORM NO. 3CD DESCRIBES THE NATURE OF BUSINESS OF THE ASSESSEE AS INVESTMENT AND TRADI NG IN SHARES AND SECURITIES INVESTMENT IN PROPERTIES. THEREFORE MAKING INVESTM ENT AND EARNING PROFIT ON SALE OF INVESTMENT IS THE BUSINESS OF THE ASSESSEE BY ITS O WN ADMISSION. THE BENEFIT OF SECTION 10(38) AVAILABLE TO OTHERS MAY NOT BE AVAILABLE TO THE ASSESSEE. FOLLOWING SUPREME COURT JUDGMENT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. (35 ITR 594) THE ASSESSING OFFICER ARGUED THAT THE TESTS FOR DETERMI NING WHETHER ANY GIVEN TRANSACTION CAN BE HELD AS AN ADVENTURE IN THE NATURE OF TRADE ARE THE NATURE AND QUANTITY OF COMMODITY PURCHASED AND RESOLD AND WHETHER THE PURC HASE AND RESALE OF COMMODITY ARE ALLIED TO USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT. IN THE PRESENT CASE THE ASSESSEE IS 2 IN THE BUSINESS OF MAKING INVESTMENTS AND TRADING I N SHARES. THE PROFIT & LOSS A/C OF (THE ASSESSEE DISCLOSES THE TOTAL INCOME OF RS.77 0 0 370/- OF WHICH RS.69 56 024/- IS INCOME FROM PROFIT ON SALE OF INVESTMENTS. AGAINST THIS THE ASSESSEE CLAIMED EXPENSES OF RS.2 08 219/- . IT IS OBSERVED AS RELEVANT THAT THE ENTIRE INFRASTRUCTURE OF THE BUSINESS IS FOR THE PURPOSE OF INVESTMENT BUSINESS ONLY. THE REFORE WHAT IS INVESTMENT AND WHAT IS CAPITAL GAIN ON SALE OF INVESTMENT IN THE CASE O F OTHER ASSESSES IS STOCK-IN-TRADE AND PROFIT IN THE CASE OF THE ASSESSEE. THE ASSESSING O FFICER REFERRED TO THE CBDT CIRCULAR NO.4/2007 DATED 15.6.07 WHICH LAID DOWN THE TESTS W HICH LAY EMPHASIZE ON THE MAGNITUDE OF THE TRANSACTION MOTIVE OF PROFIT INVO LVED ETC. ON APPLICATION OF THESE TESTS ALSO THE ASSESSEES TRANSACTIONS OF DEALING IN SHA RES HAVE THE CHARACTER OF AN ADVENTURE IN THE NATURE OF TRADE. ACCORDINGLY THE GAIN WAS T REATED AS PROFIT AND NOT CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT. IN THE LIGHT OF SUCH FACTS AND CIRCUMSTANCES OF THE CASE THE INCOME TO THE TUNE OF RS.69 56 024/- WAS HELD A S BUSINESS INCOME OF THE ASSESSEE AND TAXED IT ACCORDINGLY AT NORMAL RATE APPLICABLE. IN APPEAL THE LD. CIT(A) CONFIRMED THIS ACTION OF THE AO. AGGRIEVED BY THE SAID ORDER NOW THE ASSESSEE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US THE LD. COUNSE L FOR THE ASSESSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFOR E THE LOWER AUTHORITIES FURTHER SUBMITTED THAT THE THE ASSESEE IS AN NBFC AND HAS B EEN ENGAGED IN HOLDING INVESTMENTS IN SHARES AND GRANTING OF LOANS AND ADVANCES. THE COMPANY ALSO TRADED IN SOME SHARES BUT THAT WAS ON A VERY SMALL SCALE. SEPARATE PORTF OLIOS WERE MAINTAINED IN ACCOUNTS FOR THE TRADING SHARES AND THE SHARES HELD AS INVESTMEN TS. THE MAIN COMPONENT OF INCOME OF THE COMPANY WAS BY WAY OF INTEREST DIVIDEND AND RE NTAL INCOME. DURING THE YEAR UNDER APPEAL THE ASSESSEE HAD INCOME BY WAY OF CAPITAL G AINS ALSO OF RS.69 56 024/- ON SALE OF SOME OF ITS INVESTMENTS WHICH IS SUBJECT MATTER OF THIS APPEAL. THERE IS NO DISPUTE THAT THE SHARES SOLD WERE HELD AS INVESTMENT AND SH OWN ACCORDINGLY IN THE ACCOUNTS FOR THE IMMEDIATELY PRECEDING YEAR ENDED 31.03.2005. H E ALSO SUBMITTED THAT THE RECORDS OF THE ASSESSEE SHOW THAT THE ASSESSEE MAINTAINED T WO SEPARATE PORTFOLIOS ONE FOR INVESTMENT IN SHARES AND OTHER FOR TRADING IN SHARE S AND ACCORDINGLY THEY WERE SHOWN IN THE AUDITED A/CS ALSO FROM YEAR TO YEAR. IN FACT T HE ASSESSEE WAS MAINLY AN INVESTOR IN SHARES. VIDE DETAILS AT PAGE-4 OF THE CIT(A)S ORDE R. THE INVESTMENTS WERE TO THE TUNE OF MORE THAN RS.2.5 CRORES DURING THE YEAR AND THE PRE CEDING YEAR WHEREAS TRADING IN 3 SHARES WAS VERY LITTLE. THE SHARES UNDER CONSIDERAT ION THE PROFIT ON SALE OF WHICH IS SOUGHT TO BE ASSESSED AS BUSINESS INCOME HAS BEEN SPECIFICALLY ACCEPTED BY THE A.O. AS HELD AS INVESTMENT SINCE 01.04.2004 IN THE ASSESS MENT FOR THE IMMEDIATELY PRECEDING YEAR I.E. ASST. YR.2005-2006. THERE WAS NO PURCHASE OR SALE OF SHARES OF THESE COMPANIES SINCE THEIR ACQUISITION BEFORE THEIR SALE DURING THE YEAR UNDER APPEAL THAT GAVE RISE TO THE CAPITAL GAIN WHICH IS SUBJECT MATT ER OF THE PRESENT APPEAL. HE ALSO SUBMITTED THAT THE DECISIONS CITED BY THE A.O. AND THE LD. CIT(A) BEING (I) INVESTMENT LTD. VS- CIT - 77-ITR-533 (SC) AND (II) G. VENKATASWAMI NAIDU & CO. VS- CIT - 35-ITR-594 (SC) ON WHICH GREAT RELIANCE HAS BEEN PLACED BY THE LD. CIT(A) ARE OF NO RELEVANCE IN THE FACTS OF THE PRES ENT CASE. THE DECISIONS ARE OTHERWISE ALSO NO AFFECT IN THE PRESENT CONTEXT OF DEALING IN SHARES. THERE HAVE BEEN RAPID STRIDES IN THE DEVELOPMENT OF TRADE BUSINESS AND INDUSTRY IN THE PAST DECADES FROM THE PERIOD TO WHICH THESE DECISIONS RELATE. THE DECISION IN THE C ASE OF G. VENKATASWAMI NAIDU & CO. VS- CIT REPORTED IN 35-ITR-594 (SC) RELATES TO 194 0S IN RESPECT OF SALE OF SOME LANDS AND THE DECISION IN THE CASE OF INVESTMENT LTD. VS - CIT - 77-ITR-533 (SC) RELATES TO THE ASST. YR.1953-1954 IN RESPECT OF SOME GOVT. SEC URITIES AND SHARES OF PUBLIC LIMITED COMPANIES. THE VERY PROVISION REGARDING CAPITAL GAI NS AND ITS TAXABILITY WAS INTRODUCED ONLY BY SEC.12B IN THE OLD ACT (1922 ACT) W.E.F. 01 .04.1957. THERE WAS NOTHING LIKE CAPITAL GAINS AND ITS TAXABILITY UNDER THE I. T. AC T PRIOR TO ASST. YR. 1957.1958. IN THE 1961 ACT ALSO THE DEFINITIONS WERE INSERTED AND CHA NGED FROM TIME TO TIME DEFINING SHORT TERM CAPITAL ASSET LONG TERM CAPITAL ASSE T SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. WITH THE DEVELOPMENT OF T RADE BUSINESS INDUSTRY & STOCK MARKETS THE DEFINITION OF LONG TERM AND SHORT TERM CAPITAL ASSET HAS ALSO CHANGED. SEC. 2(29A) (ORIGINALLY INSERTED BY THE FINANCE (NO .2) ACT 1962) AN ASSET WAS CONSIDERED TO BE A LONG TERM CAPITAL ASSET IF IT WA S HELD BY THE ASSESSEE FOR 60 MONTHS OR MORE. LATER THE PERIOD WAS REDUCED TO 36 MONTHS W.E.F. 01.04.1978. AGAIN W.E.F. 01.04.1988 THE HOLDING OF SHARES IN LIMITED COMPANI ES OR OTHER SECURITIES LISTED IN STOCK EXCHANGE OR UNITS OF UTI OR A MUTUAL FUNDS THE PER IOD OF HOLDING FOR BEING TREATED AS LONG TERM CAPITAL ASSET WAS REDUCED TO 12 MONTHS ON LY AND THE SAME CONTINUES EVEN TODAY. ORIGINALLY THERE WAS NO CONCEPT OF SHORT TER M CAPITAL ASSET OR LONG TERM CAPITAL ASSET OR SHORT TERM CAPITAL GAIN OR LONG TE RM CAPITAL GAIN. IT WAS ONLY CAPITAL GAIN. WITH THE DEVELOPMENT OF TRADE AND BUS INESS AND THE CAPITAL MARKET 4 SEPARATE DEFINITIONS OF LONG TERM & SHORT TERM WAS INTRODUCED FOR HOLDING IN SHARES. THE AMENDMENTS BROUGHT IN CLEARLY SHOWS THE LEGISLA TIVE INTENTION THAT THE GOVT. INTENDED TO BOOST LONG-TERM-INVESTMENTS IN SHARES & SECURITIES AND THE CAPITAL MARKETS. HE ALSO CONTENDED THAT THE DECISIONS RELIED ON BY T HE LD. CIT(A) IN PARTICULAR THOSE OF (I) GOLD CO. LTD. VS.. CIT - 92- ITR-121 (CAL) AND (II) M. R. M. PLANTATION LTD. VS- CIT - 250-ITR-521 (SC) AND (III) INVESTMENT LTD . VS. CIT 77 ITR 533 (SC) HAVE NO APPLICATION IN THE FACTS OF THE ASSESSEES CASE. . 4. ON THE OTHER HAND THE LD.DR RELIED ON THE ORDE RS OF THE LOWER AUTHORITIES AND PRAYED BEFORE THE BENCH TO CONFIRM THE SAME. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE ONLY ISSUE TO BE DECIDED BY US IN THIS APPEAL IS WHETHER THE PROFIT ARISING FROM SALE OF SHARES OF ON-TACK SYSTEMS LTD. AND MUKUND ENGINEERING LTD. AMOUNTING TO RS.69 56 024/- IS INCOME FROM BUSINES S AS TREATED BY AO OR IT IS CAPITAL GAINS AS CLAIMED BY THE ASSESSEE. WE ALSO FIND THA T THE ASSESSEE COMPANY PURCHASED 1 00 000 SHARES OF MUKUND ENGINEERING CO. LTD. ON 9 .5.2003 AND HELD THEN AS STOCK IN TRADE UNTIL 31 ST MARCH 2004. DURING THE ASSESSMENT YEAR 2005-06 THE ASSESSEE COMPANY TRANSFERRED THESE SHARES FROM STOCK IN TRA DE TO INVESTMENT PORTFOLIO ON 1.4.2004 AND PROFIT ON SUCH TRANSFER WAS ALSO OFFER ED FOR TAXATION WHICH WAS DULY ACCEPTED BY THE DEPARTMENT AS IS CLEAR FROM THE COM PUTATION OF INCOME FOR AY 2005-06 DONE BY THE AO AS PER ORDER DATED 20.11.2007. THE COMPUTATION OF INCOME READS AS UNDER : PROFIT AS PER PROFIT & LOSS A/C. 5 82 797/- ITEM TREATED SEPARATELY DEPRECIATION AS PER COMPANIES 980/- PROFIT ON TRANSFER OF STOCK IN TRADE TO INVESTMENTS AS ON 01.04.04 : FAIR MARKET VALUE OF 100000 ONTRACK SYSTEM LTD. 7 55 000/- FAIR MARKET VALUE OF 125000 MUKUND ENGINEERING LTD. 10 12 500/- 17 67 500/- LESS : BOOK VALUE AS ON 31.3.04 15 67 7 77/- 1 99 723/- 2 00 703/- 7 83 500/- 5 THE ASSESSEE WAS MAINTAINING TWO SEPARATE PORTFOLIO S ONE FOR INVESTMENT IN SHARES AND OTHER FOR TRADING IN SHARES IS NOT DISPUTED AS IS C LEAR FROM THE ORDER OF THE LD. CIT(A) IN WHICH BOTH THE PORTFOLIOS HAVE BEEN REPRODUCED AS UNDER FROM THE ASSESSMENT YEARS 2002-03 TO 2005-06 : TRADING A/C. INVESTMENT A/C. VALUE OF HOLDINGS F.Y OPENING STOCK CLOSING STOCK AT THE OPENING OF THE YEAR AT THE CLOSE OF THE YEAR 2002-03 1 76 454 1 62 329 2 57 44 340 2 51 43 682 2003-04 1 62 329 17 95 345 2 51 43 682 2 51 43 682 2004-05 17 95 343 168 2 51 43 682 2 66 50 847 2005-06 168 168 2 66 50 847 2 54 59 982 IN VIEW OF THE ABOVE UNDISPUTED FACTS OF THIS CASE AND THE GUIDELINES GIVEN IN CIRCULAR NO. 4/2007 DATED 15.6.2007 OF CBDT THE GAIN ARISIN G FROM SALE OF THESE SHARES CANNOT BE TREATED AS BUSINESS PROFIT. THE RELEVANT PORTIO N OF THE CIRCULAR READS AS UNDER : 10. CBDT ALSO WISHES TO EMPHASIS THAT IT IS POSSI BLE FOR A TAXPAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIOS COMPRISI NG OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS T WO PORTFOLIOS THE ASSESEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER IN A GIVEN CASE THE SHARES AR E HELD BY THE ASSESSEE AS INVESTMENTS (AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK IN TRADE (ND THEREFORE GIVING RISE TO BUSINESS PORTFOLIOS). THE ASSESSING OFFICERS AR E FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT O F ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE TH E SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. THE CASE LAWS RELIED UPON BY THE LD. CIT(A) WHILE CONFIRMING THIS ADDITION ARE DISTINGUISHABLE ON FACTS OF THE ASSESSEES CASE. I) IN THE CASE OF GOLD CO. LTD. THE ISSUE RELATED T O THE CLAIM OF LOSS IN SHARES IN ASST. YR. 1959-1960. IN THAT CASE THE ASSESSEE WAS ADMITTEDLY A DEALER IN SHARES AND THE SHARES WERE PURCHASED AND SOLD IN REGULARLY . THE SHARES IN QUESTION WERE HELD BY IT AS STOCK-IN-TRADE. IN THE PARTICULAR FAC TS OF THE CASE THE HONBLE COURT FINALLY HELD THAT LOSS IN SALE OF SHARES OF B. J. C O. LTD. WAS A CAPITAL LOSS AND THAT LOSS IN SALE OF SHARES OF S. K. G. SUGAR LTD. WAS N OT A CAPITAL LOSS. II) IN THE CASE OF M. R. M. PLANTATION LTD. THE ASS ESSEE COMPANY ITSELF HAD TREATED THE PROFIT ARISING FROM SALE OF HOUSE PROPERTIES AN D RUBBER PLANTATION AS COMMERCIAL PROFIT AND THEREFORE THE HONBLE COURT H ELD THAT IT WAS NOT OPEN TO THE COMPANY TO CONTENT THAT THE PROFITS WERE CAPITAL GA IN AND SHOULD NOT BE 6 CONSIDERED FOR THE PURPOSE OF INVOKING THE PROVISIO NS OF SEC. 104 OF THE I. T. ACT 1961. III) IN THE CASE OF INVESTMENT LTD. VS. CIT 77 ITR 535 (SC) RELATES TO THE ASSESSMENT YEAR 1953-54 IN RESPECT OF SOME GOVERNME NT SECURITIES AND SHARES OF PUBLIC LTD. COMPANIES. THE PROVISIONS REGARDING CA PITAL GAINS AND ITS TAXABILITY WERE INTRODUCED IN THE OLD ACT W.E.F. 1.4.1957. TH EREFORE THE RATIO AS LAID DOWN IN THAT CASE IS NOT RELEVANT TO THIS CASE. IN VIEW OF THE ABOVE WE ARE OF THE CONSIDERED OPI NION THAT THE FINDINGS OF THE LOWER AUTHORITIES THAT THE PROFIT OF RS.69 56 024/- ARISI NG FROM SALE OF SHARES FROM ASSESSEE COMPANYS PORTFOLIO FOR INVESTMENT IN SHARES WAS B USINESS INCOME IS NOT SUSTAINABLE IN LAW. THE ORDERS PASSED BY THEM ON THIS ISSUE ARE HE REBY SET ASIDE. THE AO IS DIRECTED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT GAIN OF RS.6 9 56 024/- WAS A CAPITAL GAIN. THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. 7. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14. 5.2010 SD/- SD/- (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 TH MAY 2010 COPY TO : 1. M/S. COLOMA COMMERCIAL CO. LTD. BIKANER BUILDING M EZNINE FLOOR R. NO. 4 8/1 LALL BAZAR STREET KOLKATA-700 001. 2. ACIT CENTRAL CIRCLE-XXVIII KOLKATA. 3. CIT(A) KOLKATA 4. CIT KOLKATA. 5. D.R. ITAT KOLKATA. TRUE COPY BY ORDER DEPUTY REGISTRAR JD.(SR.P.S.) I.T.AT. KOLKATA