Income Tax Appellate Tribunal - Mumbai
Trade Team (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 10 March, 1995
Equivalent citations: [1995]54ITD306(MUM)
ORDER
K.C. Singhal, Judicial Member
1. The first issue raised in this appeal relates to the disallowance of Rs. 2,26,116 in respect of short-term capital loss on the sale of 2284 shares of Annapurna Foods Pvt. Ltd.
2. Assessee had purchased 484 shares of the aforesaid company on 3-1-1980 and 1800 shares on 21-12-1981 at the rate of Rs. 100 per share. These shares had been sold by the assessee to minors of one Mitha group the managing shareholders of Annapurna Foods Pvt. Ltd. at the rate of Re. 1 per share. Thus, there was a loss of Rs. 2,26,116 which was claimed by the assessee as short-term capital loss. This loss has been disallowed by the Assessing Officer by invoking the Explanation to section 73. The CIT (Appeals) has confirmed the order of the Assessing Officer. Assessee is in appeal before us.
3. The learned counsel for the assessee has argued before us that assessee is not a dealer in shares and it purchased the shares as an investment. Even in the balance-sheet these shares have been shown as investment. It was also stated by him that this was only a solitary transaction and assessee has not dealt in shares of other companies. He drew our attention to the provisions of Explanation to section 73 and submitted that before invoking the Explanation, the department must prove that a part of the business of the assessee must consist in purchase and sale of shares. Since, there was no finding of the Assessing Officer that the assessee-company was dealing in shares, the provisions of Explanationto section 73 could not be invoked. On the other hand, the learned Departmental Representative relied on the order of the Assessing Officer. Besides this, he has also raised an alternate contention that the transaction of shares be held as sham or non-existent as the shares had been sold at the rate of Re. 1 per share in order to avoid the tax. In support of this contention he has relied upon the decision of the Bombay High Court in the case of DM. Neterwalla v. CIT [1980] 122 ITR 880. Reliance has also been placed on the decision of the Tribunal in the case of G.P. Aggrawal, copy of which has been placed, and the decision of the Calcutta High Court in the case of CIT v. L.N. Dalmia [1994] 207 ITR 89.
4. Both the parties have been heard at length and the material placed before us has been considered. The answer to the issue in appeal depends upon the interpretation of Explanation to section 73 which is being reproduced below:
Explanation : Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains', and Income from other sources') or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purpose of this section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of shares.
It is well-settled law that the deeming provisions are to be construed strictly and the onus is on the department to bring the case within the four corners of the deeming provisions. A bare reading of the provisions of this Explanation shows that a part of the business of the assessee-company must consist in the purchase and sale of shares of other companies. However, there is an exception that these, provisions would not be applicable where the assessee is an investment company. In the present case, admittedly, assessee is not an investment company; therefore, the question remains to be decided is whether the assessee was carrying on the business in purchase and sale of shares of other companies. The facts of the case do not indicate that assessee was dealing in shares. Assessee has purchased and sold the shares only of one company, i.e., Annapurna Foods Pvt. Ltd. There is no material before us to hold that it had been dealing in shares of other companies. In our opinion the solitary transaction cannot be regarded as business activity unless proved otherwise by the department. The word "business" has been defined in Section 2(13) according to which it includes any trade commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture. The concept of the business was considered long back by the apex court in the case of Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 wherein it has been held that the word "business" connotes some real substantive and systematic or organised activity with the said purpose. This view has again been affirmed by the Supreme Court in the case of CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377. It is also settled law that in a given case solitary transaction may be held as business activity but in such a case the onus lies on the department to prove the same. This view is fortified by the Supreme Court judgment in the case of Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242. In the present case, the transaction entered into by the assessee is a solitary one and the presumption is that it was held as an investment unless rebutted by the department. We have gone through the orders of both the authorities and we do not find an iota of evidence to hold the transaction as a business transaction. Therefore, in our opinion, the provisions of Explanation to section 73 cannot be invoked.
5. Now let us examine the alternate contention of the revenue. It has been held by the Bombay High Court that the Appellate Tribunal has discretion to allow any party of an appeal, may be the appellant or the respondent, to raise a new point or new contention provided the two conditions are satisfied, viz., (1) no new facts are required to be brought on record for disposing of such new point, and (2) an opportunity is given to the other side to meet the point. So, the question before us is whether the order of the CIT (Appeals) can be upheld on the basis of an alternate contention of the revenue in view of the facts already on record. In our opinion, the contention of the revenue that the transaction was sham or non-existent cannot be upheld on the basis of the material available on the record. Mere selling of shares at the rate of Re. 1 per share is no grcond to hold the transaction as a sham transaction. There is no material before us to indicate that assessee retained the control over the shares sold by it. It is also not the case of the department that these shares had been sold to the close relative or the friends of the assessee. Even the reliance by the learned Departmental Representative on the decision of the Tribunal in the case of G.P. Aggrawal is misplaced. Facts in that case were entirely different. We have gone through the decision of the Tribunal. In that case the department had challenged the genuineness of the transaction from the beginning and had placed material in support of the same. It was found by the Tribunal that shares had been purchased at an abnormal price even though the value of shares as per break-up method was almost nil It was also found that the same was sold within a short period of two months at a very low price to the party in whom he was substantially interested as the vendee was represented by his wife. But in the present case, the shares had been purchased from the company directly and were held for almost three years. As the assessee came to the conclusion that the company, ie. Annapurna Foods Pvt. Ltd. was not in a position to avoid the losses, it decided to sell the shares. We have also gone through the balance-sheet of Annapurna Foods Pvt. Ltd. for the period ending 30-9-1982 and 30-9-1983 and find that value of the liabilities was more than the value of assets. Therefore, it cannot be held that the shares had been sold with a view to avoid tax. In view of the totality of the circumstances, it cannot be held that the transaction was sham or non-existent.
The reliance placed by the revenue upon the decision of the Calcutta High Court also does not help the department. The facts of that case are distinguishable from the facts of the present case. In that case there was a finding that by the sale of shares, assessee had not lost any rights or interest in the shares or in the controlled company. It was further held that the transaction of shares was mere paper transaction having no impact on the real ownership of the asset being the shares and on the power of exercising the control over the company. In view of these distinguishing features, the ratio of the decision of the Calcutta High Court cannot apply to the facts of the present case. Hence, the issue is decided in favour of the assessee.
6. The second issue relates to the disallowance of Rs. 3500 out of the professional fees paid by the assessee-company to the C.A. for handling the various tax matters. The Assessing Officer has restricted the deduction under Section 80VV to the sum of Rs. 5,000. It has been observed by the CIT (Appeals) that the appellant had not been able to explain as to how the action of the Assessing Officer was wrong. Considering the facts of the case, the disallowance of Rs. 3,500 made by the Assessing Officer was confirmed by the CIT (Appeals). After hearing both the parties, we do not find any infirmity in the order of the CIT (Appeals) and, therefore, this issue stands decided against the assessee.
7. In the result, appeal is partly allowed.