The Commissioner of Income Tax vs Supriya Investments Pvt. Ltd.

Chitra Venkataraman, J.—These tax case appeals are filed in respect of the assessment years 1994-95 and 1995-96 at the instance of the

revenue challenging the correctness of the order of the Income Tax Appellate Tribunal made in I.T.A. Nos. 939 and 940/Mds/98 on the questions

of law stated below:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in setting aside the order of the

Commissioner of Income Tax u/s 263 on the grounds that the Commissioner of Income Tax could not consider the tax effect of two assessment

years together?

Whether on the facts and in the circumstances of the case that the Income Tax Appellate Tribunal was right in holding that the income/loss

arising from the transactions in shares of the assessee was income/loss under the head ""capital gains"" in spite of the fact that the assessee was

showing the income/loss as business income/loss all along?

In the return filed for the assessment year 1994-95 and 1995-96, the assessee claimed loss on the sale of shares as business loss. The assessing

authority rejected the claim of the assessee and treated the same as capital loss. It may be seen here that as regards the prior year, the assessment

was completed treating the loss on the sale of shares as business loss.

The Commissioner of Income Tax in exercise of the powers u/s 263 of the Income Tax Act revised the order of assessment taking the view that

the shares sold by the assessee must be held as ""capital investment"". Consequently, the profit arising on the sale of the shares must be taken as

capital assets"" inviting the provisions of ""capital gains"". The Commissioner of Income Tax pointed out that the assessee has been indulging in

frequent purchase and sale of shares and consequently she took a view that the transactions have to be assessed as ""business loss"" as against

capital loss"" granted by the assessing authority. The Commissioner further pointed out that the assessee is an investment company dealing in

shares. Consequently, going by the nature of the business carried on by the assessee, the Commissioner of Income Tax set aside the assessment

order with a direction to assess the ""income/loss"" from the transaction in shares as ""business loss/income"" for the assessment years 1994-95 and

1995-96.

Aggrieved by the said order of revision passed by the Commissioner of Income Tax, the assessee preferred appeals before the Income Tax

Appellate Tribunal contending that what had been held by them was only a capital asset. The assessee company was carrying on business as an

investment company and the same had been disclosed as so in the balance sheet. Most of the shares had been held for a long time and therefore

placing reliance on the decision of the Calcutta High Court in the case of Commissioner of Income Tax, Bombay City-II, Bombay Vs. H.R. Aslot,

, the assessee contended that the sale of shares were to be assessed only under the head ""capital gains"". Considering the loss suffered, the same

had to be treated as capital loss.

The Tribunal considered the claim of the assessee and the revenue and pointed out that on the undisputed facts right from inception, the assessee

had never shown the value of the shares held by it as ""stock in trade"" or ""current assets"" in its balance sheet and they had shown the same only as

investment"". It also pointed out that for the assessment year upto 1994-95, the assessee claimed profit or loss on the sale of shares as ""business

income/loss"" and only in the assessment year 1995-96, it had admitted the profit on sale of shares as ""capital gains"" in the return. However, for the

assessment year 1994-95, the assessing authority rejected the claim of the assessee as ""business income"" and treated the income as ""capital

gains/loss"" and for the next assessment year 1995-96, the assessee had followed the same principle, realising the correctness of the view

expressed by the assessing authority in terms with the memorandum of the company. The Tribunal, by placing reliance on a decision of the

Supreme Court in the case of Raja Bahdur Kamakhya Narain Singh Vs. The Commissioner of Income Tax, Bihar and Orissa, , held that the

decision to treat the income arise on the sale of shares as ""business income"" must primarily rest on the aspect that the assessee should have

intention to carry on business in shares as the trading activity. Applying the law declared by the Supreme Court, the Tribunal pointed out that the

assessee never showed the value of the share held by it either under ""current assets"" or under ""stock-in-trade"" in its balance sheet and it had been

consistently shown by the assessee as ""investment"" in the balance sheet. The intention of the assessee is clear that the assessee was holding the

shares only as investments and it was not holding the shares as a ""stock-in-trade"" or ""current assets"" to deal in them. Ultimately the Tribunal came

to the conclusion that what was realised by the assessee on the sales of the shares was only ""capital asset"" resulting in ""capital gain"". In these

circumstances, the Tribunal allowed the appeals of the assessee.

Aggrieved by this the revenue has come on appeal before this Court contending that the conduct of the assessee right from the beginning shows

that he intended to keep the shares only as a ""stock in trade"" as such, being current assets, the Tribunal committed error in its view that it is a

capital asset"" attracting liability as ""capital gains"".

We do not find any force in the argument made by the learned Counsel for the revenue.

The reading of the order passed by the Tribunal shows that it was an undisputed fact that right from the inception the assessee had never shown

the value of the shares held by it either under ""current assets"" or under ""stock in trade"". However, the counsel for the revenue without getting over

this finding of fact insisted that the Tribunal misdirected itself in holding that the sale of the shares should be treated as ""capital asset"". A reading of

the Tribunal order and applying the law laid down by the Supreme Court in Raja Bahdur Kamakhya Narain Singh Vs. The Commissioner of

Income Tax, Bihar and Orissa, shows that factually the assessee had been dealing with the shares as an ""investment"". Being an investment company

it is not uncommon for a person like that of an assessee to have a back up of an investment as capital in its business. No material has been placed

before this Court to question the correctness of the Tribunal''s finding of fact on the admitted facts that the assessee was holding that investments as

a capital asset and that in the absence of any finding as to the intention of the assessee to carry on business in shares as a trading activity, we do not

find any justification in the contention of the revenue. Considering the material placed before this Court, we do not find any justification to disturb

the finding arrived at by the Tribunal and in these circumstances, the appeals are dismissed.