YATISH TRADING CO. P. LTD, MUMBAI v. ADDL CIT -1(3), MUMBAI

ITA 7144/MUM/2008 | 2005-2006
Pronouncement Date: 31-12-2010 | Result: Allowed

Appeal Details

RSA Number 714419914 RSA 2008
Assessee PAN AAACY0189P
Bench Mumbai
Appeal Number ITA 7144/MUM/2008
Duration Of Justice 2 year(s) 14 day(s)
Appellant YATISH TRADING CO. P. LTD, MUMBAI
Respondent ADDL CIT -1(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 31-12-2010
Date Of Final Hearing 20-12-2010
Next Hearing Date 20-12-2010
Assessment Year 2005-2006
Appeal Filed On 17-12-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER. I.T.A. NO. 7144/MUM/2008. ASSESSMENT YEAR : 2005-06. M/S YATISH TRADINGCO. P. LTD. ADDL. COMMISSIONER OF INCOME-TAX. 4TH FLOOR SADHANA HOUSE VS. 1(3) MUMBAI. 570 PANDUNG BUDHKAR MARG WORLI MUMBAI 400018. PAN AAACY0189P APPELLANT. RESPOND ENT. APPELLANT BY : SHRI S.C. TIWARI. RESPONDENT BY : SHRI PAVAN VED AND SHRI VIJAY SHANKAR . O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE CIT(APPEALS)-XXI MUMBAI DATED 21-08-2008 FOR THE A SSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF: THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS O F INVESTMENT AND TRADING IN SHARES AND SECURITIES. IT FILED ITS RETURN OF IN COME ON 30-10-2005 DECLARING A 2 TOTAL INCOME OF RS.10 50 06 756/-. THE AO COMPLETED THE ASSESSMENT U/S 143(3) ON 20-12-2007 WHEREIN HE ASSESSED THE GROSS TOTAL INCO ME AT RS.18 11 42.903/-. WHILE DOING SO THE AO MADE THE DISALLOWANCE OF RS.2 52 90 284/- U/S 14A AND FURTHER TREATED THE ENTIRE SURPLUS ARISING FROM THE CONVERT ED STOCK-IN-TRADE TO INVESTMENT AS BUSINESS INCOME. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL WHEREIN THE ASSESSEE DISPUTED THE DISALLOWANCE U/S 14A ONLY . NO OTHER GROUND OF APPEAL WAS TAKEN. THE FIRST APPELLATE AUTHORITY GRANTED PA RT RELIEF. FURTHER AGGRIEVED THE ASSESSEE FILED THIS APPEAL WHEREIN IT CHALLENGED TH E DISALLOWANCE MADE U/ 14A. 3. FOR THE FIRST TIME BEFORE THE TRIBUNAL THE ASSES SEE ALSO CHALLENGED THE TREATMENT GIVEN BY THE AO TO THE SURPLUS THAT AROS E FROM CONVERSION OF STOCK-IN- TRADE INTO INVESTMENT. WE EXTRACT THE GROUND OF AP PEAL FOR READY REFERENCE : 1. 1 THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRM ING APPLICABILITY OF SECTION 14A FOR DISALLOWANCE OF CERTAIN EXPENDITURE ATTRIBU TABLE TO EARN EXEMPT INCOME NAMELY DIVIDEND OF RS.1 86 39 925/-. 1.2 YOUR APPELLANT SUBMITS THAT THE DIVIDEND INCOME IS EXEMPT IN THE HANDS OF YOUR APPELLANT SINCE THE ADDITIONAL INCOME TAX THER E ON UNDER THE PROVISIONS OF SECTION 115-O HAS BEEN PAID ON THE AMOUNT DISTRI BUTED BY THE PAYEE COMPANIES. 1.3 YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE OF INTEREST U/S 14A I EXCESSIVE AND ARBITRARY AND THAT THE FORMULA ADOPTED BY LEARN ED ACIT FOR ARRIVING AT THE QUANTUM OF DISALLOWANCE IS ERRONEOUS. 1.4 THE LEARNED CIT(APPEALS) HAS ERRED IN DIRECTIN G THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWABLE AMOUNT U/S 14A AS PE R THE FORMULA AS PER RULE 8D OF THE INCOME TAX RULES. 1.5 YOUR APPELLANT SUBMITS THAT THE APPLICABILITY O F RULE 8D HAS BEEN INSERTED ` W.E.F. 24.03.2008 AND HAS TO BE PROSPECTIVE AND NO T RETROSPECTIVE. 3 2. TREATMENT OF SURPLUS ARISING FROM STOCK IN TRADE CONVERTED INTO INVESTMENT AS BUSINESS INCOME. 2.1 THE LEARNED ACIT HAS TREATED THE ENTIRE SURPLUS ARISING FROM THE CONVERTED STOCK IN TRADE TO INVESTMENT S BUSINESS INCOME. 2.2 WHILE COMPUTING THE INCOME HAS BEEN CONSIDERED ON THE SURPLUS ARISING ON CONVERTED STOCK AS BUSINESS INCOME FROM THE DATE OF PURCHASE TO DATE OF CONVERSION AND CAPITAL GAINS FROM DATE OF CONVERSIO N TO DATE OF SALE. 2.3 YOUR APPELLANT THEREFORE SUBMITS THAT THE SURPL US ARISING FROM THE SALE OF CONVERTED STOCK IN TRADE TO INVESTMENTS SHOULD BE T AXED AS CAPITAL GAINS AFTER THE DATE OF CONVERSION AND BUSINESS INCOME UP TO THE DATE OF CONVERSION AS OFFERED BY THE APPELLANT. 4. THE LEARNED COUNSEL FOR THE ASSESSEE MR. S.C. T IWARI SUBMITTED THAT GROUND NO.1 WHICH IS ON THE ISSUE OF DISALLOWANCE U/S 14A IS COVERED BY THE DECISION OF G-BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 456/MUM/2009 ORDER DATED 10 TH NOV. 2010 WHEREIN THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO WITH SPECIFIC OBSERVATIONS. HE SUBMITTED THAT T HE INTEREST ON LOANS WHICH HAS GONE INTO STOCK-IN-TRADE CANNOT BE DISALLOWED U/S 14A. HE FURTHER SUBMITTED THAT IN THE CASE OF INVESTMENTS INTEREST SHOULD BE CAP ITALIZED AND BECOMES PART OF COST OF ACQUISITION AND HENCE CANNOT BE DISALLOWED. HE P RAYS THAT THE ISSUE MAY BE SET SIDE TO THE FILE OF THE AO WITH A SPECIFIC DIRECTIO N ON THE ABOVE ISSUE AND FURTHER TO FOLLOW THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. VS. DCIT (2010) 234 CTR (BO M) 1 AND DETERMINE REASONABLE DISALLOWANCE. 5. ON GROUND NO. 2 THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITS THAT THE ISSUE HAS NOT BEEN RAISED BEFORE THE CIT(APPEALS) BUT HAS BEEN RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL IN THE ORIGINAL APPEAL GROUNDS ITSELF. HE SUBMITTED THAT ALL THE 4 FACTS ARE ON RECORD AND THE ISSUE IS A LEGAL ISSUE PERTAINING TO TREATMENT OF SURPLUS ARISING FROM STOCK-IN-TRADE CONVERTED INTO INVESTME NT. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL T HERMAL POWER CO. LTD. VS. CIT 229 ITR 383 AS WELL AS THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD.. VS. CIT 187 ITR 688. HE ARGUED THAT THIS BEING A LEGAL ISSUE AND AS NO FRESH INVESTIGATIONS US REQUIRED INTO THE FACTS THESE GROUNDS SHOULD BE ADMITTED AND ADJUDICATED UPON. ON MERITS HE SUBMITTED HAT THE ISSUE IS SQUARELY COVERED IN HIS FAVOUR BY THE DECI SION OF THE G-BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 3350 /MUM/2009 ORDER DATED 23 RD FEB. 2010. HE FURTHER SUBMITS THAT THE ISSUE IS CO VERED IN HIS FAVOUR BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. JANVI INVESTMENTS P. LTD. 304 ITR 276 (BOM). 6. THE LEARNED DR MR. PAVAN VED ALONG WITH SHRI VI JAY SHANKAR THE SENIOR DR OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUB MITTED THAT GROUND NO.2 OF THE APPEAL IS A NEW GROUND WHICH HAS NOT BEEN TAKEN BEF ORE THE CIT(APPEALS) AND HENCE CANNOT BE ADMITTED. HE POINTED OUT THAT THE A SSESSEE HAS INSTEAD OF TAKING THE GROUND BEFORE THE CIT(APPEALS) HAS FILED A PET ITION U/S 264 BEFORE THE COMMISSIONER OF INCOME TAX-I AND THE COMMISSIONER O F INCOME TAX HAS REJECTED THE SAME. IN THE CIRCUMSTANCES IT IS ARGUED THAT THE ASSESSEE CANNOT BE ALLOWED TO TAKE UP THE SAME ISSUE BEFORE THE TRIBUNAL HE RELIE D ON SECTION 264(4) AND SUBMITTED THAT IT BARS THE ASSESSEE FROM TAKING UP THE ISSUE. MOREOVER HE POINTED OUT THAT THE ASSESSEE HAS MIS-REPRESENTED BEFORE TH E CIT BY NOT POINTING OUT THAT THIS GROUND WAS TAKEN BEFORE THE TRIBUNAL. HENCE AS PER THE LEARNED DR THE ASSESSEE HAS NOT COME OUT WITH CLEAN HANDS AND HENC E CANNOT BE ALLOWED TO RAISE THE MATTER BEFORE THE TRIBUNAL. THEY FURTHER ARGUED THAT RAISING OF THE GROUND IS 5 BARRED BY LIMITATION. ON A SPECIFIC QUERY FROM THE BENCH THE LEARNED DR COULD NOT DISPUTE THE CONTENTION OF THE ASSESSEE THAT ALL THE FACTS ARE ON RECORD. 7. ON GROUND NO. 1 THE LEARNED DR SUBMITTED THAT TH E ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN LINE W ITH THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 4-05 WHEREIN CERTAIN GUIDE LINES HAVE BEEN GIVEN AND THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (SUPRA) WAS FOLLOWED. HE SUBMITTED THAT INTEREST CANNOT BE CAPITALIZED AND COST OF ACQUISIT ION IS ONLY COST OF PURCHASE AND NOTHING CAN BE ADDED THERETO. 8. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE APPEAL HAS BEEN FILED BEFORE THE TRIBUNAL ON 17-12-2008 I.E. B EFORE AN APPLICATION IS MADE U/S 264 TO THE COMMISSIONER. HE FILED A COPY OF THE APP LICATION MADE U/S 264 AND SUBMITTED THAT IT IS DATED 18 TH DEC. 2008 AND IT WAS FILED ON 22 ND DEC. 2008 IN THE COMMISSIONERS OFFICE. HE CONTENDED THAT FILING OF A PETITION U/S 264 AND ADJUDICATION OF THE SAME BY THE CIT IS NOT A BAR O N THE ASSESSEE TO RAISE A LEGAL ISSUE BEFORE THE TRIBUNAL AND SPECIALLY WHEN THE IS SUE IS COVERED IN HIS FAVOUR BY THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE BUT ALSO BY THE DECISION OF THE JURISDICTIONAL HIGH COURT. HE POINTED OUT TO SECTI ON 264(4) AND SUBMITTED THAT THIS CONTAINS A LIMITATION IMPOSED ON THE CIT BUT IT HAS NOT REFERRED TO ANY RESTRICTION ON THE TRIBUNAL. HE EMPHASIZED THAT WHEN FACTS ARE NOT IN DISPUTE A LEGAL ISSUE CAN BE RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL AN D THE SAME SHOULD HAVE BEEN ADJUDICATED UPON. HE SUBMITTED THAT THE APPEAL WAS FILED BEFORE THE TRIBUNAL WITHIN TIME AND THUS NOT BARRED BY LIMITATION. 6 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS. 10. THE ISSUES RAISED IN GROUND NO. 2 BY THE ASSE SSEE IS A LEGAL ISSUE. THE UNDISPUTED FACT IS THAT ALL THE MATERIAL IS ON RECO RD AND THERE IS NO REQUIREMENT OF FRESH ENQUIRY INTO THE FACTS. IN THE ASSESSMENT ORD ER THE AO HAS DEALT WITH ALL THE FACTS AND IN FACT HE HAS GIVEN THE TRANSACTIONS IN QUESTION IN FORM OF ANNEXURE A ATTACHED TO THE ASSESSMENT ORDER. IN THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA (SUPRA) IT I S HELD AS FOLLOWS : HELD REVERSING THE DECISION OF THE HIGH COURT TH AT SINCE THE TAX LIABILITY WAS ADMITTED THE INCOME-TAX OFFICER WAS AFFORDED A N OPPORTUNITY OF BEING HEARD AND THE APPELLANTS CLAIM WAS BASED ON THE S ETTLED VIEW OF THE LAW THE APPELLATE ASSISTANT COMMISSIONER HAD JURISDICTI ON TO PERMIT THE APPELLANT TO RAISE THE ADDITIONAL GROUND. SINCE THE ORDINARY PROCEDURE FOR CALLING FOR A STAT EMENT OF THE CASE AND THEREUPON DECIDE THE MATTER AFRESH WOULD BE TIME-CO NSUMING THE SUPREME COURT GRANTED SPECIAL LEAVE AGAINST THE ORD ER OF THE TRIBUNAL SET ASIDE THE ORDER AND REMITTED THE MATTER TO THE TRIB UNAL TO CONSIDER THE MERITS OF THE DEDUCTION CLAIMED. IN THE CASE OF NATIONAL THERMAL POWER CO. (SUPRA) THE HONBLE SUPREME COURT HELD AS FOLLOWS : UNDOUBTEDLY THE TRIBUNAL HAS THE DISCRETION TO ALL OW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON REC ORD IN THE ASSESSMENT 7 PROCEEDINGS THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. RESPECTFULLY FOLLOWING THESE DECISIONS ON THE FACT S OF THE CASE WE HAVE TO NECESSARILY ADMIT THESE GROUNDS. 11. COMING TO SECTION 264(4) THE SAME READS AS FOLL OWS : 4) THE COMMISSIONER SHALL NOT REVISE ANY ORDER UNDE R THIS SECTION IN THE FOLLOWING CASES - (A) WHERE AN APPEAL AGAINST THE ORDER LIES TO THE [DEPU TY COMMISSIONER (APPEALS)] [OR TO THE COMMISSIONER (APPEALS)] OR TO THE APPELLATE TRIBUNAL BUT HAS NOT BEEN MADE AND THE TIME WITHIN WHICH SUCH APPEAL MAY BE MADE HAS NOT EXPIRED OR IN THE CASE OF AN APPEAL [TO THE COMMISSIONER (APPEALS) OR] TO THE APPELLATE TRIBUNA L THE ASSESSEE HAS NOT WAIVED HIS RIGHT OF APPEAL; OR (B) WHERE THE ORDER IS PENDING ON AN APPEAL BEFORE THE [DEPUTY COMMISSIONER (APPEALS)]; OR (C) WHERE THE ORDER HAS BEEN MADE THE SUBJECT OF AN APPE AL [TO THE COMMISSIONER (APPEALS) OR ] TO THE APPELLATE TRIBUN AL 12. A PLAIN READING OF THE ABOVE SUB-SECTION SHOWS THAT CERTAIN RESTRICTIONS ARE PLACED ON THE COMMISSIONER FOR REVISING THE ORDER U NDER THIS SECTION. THERE IS NO PROHIBITION OR LIMITATION ON THE POWERS OF THE TRIB UNAL. THE FACT THAT THE ASSESSEE HAS NOT MENTIONED THE ISSUE OF RAISING THIS GROUND BEFORE THE TRIBUNAL IN HIS APPLICATION U/S 264 IS AN ISSUE TO BE CONSIDERED B Y THE CIT AND NOT BY THE 8 TRIBUNAL. IN FACT THE APPEAL TO THE TRIBUNAL HAS BE EN FILED BEFORE AN APPLICATION IS MADE U/S 264 AND THIS GROUND WAS RAISED IN THE ORIG INAL APPEAL ITSELF BY WAY OF A REGULAR GROUND. THE ARGUMENT THAT RAISING OF THE GR OUND IS BARRED BY LIMITATION IS WITHOUT MERITS AS THE APPEAL HAS BEEN FILED BEFORE THE TRIBUNAL IN TIME AND THE GROUND HAS BEEN RAISED IN THIS APPEAL ITSELF. THUS IN OUR HUMBLE OPINION THERE IS NO MERIT IN THE CONTENTIONS OF THE LEARNED DR. 13. IN VIEW OF THE ABOVE DISCUSSION WE ADMIT GROUN D NO. 2 OF THE ASSESSEE. 14. COMING TO GROUND NO.1 WHICH IS AGAINST THE DISA LLOWANCE U/S 14A AS BOTH THE PARTIES AGREED THAT THE ISSUE SHOULD BE SET ASI DE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN LINE WITH THE DECISION OF G-BENCH O F THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05. ACCORDING LY WE SET ASIDE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO FOLLOW THE ABOVE TRIBUNAL ORDER IN ASSESSEES OWN CASE. THE AO SHALL NOT DISALLOW INTEREST ON LOA NS USED FOR PURCHASE AND SALE OF SHARES AS A DEALER AND WHICH IS USED FOR CLOSING STOCK AS THE TRIBUNAL HAS HELD THAT IN SUCH CASES THE ACTIVITY OF PURCHASE AND SAL E INCIDENTALLY YIELD SOME DIVIDEND INCOME ON THE SHARES HELD BY HIM AS STOCK- IN-TRADE AND SUCH DIVIDEND INCOME IS NOT INTENDED AT THE TIME OF PURCHASE OF S UCH SHARES AND THERE IS NO LIVE CONNECTION BETWEEN THE EXPENDITURE INCURRED ON DIVI DEND INCOME. THE AO SHALL ALSO EXAMINE IN ACCORDANCE WITH LAW THE ARGUMENT OF THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF INTEREST EXPENDITURE ON INVESTMENTS ON THE GROUND THAT THE SAME IS COST OF ACQUISITION. THE AO SHALL FOLLOW THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. (SUPRA). WITH THE ABOVE OBSERVATIONS WE SET ASIDE THE MATTER TO THE FILE O F THE AO FOR FRESH ADJUDICATION IN LINE WITH THE DIRECTIONS OF THE TRIBUNAL IN ITS ORD ER IN ITA NO. 456/MUM/2009 FOR THE ASSESSMENT YEAR 2004-05. 9 15. COMING TO GROUND NO.2 THE UNDISPUTED FACTS AR E THAT THE ASSESSEE HAS CONVERTED THE CLOSING STOCK INTO INVESTMENT . THESE FACTS ARE NOT IN DISPUTE. THE ONLY ISSUE IS WHAT PORTION IS TO BE TAXED AS INCOME FROM BUSINESS AND WHAT PORTION IS TO BE TAXED AS CAPITAL GAINS. THIS ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY AN ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 WHEREIN AT PAR A 9 AND 10 IT IS HELD AS FOLLOWS : 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST QUESTION IS AS TO THE HEAD OF INCOME UNDER WHICH THE INCOME IS TO BE ASSESSED WHETHER UNDER THE HEAD INCOME FROM BUSINESS OR CAPI TAL GAIN. THE TEST OFTEN APPLIED TO ASCERTAIN THE NATURE OF THE PROPE RTY IN THE HANDS OF THE ASSESSEE AS TO WHETHER THE SAME IS INVESTMENT OR ST OCK-IN-TRADE OF BUSINESS OF THE ASSESSEE IS TO LOOK AT THE TREATMEN T GIVEN IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. WE WILL FIRST CONSIDER TH E LEGAL POSITION IN THIS REGARD AS LAID DOWN IN JUDICIAL PRONOUNCEMENTS. IT H AS BEEN LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF RAJA BAHADUR KA MAKHAYA NARAIN SINGH VS. CIT 77 ITR 253 THAT THE INTENTION OF T HE ASSESSEE AS REFLECTED FROM THE TREATMENT GIVEN IN HIS ACCOUNTS IN HOLDING A PARTICULAR ASSET AS STOCK-IN-TRADE OF A BUSINESS OR AS AN INVESTMENT WI LL BE VERY IMPORTANT. AS HELD BY HONBLE SUPREME COURT IN THE CASE OF BENGAL ASSAM INVESTORS LTD. VS. CIT -59 ITR 547 THE MERE FACT THAT A COMPANY I S INCORPORATED TO CARRY ON INVESTMENT BUSINESS DOES NOT AUTOMATICALLY LEAD TO THE INFERENCE THAT IT IS CARRYING ON BUSINESS BY PURCHASE AND SALE OF PRO PERTIES HELD AS INVESTMENTS AND THE QUESTION ALWAYS IS WHETHER SUCH SALE WHICH PRODUCED THE SURPLUS WAS CONNECTED WITH THE CARRYING ON OF T HE ASSESSEES BUSINESS THAT IT COULD FAIRLY BE SAID THAT THE SURPLUS IS TH E PROFITS AND GAINS OF SUCH BUSINESS. AS LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT CO. LTD.-41 ITR 191 ONE CANNOT GENERALIZE THAT IN EVERY CASE OF INVESTMENT COMPANY ALL TRANSACTION INVOLVING INVES TMENTS ARE NOTHING BUT DEALINGS IN THE COURSE OF BUSINESS. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPME NT CO. PVT. LTD.-82 ITR 586 THE DETERMINATION OF THE QUESTION WHETHER PART ICULAR HOLDING OF SHARES BY THE ASSESSEE IS BY WAY OF AN INVESTMENT OR WHETH ER IT FORMS PART OF STOCK-IN-TRADE OF THE ASSESSEE IS A MATTER GENERALL Y WITHIN THE KNOWLEDGE OF 10 THE ASSESSEE HOLDING THE SHARES AND NORMALLY THE AS SESSEE SHOULD BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS OWN RECORDS A S TO WHETHER HE HAD MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE HELD AS STOCK- IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTM ENTS. IN THE PRESENT CASE THE AO HAS NOT DISPUTED THE FACT THAT THE ASS ESSEE HAS RECOGNIZED THE SHARES WHICH WERE SOLD AND GAINS FROM SUCH SALE WHI CH WERE OFFERED UNDER THE HEAD CAPITAL GAIN WERE SHOWN AS INVESTMENTS IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. THESE INVESTMENTS WERE HELD FOR VA RYING PERIODS OF TIME VIZ. ONE YEAR TO 48 MONTHS. THE TREATMENT IN THE B OOKS OF ACCOUNTS HAS NOT BEEN DISPUTED BY THE REVENUE. THERE ARE NO OTHER FA CTS BROUGHT ON RECORD BY THE AO TO SHOW THAT THE SHARES WERE HELD AS STOC K-IN-TRADE. THERE ARE NO OTHER CIRCUMSTANCES SUGGESTED IN THE ORDER OF ASSES SMENT FROM WHICH IT CAN BE SAID THAT THE GAIN IN QUESTION HAS TO BE CON SIDERED AS BUSINESS INCOME. THE FACT THAT THE ASSESSEE GAINS AN ADVANTA GE IN THE FORM OF EXEMPTION FROM LONG TERM CAPITAL GAIN CAN BE NO GRO UND TO HOLD THAT THE GAIN IN QUESTION IS BUSINESS INCOME. THE OTHER REA SON GIVEN BY THE AO THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARE S IS NO GROUND TO TREAT THE GAIN IN QUESTION AS BUSINESS INCOME. AS ALREADY STA TED THE ASSESSEE DESPITE THE FACT THAT HE DOES TRADING IN SHARES IS NO GROUN D TO TREATE THE GAIN IN QUESTION AS BUSINESS INCOME. AS ALREADY STATED THE ASSESSEE DESPITE THE FACT THAT HE DOES TRADING IN SHARES AND SECURITIES HAS A RIGHT IN LAW TO HAVE TWO PORTFOLIOS ONE UNDER THE HEAD INVESTMENTS AND T HE OTHER UNDER THE HEAD STOCK-IN-TRADE. IN RESPECT OF THE SALE OF SHAR ES WHICH HAS GIVEN RAISE TO THE INCOME IN DISPUTE IN THE PRESENT APPEAL THERE IS NO DISPUTE REGARDING THE TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS WHICH WAS ADMITTEDLY WAS AS INVESTMENT AND NOT AS STOCK-IN-TR ADE OF BUSINESS. IN THOSE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE IN COME WAS TO BE CONSIDERED UNDER THE HEAD CAPITAL GAINS. 10. AS FAR AS METHOD OF ARRIVING ON THE PROFIT ON SALE OF SHARES IS CONCERNED LEARNED CIT(A) HAS CONSIDERED THREE POSS IBLE ALTERNATIVE METHODS WHICH COULD BE FOLLOWED. LEARNED CIT(A) FOU ND THAT THE ASSESSEE FOLLOWED A METHOD BY WHICH PROFIT FROM THE DATE OF PURCHASE TO THE DATE OF CONVERSION OF THE SHARES INTO INVESTMENT WILL BE CH ARGED AS BUSINESS PROFIT AND THE PROFIT FROM THE DATE OF CONVERSION INTO INV ESTMENT TILL DATE OF SALE WILL BE CHARGED AS CAPITAL GAIN. THE ASSESSEE HAD F ILED RETURN OF INCOME ON THE BASIS OF THE ABOVE METHOD AND HAS OFFERED INCOM E FROM BUSINESS AS WELL AS INCOME FROM CAPITAL GAINS. IN OUR VIEW LEA RNED CIT (APPEALS) WAS 11 RIGHT IN ACCEPTING THIS METHOD OF VALUATION ADOPTED BY THE ASSESSEE. THE ASSESSEE HAS HOWEVER SOUGHT TO PLEAD BEFORE LEARN ED CIT (APPEALS) AND ALSO BEFORE US THAT ENTIRE PROFIT RIGHT FROM THE DA TE OF PURCHASE OF SHARES TILL DATE OF SALE SHOULD BE CHARGED AS CAPITAL GAIN S. THIS REQUEST IN OUR OPINION WAS RIGHTLY REJECTED BY LEARNED CIT (APPEALS ) BECAUSE ALLOWING ASSESSEE TO DO SO WOULD RESULT IN REDUCTION IN INCO ME OFFERED BY THE ASSESSEE FOR TAXATION IN THE RETURN OF INCOME. TREA TMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS IS LOGICAL AND IN ACCORDANCE WITH LAW. WE THEREFORE UPHOLD THE ORDER OF LEARNED CIT(A) AND D ISMISS THE APPEAL BY THE REVENUE. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR 16 IN VIEW OF THE ABOVE DISCUSSION WE SET ASIDE TH E ISSUE TO THE FILE OF THE AO. THE AO SHALL FOLLOW AND APPLY THE DECISION OF THE M UMBAI G-BENCH OF THE TRIBUNAL IN ITA NO. 3350/MUM/2009 ORDER DATED 23 RD FEBRUARY 2010 AS ADMITTEDLY THE ISSUE IS SQUARELY COVERED BY THIS OR DER. THE AO IS DIRECTED TO COMPUTE AS BUSINESS INCOME THE PROFIT ARISING FROM THE DATE OF PURCHASE TO THE DATE OF CONVERSION OF THE STOCK IN TRADE AS INVESTMENT A ND TO COMPUTE CAPITAL GAINS PROFITS FROM THE DATE OF CONVERSION INTO INVESTMEN T THE STOCK IN TRADE TILL THE DATE OF TRANSFER. THE AO SHALL FOLLOW THE BINDING D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S JANNH AVI INVESTMENTS(P) LTD. 304 ITR 276 (BOM.). 17. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DEC. 2010. SD/- SD/- (VIJAY PAL RAO) (J . SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER MUMBAI DATED: 31 ST DEC. 2010. 12 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR G-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI B ENCHES M UMBAI. WAKODE