Rajasthan Global Securities Ltd., New ... vs Department Of Income Tax

DCIT, Vs. Rajasthan Global Securities Ltd., Circle 15(1), 301-303, CA Chambers, New Delhi. 18/12, WEA, Karol Bagh, New Delhi.

PAN: AAACR4122R

(Appellant) (Respondent)

Assessee By : Shri Kapil Goel, Advocate Department By : Shri Vikram Sahay, Sr. DR

Date of Hearing : 10.03.2015 Date of Pronouncement : .03.2015

ORDER PER R.S. SYAL, AM:

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 11.10.2013 in relation to the assessment year 2010-11. ITA No.106/Del/2014

2. The only issue raised is against treating the profit of

Rs.15,91,05,689/- arising from sale of shares of Satyam Computers as

'Short-term capital gain' against 'Business income' assessed by the AO.

3. Briefly stated, the facts of the case are that the assessee, at the

material time, was engaged in the business of trading of shares. Apart

from that, it also kept itself engaged in `Investment' in shares. During

the year in question, the assessee earned, inter alia, a profit of

Rs.16,41,33,017/- from the sale of shares of Satyam Computers Ltd.,

which was declared as 'Short-term Capital gain'. The AO observed that

the assessee purchased 70,44,801 shares of Satyam Computers during

the period 9.4.2009 to 3.6.2009 and such shares were sold in entirety

during the period June,2009 to January, 2010 for a consideration of

Rs.51.18 crore, realizing a profit of Rs.16.41 crore, on which security

transaction tax (STT) was paid to the tune of Rs.6,39,749/-. On being

called upon to explain as to why profit from sale of such shares be not

considered as 'Business income' as against the 'Short-term capital gain'

claimed by the assessee, it was submitted that the assessee was

2 ITA No.106/Del/2014

maintaining two portfolios viz., `Stock-in-trade' and `Investment'. The

assessee explained that most of the purchases were classified as stock-

in-trade at the time of transaction itself and only a few transactions were

considered as Investment, which fulfilled the company's investment

policy. The assessee clarified that the shares of Satyam Computers were

purchased with the intention of keeping them for a fairly reasonable

period of time. These were purchased in huge quantities. The assessee

also stated that it traded in almost 100 scrips in the capital market

segment and out of these only one scrip was purchased and sold during

the year which was classified as Investment and profit there from was

taken as 'Short-term capital gain.' The reason for treating profit from

sale of such scrips as Capital gain was given as the initial intention of

the assessee to purchase and retain them for a considerable period of

time and not for immediate resale. It was also stated that 70.44 lac

shares of Satyam Computers were purchased which constituted

investment of more than 43.65% of its net worth as on 31.3.2009. The

assessee stated that these shares were kept for a period of nine months.

The AO did not find any weight in the submissions advanced on behalf 3 ITA No.106/Del/2014

of the assessee. He observed that in March, 2009 itself, the SEBI had

given its nod for the bidding process to select an investor through open

auction and on 13.4.2009, Tech Mahindra won the bid for acquiring

51% stake in Satyam Computers @ Rs.58 per share and, hence, made an

open offer to all Satyam shareholders at this rate. He, therefore, held

that the object of the assessee was not to stay invested in these shares

and earn dividend, but, to realize immediate profit on increase in the

price of such shares. Considering this and other reasons, the AO treated

the profit of Rs.16.41 crore from sale of shares of Satyam Computers

Ltd., as 'Business income.' The ld. CIT(A) got convinced with the

assessee's submissions and directed to treat such shares as `Investment'

and the resultant profit as 'Short-term capital gain'. The Revenue is

aggrieved against this view canvassed by the ld. first appellate authority.

4. We have heard the rival submissions and perused the relevant

material on record. Before proceeding further, we want to make it clear

that any decision to hold shares as `Investment' or `Stock-in-trade'

depends on a host of factors. There can be no single criteria to decide

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the nature of shares purchased. In fact, it is the cumulative effect of all

the relevant factors, which is taken into consideration for reaching a

conclusion as regards the nature of shares and the resultant income

arising from their transfer. There may be some factors indicating the

purchase of shares as investment, while others may point towards stock-

in-trade. It is the holistic consideration of all such factors which is kept

in view while deciding as to whether the shares purchased by the

assessee constituted stock-in-trade or investment.

5. The factor which is claimed by the ld. DR to be strongly against

the treatment of shares as `Investment' is that the open auction was held

on 13.4.2009 by the SEBI for selecting investor in which Tech Mahindra

won the bid and the assessee started purchasing the shares of Satyam

Computers from 9th April, 2009 and continued to do so till 3rd June,

2009. The matching of purchase dates close to 13.4.2009 were claimed

to be indicative of the assessee's intention to reap the immediate profit

on their sale. The argument of the ld. DR that the assessee entered into

such shares at a time when they were at the lowest price and hence there

5 ITA No.106/Del/2014

could be no possibility of making Investment, cannot be considered as

decisive for holding such shares as stock-in-trade. A person may think

of making investment in the shares of a company at a price which is

quite low and, then, maintain position in it for a period by allowing it to

prosper. There is no rule of purchasing shares as investment only when

the price of shares of a company is at the peak.

6. There is Annexure to the assessment order which divulges the dates

of purchase of these shares starting from 9th April till 1st June, 2009 on

ten occasions and, thereafter, the sale started from 4th June, 2009 till 18th

January, 2010. The assessee paid STT at the time of sale of such shares.

This Annexure indicates that the assessee firstly purchased all the shares

of Satyam Computers over a period of time and, thereafter, started their

disposal. In other words, there is no frequent in and out of these shares.

7. It is manifest from page 10 of the impugned order that the assessee

had the initial intention to hold these shares as `Investment' which is

discernible from the fact that these were entered into the `Investment

register' maintained u/s 372A(5) of the Companies Act, 1956 at the

6 ITA No.106/Del/2014

time of their purchase. This is another reason to show the assessee's

intention of holding shares in Satyam Computers as investment ab initio.

8. Another factor which is of paramount importance is the assessee's

contention raised before the learned first appellate authority that these

shares were purchased out of the assessee's own funds without making

any borrowing. This argument of the assessee has not been controverted

on behalf of the Revenue by any cogent material.

9. Apart from that, it is an undisputed fact that the assessee took

delivery of such shares after making full payment and it was not a case

of settling the transaction of purchase and sale of such shares during the

settlement period itself. This is another reason to indicate that the

intention of the assessee to hold them as Investment.

10. Another factor which needs to be mentioned is that the assessee

was consistently holding some other shares as investment over a period

of time and was regularly earning income from their sale by declaring

profit as 'Short-term capital gain' or 'Long-term capital gain'

depending upon the period of their holding. There is no doubt that

7 ITA No.106/Del/2014

shares of Satyam Computers were not purchased or treated as

Investment in any of the earlier years, but at least this factor shows that

the assessee was also engaged in the purchase of shares as Investment

and showing profit from their sale under the head `Capital gains'. This

treatment of profit from sale of shares held as investment has not been

disputed by the AO in the assessments made u/s 143(3) of the Act. The

assessee has placed on record a copy of the assessment orders for

immediately preceding assessment year in which there was 'Short-term

capital gain' of Rs.17.21 crore which has been accepted by the AO vide

his order dated 29.12.2011. Similarly, there is an order passed u/s

143(3) for assessment year 2006-07 accepting that the assessee was

engaged in the business as well as in investment of shares. A copy of

such order dated 31.10.2008 is available on record from which it is

manifest that there is no alteration in the character of income shown by

the assessee. The principle of consistency in terms of the assessee

holding shares as stock-in-trade as well as investment, cannot be lost

sight of.

8 ITA No.106/Del/2014

11. When we consider the cumulative effect of all the factors obtaining

in this case, we have no doubt in our minds that the ld. CIT(A) rightly

proceeded to accept the assessee's contention of purchasing the shares

of Satyam Computers as `Investment' rather than `Stock-in-trade'. We,

therefore, uphold the same.

12. In the result, the appeal is dismissed.

The order pronounced in the open court on 11.03.2015.

Sd/- Sd/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 11th March, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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