Income Tax Appellate Tribunal - Kolkata
Decon Mercantile Pvt. Ltd., Kolkata vs Assessee on 18 April, 2010
आयकर अपीलीय अधीकरण, Ûयायपीठ - "ए ", कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A , KOLKATA
(सम¢)Before ौी डȣ.
डȣ. के. ×यागी,
×यागी, Ûयायीक सदःय, एवं/and
Shri D.K.Tyagi, Judicial Member. .
ौी बी.
बी.के.हालदार,
हालदार, लेखा सदःय,
Shri B.K.Haldar, Accountant Member
आयकर अपील संÉया / I.T.A.No.1314/KOL/2010
िनधॉरण वषॅ/Assessment Year : 2007-08
M/s.Decon Mercantile Pvt. Ltd. -वनाम- D.C.I.T, CC-XXVIII, Kolkata
PAN:AABCD 1666R -Versus-.
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
अपीलाथȸ कȧ ओर से/ For the Appellant: ौी/Shri S.B. Putatunda, ld. AR of the assessee
ू×यथȸ कȧ ओर से/For the Respondent: ौी/Shri Piyush Kolhe, ld.DR
आदे श/ORDER
ौी बी.
बी.के.हालदार,
हालदार, लेखा सदःय,
Shri B.K.Haldar, Accountant Member.
This is an appeal filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), Central-I, Kolkata dated 18.04.2010 for the assessment year 2007-08.
2. The assessee has taken following grounds of appeal :-
1. The learned CIT(Appeals), Central-1, Kolkata erred in fact and in law in directing to assess the income from Service Charges under the head Income from Other Sources.
2. The learned CIT (Appeals), Central-1, Kolkata erred in fact and in law in confirming the Order of the Assessing Officer treating Income from Share Transactions as Business.
3. The learned CIT(Appeals), Central-1, Kolkata erred in fact and in law in confirming the disallowance of Municipal Tax amounting to Rs.4,86,559/-
4. The Appellant craves leave to add, alter, amend, amplify or modify the above grounds at or before the hearing of the Appeal.ITA No.1314/Kol/2010 1
3. The assessee company is engaged in letting out of its property. The assessee owns a building at 38 Strand Road, Kolkata-1 having ground floor plus three floors and also a mezzanine floor. Total area of which is 20,202 sq.ft, out of which the assessee occupies 10,000 sq.ft in 2nd & 3rd floor. For the entire property, the assessee paid municipal tax of Rs.9,82,946/-. The municipal tax pertaining to self occupied portion was of Rs.4,86,559/- and rented portion was Rs.4,96,387/-. The AO, therefore, disallowed the municipal tax pertaining to self occupied portion of Rs.4,86,559/-.
3.1 During the relevant previous year the assesee received service charges from Union Bank of India of Rs.4,76,640/-, which was shown by it as income from business. As per lease agreement dated 17-08-02 with the Union Bank of India, the bank had taken the first floor measuring 4965 sq.ft, for which the bank was to pay rent of Rs.23/- per sq.ft per month inclusive of all rates and taxes. As per subsequent agreement dated 01-09-05 the bank is to pay compensation of Rs.8/- per sq.ft per month towards amenities and facilities provided by the assessee as per caluse-2 of the said agreement. This amount of Rs.4,76,640/- was treated by the assessee as income from business. The AO, however, opined that providing the facilities and amenities by the assessee was inseparable from renting of the premises and, therefore, he assessed impugned sum under the head 'income from house property'. The AO was of the opinion that the above view is further strengthened as the bank in the TDS certificates have deducted tax at source on the basis that the entire sum paid was rent.
3.2 The assessee disclosed long term capital gain [LTCG] of Rs.62,349/- and short term capital gain [STCG] of Rs.62,95,633/- from sale and purchase of shares. The shares transacted by the assessee company were as under :-
SI. No. Name of the scrip Purchase Sale value
Quantity Value Quantity Value
1. Hindustan Zinc Limited 10925 785388 23725 19158386
2. Dhampur Sugar 57950 6372001 35450 2751653
3. Jubilant Org 4450 1007967 4450 1077356
4. Indus Ind Bank 12500 668226 12500 656408
ITA No.1314/Kol/2010
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3.3 The AO asked the assessee to show-cause as to why the LTCG and STCG disclosed by the assessee should not be treated as income from business. The submission of the assessee was as under:-
"As regards to income from sale of shares there is a circular of the Income tax Department Circular No.4/2007, dated 15/06/2007. Principles laid down by Honorable Supreme Court in Commissioner of Income tax, Bombay vs. H. Holck Larsen (160 ITR 67) for distinction between Income from sale of shares to be treated as Short / Long Term Capital Gain or business income are as follows
a) Where a Company purchases & sells shares, it must be shown that they were held as stock-in trade and that existence of the power to purchase and sell shares in the Memorandum of Association is not decisive of the nature of transaction.
b) The substantial nature of transactions, the manner of maintaining Books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transaction.
c) Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade, but where the object of investment is to derive income by way of dividend etc then the profits accruing by change in such investment (by sale of shares) will yield capital gain & not revenue receipt."
3.4 The AO opined that in the facts and circumstances of the case as well as in the law pronounced by the Hon'ble Apex Court and the latest circular issued by the CBDT, the contentions of the assessee were not acceptable. The sale and purchase of shares were in bulk and there were frequent transactions, which would show that the transactions in shares had the trappings of business transactions. The AO relied on the following facts:-
1. From contract note dated 05/05/2006, it is found that the assessee purchased shares of 1000 Hindustan Zinc on 05/05/2006 and sold the same quantity on the same day. It is also seen that the assessee had booked sale first then purchased the relevant shares. Since, it is an intraday trading these shares were not delivered through de-mats account of the assessee. This transaction is nothing but an adventure in nature of trade.
2. From the following table it can be concluded that the intention of the assessee was earning of profit not dividend. To earn profit the assessee even faced a huge loss.ITA No.1314/Kol/2010 3
Date Quantity Shares Sold Loss incurred
28/08/06 200 Hin. Zinc 119024 87079
29/08/06 300 -do- 179132 130022
06/09/06 500 -do- 298898 204031
13/09/06 100 -do- 61515 39070
22/09/06 600 -do- 357570 192988
09/03/07 3000 -DO- 1795877 352279
12/03/07 200 -DO- 119294 77509
10/09/06 1000 Dhampur Sugar 117658 122963
10/10/06 2000 -do- 237996 263031
02/02/07 5000 -do- 386087 721838
15/02/07 5000 -do- 372794 233475
22/02/07 5000 -do- 375608 216485
23/02/07 5000 -do- 376331 212871
07/03/07 2450 -do- 169331 122184
21/03/07 1000 -do- 715845 73663
It is also worthwhile to mention here that the assessee had purchased the above mentioned shares during the year under scrutiny frequently in spite of incurring losses.
Therefore, in the light of such tests it can be concluded finally that assessee's transactions of dealing shares have the character of adventure in the nature of trade.
3.5 The AO, therefore, considered the LTCG and STCG income as shown by the assessee as income from business.
4. Aggrieved the assessee filed appeal before the ld.CIT(A).
5. The ld.CIT(A) considering the facts and circumstances of the case, was of the opinion that services like lighting and maintenance of common passage and cleaning of overhead and underground water tank was incidental to and directly related to the letting out of the property. Thus, the same could not be considered as organized business activity carried on by the assessee. Hence, the income receipt cannot be treated as business income of the assessee. However, as the receipts towards service charges were also not on a/c of exploitation of house property, the same cannot be treated as rental income assessable under the head 'house property'. The ld. CIT(A), therefore, held that the service charges ITA No.1314/Kol/2010 4 received from the Union Bank of India should be taxed under the head 'income from other sources.' 5.1 As regards the head of income under which the income arising out of share transactions should be taxed, the assessee relied on the judgment of the Hon'ble Apex Court in the case of CIT, Bombay vs. H.Lock Larsen [160 ITR 67]. It was contended that the income from sale of shares should be treated as short/long term capital gain in view of principles laid down in the above case(supra). According to the assessee, the principles laid down by the Hon'ble Apex Court in the case (supra) are as under:-
. "a) Where a Company purchases and sells shares, it must be shown that they were held as Stock-in-trade and that existence of the power to purchase and sell shares in the Memorandum of Association is not decisive of the nature of transaction.
b) The substantial nature of Transactions, the manner of maintaining Books of Accounts, the magnitude of purchases and sales and the ratio between purchases and sales and the holding sould furnish a good guide to determine the nature of transaction.
c) Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade, but where the object of investment is to derive income by way of dividend etc., then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt.".
It was contended by the assessee that from the details of purchase and sales of shares, it cannot be said that these were business transactions. 5.2 As regards the contract note dated 5-5-06, of 1000 shares of Hindusthan Zinc, the assessee claimed that this was a single unusual transaction, which would not determine the overall nature of transactions entered into by the assessee. It was further claimed that in AYs. 2005-06 and 2006-07, the department has accepted such income as income from capital gain. Relying on the Hon'ble Bombay High Court's decision in the case of CIT vs. Gopal Purohit, it was contended by the assessee that in the above facts the share transactions in the current year could not be treated as business transactions. 5.3 Considering the facts and circumstances of the case, the ld.CIT(A) opined that the onus was on the assessee to prove that the shares were held as investment. The nature of ITA No.1314/Kol/2010 5 transactions, the magnitude and the ratio of purchases and sales and the period of holding would furnish a good guide to determine the nature of transaction. Where the object of investment in shares is to derive income by way of dividend etc, the profits accruing on a/c of sale of such shares would yield income under the head capital gain. In the case under consideration the opening stock of share was 16,000 valued at Rs.49,48,328/- and the closing stock was 25,700 of shares valued at Rs.35,64,089/-. 85,825 shares valued at Rs.1,59,1,528/- were purchased and 76125 shares valued at Rs.2,36,43,803/- were sold. There was also forward trading of 1000 shares. From the above, the ld.CIT(A) concluded that the motive of the assessee for transacting the shares was to earn profit and the shares were not held by it as investment with the main purpose of deriving income by way of dividend etc. According to the ld.CIT(A) the Hon''ble Apex Court's decision in the case of Larsen (supra) supports the case of the revenue.
5.4 As regards the submission of the assessee that in the earlier AYs. 2005-06 & 2006- 07 income from such transaction were treated as income from capital gain by the department, the ld.CIT(A) held that the facts of the earlier AYs. were not the same as that of the current year. It was opined by him that the principle of ress judicata is not attracted in the present case. The ld.CIT(A), therefore, upheld the order of the AO on this issue. 5.5 As regards the allowability of municipal tax of Rs.4,86,559/- on a/c of self occupied property, the ld.CIT(A) held that such disallowance was also in consonance with earlier AYs. As this amount cannot be said to have been incurred wholly and exclusively for the purpose of business of the assessee, the ld.CIT(A) upheld the impugned disallowance made by the AO.
6. Aggrieved the assessee has filed appeal before the Tribunal.
7. Before us the ld. Authorised Representative for the assessee has submitted that service charges received by it for providing certain amenities as mentioned in the said agreement should be assessed as income from business. Reliance has been placed on the following case laws :-
a. Karnani Properties Ltd vs. CIT 82 ITR 547(SC)
b. CIT vs. Russel Properties Pvt. Ltd 137ITR 473(Cal)
ITA No.1314/Kol/2010
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7.1 It is further contended by him that in the A.Y 2006-07 such income has been
assessed by the revenue as income from business. As there is no change in fact of A.Ys 2006-07 & 2007-08, it is contended by the ld.AR for the assessee that the revenue was not justified in assessing the impugned income in the current A.Y under the head 'income from house property' and the ld.CIT(A) was not justified in holding that the same should be assessed under the head 'income from other sources'. Reliance was placed on the following case law:-
a. Radhaswami Sat Sang vs. CIT 193 ITR 321(SC) 7.2 It was, therefore, submitted that the impugned income should be considered to be assessed under the head'inome from business'.
8. The ld.DR, on the other hand, referred to APB page 25, where the details of amenities/facilities provided by the assessee were narrated. He pointed out that the amenities provided were the following:-
a. Lighting
b. Maintenance of common passage, and
c. Cleaning of overhead and underground water tank
8.1 It was submitted by him that the Hon'ble Jurisdictional High Court in the case of
CIT vs. Model Mfg.Co.Pvt. Ltd [159 ITR 270(Cal)] has held that the said income is required to be assessed under the head 'income from other sources' and not under the head 'income from house property or business income'. Further reliance was placed on the following case law:-
a. CIT vs. Shankarnarayan Hotel Pvt. Ltd 201 ITR 138(Kar) 8.2 It was further contended by him that providing of such amenities are not the object of the assessee company. It was, therefore, submitted by him that the order of the ld.CIT(A) may please be upheld on this issue.
9. We have heard the parties and perused the record. We have also gone through the case laws cited by both the parties. The basic issue that it is to be decided is as to whether the facilities/amenities provided by the assessee to the tenant required any organized activity which can constitute a business. In the case of Russel Properties Pvt. Ltd (supra), it was held that amenities provided required organized activities, which would constitute ITA No.1314/Kol/2010 7 business. Also the amenities provided were different from the amenities provided in the present case. In the case of Model Mfg. Co.Pvt. Ltd(supra) the amenities provided were more or less the same as that of the present case. The ld.CIT(A) has also categorically held that no organized activities were carried on by the assessee for providing the said amenities. The above finding of the ld.CIT(A) has not been dislodged by the assessee by bringing on record any evidence. Thus, we are of the considered opinion that the ratio laid down by the Hon'ble Jurisdictional High Court in the case of Model Mfg. Co. Pvt. Ltd is applicable to the facts of the present case and not that of the Russel Properties Pvt. Ltd.
(supra). We find that the Hon'ble Karnataka High Court in the case of CIT vs. Shankarnarayan Hotel Pvt. Ltd (supra) has discussed the cases of Karnani Properties Ltd (supra) and Model Mfg. Co.Pvt. Ltd(supra) and has come to the conclusion that amount attributable to provision of amenities and services as provided in the present case would be assessable under the head 'income from other sources.' In the conclusion, we hold that the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT vs. Model Mfg. Co. Pvt. Ltd (supra) is applicable in the facts of the present case. Thus, we uphold the above finding of the ld.CIT(A) on this issue. Ground no.1 taken by the assessee is, therefore, rejected.
10. As regards the head of income under which profit arising out of purchase and sale of shares should be assessed, the ld.AR for the assessee referred us to APB page 48, wherein the shares were disclosed as investment. It was also contended by him that in AY 2006-07, the profit arising out of sale and purchase of shares was taxed as 'capital gain' only. There being no change of facts in the AYs. 2006-07 & 2007-08, it was contended by the ld.AR for the assessee that profit arising out of share transactions should be assessed as 'capital gain' only. Reliance was placed on the following case laws:-
a. CIT vs. S.Rama Amirthan 306 ITR 239
b. CIT vs. N.S.S Investments Pvt. Ltd. 277 ITR 149(Mad).
c. Raja Bahadur Kamaksha Narayan Singh vs. CIT 77 ITR 253(SC)
10.1 It was, therefore, submitted by him that the impugned income be considered assessable as capital gain.
ITA No.1314/Kol/2010 811. The ld. DR, in addition to relying on the orders of the authorities below referred us to departmental paper book pages 3-6, wherein transaction of shares during the relevant previous year are depicted. He contended that large no. of share transactions were carried on regularly in an organized manner with the motive of earning profit. He further referred us to the Memorandum of Association being the departmental paper book pages 1-2. It was pointed out by him that as per clause 2 of the said Memorandum of Association the assessee company was to carry on investment business and to purchase, acquire hold and dispose of or otherwise invest in shares, debentures, stocks and bonds etc. Thus, it was contended by him that the income from transactions in shares has been rightly assessed under the head income from business. Reliance was placed on the following case law:-
a. Dalmia Cement Ltd. Vs. CIT 12 ITR 50(Pat)
12. We have heard the parties and perused the record. We have also gone through the case laws cited by both the parties. It is now settled that as to whether share transaction would constitute business or not is a mixed question of law and fact. In the present case, we find that LTCG has been disclosed by the assessee at Rs.62,349/- as against STCG of Rs.62,95,633/-. Thus, the majority of shares have been sold within a period of one year. As such we find short term profits of Rs. 82,04,575/- was made on sale of shares of M/s. Hindusthan Zinc Ltd, whereas short term loss of Rs.19,66,513/- and short term profit of Rs.69,388/- resulted from sale of shares of Dhampur Sugar and Jubilant Org shares respectively. It is also noticed that the assessee has earned dividend income only of Rs.41,762/- In the above facts, we are of the considered opinion that purpose of buying shares by the assessee is not to earn dividend. This being the case, it cannot be said that the assessee has held the shares as investment merely because the same has been classified by it in the balance sheet as investment. We hold that the assessee's intention in holding the shares was earning of profit by selling the same at opportune time. The transactions of shares entered into by the assessee was thus an organized activity for earning profit and not for earning income in the shape of dividend etc. In this view of the matter and considering the ratio laid down by the various case laws cited by both the parties, we are of ITA No.1314/Kol/2010 9 the opinion that the impugned income has been rightly assessed by the revenue under the head 'income from business'. This ground of the assessee, is, therefore, rejected.
13. As regards the disallowance of municipal tax amounting to Rs.4,86,559/- the ld.AR for the assessee has contended that municipal tax of Rs.4,86,559/- should be allowed as a business expenditure.
14. The ld. DR, on the other hand, has contended that it is not disputed that the impugned portion of the property was self occupied property. Thus, the ALV of the same has to be taken at NIL as per section 23(i) of the Act. He also relied on the orders of the authorities below.
15. We have heard the parties and perused the record. The ld.CIT(A) has categorically stated that the municipal tax paid cannot be said to be an expenditure incurred wholly and exclusively for the purpose of business and, therefore, cannot be allowed u/s. 37(i) of the Act. However, the ld.AR for the assessee has contended that the claim of the assessee is allowable u/s.30 of the Act, where rent, rates, taxes, repairs and insurance for premises used for the purpose of business or profession was to be allowed. We find that the assessee has claimed the profit/loss arising out of share transaction as capital gain, whereas the amount received as service charges have been considered by it as business income. We have held that income from share transaction should be assessed as business income and income from service charges should be assessed as income under the head 'other sources'. Thus, there being business income from transaction of shares and as it is not disputed that the impugned part of property has been used by the assessee company for the purpose of its business, municipal taxes paid on the same are admissible as a deduction u/s.30 of the Act from the business income of the assessee. If this amount has not been allowed as a deduction in computing the business income of the assesse, we direct the same to be allowed as per section 30 of the Act. Thus, this ground of the assessee is allowed to the above extent.
ITA No.1314/Kol/2010 1016. In the result, the appeal of the assesse is allowed in part.
यह आदे श खुले Ûयायालय मɅ सुनाया गया है तारȣख.. 17-09-2010 This order is pronounced in the open court on ......-09-2010 एसडȣ / - एसडȣ / -
[ डȣ. के. ×यागी , Ûयायीक सदःय ] [ बी.के.हालदार, लेखा सदःय ] ( D.K.Tyagi), Judicial Member.) ( B.K.Haldar, Accountant Member) (तारȣख)Date : 17th Sept 2010.
*PP/Sr. Private Secretary :
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. (अपीलाथȸ/APPELLANT ): M/s. Decon Mercantile Pvt. Ltd. 38 Strand Rd., Kol-1
2. (ू×यथȸ/RESPONDENT) : D.C.I.T,CC-XXVIII, Poddar Court, 5th Fl., 18 Rabindra Sarani, Kolkata-1.
3. आयकर किमशनर/The CIT
4. आयकर किमशनर (अपील)/The CIT(A)
5. वभािगय ूितनीधी / DR, Kolkata Bench
6. Guard File स×याǒपत ूित/True Copy, आदे शानुसार/ By order, उप पंजीकार/Deputy Registrar.
ITA No.1314/Kol/2010 11