- (1.) THIS judgment will dispose of IT Appeal Nos. 442, 457, 460 to 474, 517 and 518 of 2005. Facts have been taken from IT Appeal No. 471 of 2005. These may be briefly noticed.
(2.) THIS appeal has been filed by the assessee proposing following substantial questions of law : "(a) Whether the Tribunal was right in law in setting aside the order of the CIT(A) for a de novo consideration (i) without rebutting the findings given by the CIT(A) ? (ii) when the said findings had not even been challenged by the Revenue ? (b) Whether the order of the Tribunal is unsustainable in law as it allows the appeals following its order in the case of Vesta Investment and Trading Co. (P) Ltd. and at the same time setting aside the order in other appeals when it is not disputed by the Revenue that facts are similar ? (c) Whether the Tribunal was right in law in restoring the matter to the AO to find out afresh, the initial intention of the assessee in acquiring the shares, when the CIT(A) had already given an uncontroverted finding of fact that the appellant had acquired the shares with the intention of holding the same as an investment ? (d) Whether, on facts, the Tribunal was right in. law in impliedly placing the onus on the respondents and restoring to the AO for a fresh consideration of the issue ? (e) Whether, in the facts and circumstances of the case, the order of the Tribunal is perverse as it is not based on material on record -
(3.) FACTS as noticed in the order of the AO are that : "The assessee -company is an investment company. It is engaged in investment and trading in shares and debentures. During the year it has traded in the shares of Ranbaxy Laboratories Ltd., Oscar Pharmaceuticals (P) Ltd., etc., which are companies of the Ranbaxy group itself besides some other sales. In the P&L a/c, the assessee -company shows income from capital market operation, dividend, interest, profit on sale of investment. The assessee company claims that it holds shares under two portfolios i.e. partly as stock -in -trade and partly as investments of capital nature. It is seen from the computation chart that an amount of Rs. 2,90,58,619 has been reduced from P&L a/c and long -term capital gain of Rs. 2,07,69,732 has been shown on sale of shares which are claimed to have been held as investment. This has resulted in lower income. Besides, long -term capital gains are taxed at lower rates further lowering the tax liability." Claim of the assessee was that the income from sale of shares was capital gains. The AO held that the income from shares was business income; investment was business activity and shares purchased were stock -in -trade, for the following reasons : "(i) The assessee -company as per the memorandum and articles of the company is an investment company and it is the business activity of the company to make investment and trade in shares. Thus to make investment in shares is its business activity and the shares purchased are its stock -in -trade. It has been laid down by various judicial rulings that where a particular commodity is being traded, transactions of purchase of the same commodity may readily be inferred as being in the nature of trade and shall not normally be treated as an investment. I rely on the judgment in the following cases on this issue : (a) Khan Bahadur Ahmed Alladin and Sons vs. CIT (1968) 68 ITR 573, 578 (SC) (b) Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC). (ii) Secondly, there are no separate purchase numbers for the two accounts i.e. investment account and trading account. It is not clear from the broker's note/purchase account whether purchase is made for investment or stock -in - trade. For instance, the assessee -company is holding shares of Ranbaxy Laboratories Ltd. as investment and is also dealing in shares of the same company in its trading account i.e. as stock -in -trade. No distinction can be made between shares held as investment or stock -in -trade. (iii) The assessee -company has claimed interest of Rs. 18,50,029 as expenditure which is the interest on loans raised for purchase of shares. It also indicates that the purchase and sale of shares is a business activity. (iv) It is also seen that the intention of the assessee that whether the shares are for investment on stock -in -trade is not clear at the time of acquiring the shares. Only one share application account is maintained. The serial numbers of the bills in the purchase bill book and sale bill book are continuous irrespective of whether the purchase/sale is of shares retained as stock -in -trade in the books of account or transferred to the investment folio later on for declaring income on their sale as capital gain." ;