Gujarat High Court
The Commissioner Of Income Tax vs Shanti Stock Holding Pvt. ... on 22 June, 2016
Author: Ks Jhaveri
Bench: Ks Jhaveri
O/TAXAP/1189/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 1189 of 2007
With
TAX APPEAL NO. 1194 of 2007
With
TAX APPEAL NO. 1195 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE G.R.UDHWANI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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THE COMMISSIONER OF INCOME TAX, CENTRAL - II....Appellant(s)
Versus
SHANTI STOCK HOLDING PVT. LTD.....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
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O/TAXAP/1189/2007 JUDGMENT
and
HONOURABLE MR.JUSTICE G.R.UDHWANI
Date : 22/06/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' (hereinafter referred to as ITAT) dated 19.01.2007 in ITA Nos. 2225, 2227 & 2226/Ahd/2006 for the Assessment Year 2002-03, the revenue has preferred the present Tax Appeals.
2. These appeals were admitted for consideration of the following substantial question of law:
"Whether the Appellate Tribunal is right in law and on facts in vacating the order of the CIT u/S.263, setting aside the original assessment of the Assessing Officer and thereby coming to the conclusion that the profit on sale of shares by the assessee company amounting to Rs.2,83,36,750/- earned by the assessee was rightly shown as Long Term Capital Gain?"
3. The assessment order u/s 143(3) dated 24.03.2005 was set aside by CIT(A)nvide order dated 30.08.2006 u/s 263 of the Act. The assessee was holding shares of N.K. Proteins Ltd sold during the assessment year 2002-03. Both these shares were shown as investment in the Balance Sheet for assessment year 1995-96. However, subsequently on Page 2 of 5 HC-NIC Page 2 of 5 Created On Sat Jun 25 01:38:57 IST 2016 O/TAXAP/1189/2007 JUDGMENT 31.03.1996 the shares of N.K. Industries were converted into stock in trade. The CIT(A) reversed the finding of Assessing Officer.
4. On appeal before the ITAT, by impugned order, ITAT reversed the finding of the CIT(A) and allowed the appeals filed by the assessee. Being aggrieved and dissatisfied with the impugned order passed by the ITAT, the revenue has preferred the present Tax Appeals for consideration of the aforesaid substantial question of law.
5. Mrs. Mauna Bhatt, learned advocate appearing for the revenue submitted that the Tribunal has erred in law and on facts in vacating the order of the CIT u/s 263, setting aside the original assessment of the Assessing Officer and thereby coming to the conclusion that the profit on sale of shares by the assessee company amounting to Rs. 2,83,36,750/- earned by the assessee was rightly shown as Long Term Capital Gain.
6. Mr. Manish Shah, learned advocate appearing for the assessee has supported the impugned order and submitted that the Tribunal is justified in holding that the CIT(A) is not justified in his action in setting aside the order of Assessing Officer. He submitted that identical issue came up before this court by way of Tax Appeal No. 1025 of 2005 wherein this Court has confirmed the order dated 09.09.2004 passed by the Tribunal in ITA No. 1313/Ahd/2000 and 444/Ahd/2003 in the case of M/s. N.K. Estate Developers Pvt. Ltd. He submitted that the said order dated 09.09.2004 has been relied upon by the Tribunal in the present case in setting aside the order of CIT(A).
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7. Having heard learned advocates for both the sides and having considered the question posed for consideration by us which is reproduced hereinabove and considering the decision of this Court in Tax Appeal No. 1025 of 2005, the question which is raised in the present appeals is required to be answered in favour of the assessee. The relevant portion of the said decision is reproduced hereunder:
"3 As can be seen from the impugned order of Tribunal dated 9.9.2004, the assessee had made two fold claim :
Firstly, that the acquisition of the shares was for the purpose of dealing in the shares, and secondly, in the alternative, the claim was for allowing the deduction under Section 57(iii) of the Act of the interest paid on the borrowings made for the purpose of investment.
4 The Tribunal has found as a matter of fact that the shares were acquired out of the borrowed funds and there was no dispute on this count.
However, the assessee could not succeed, according to Tribunal, in its claim of being a dealer in shares, for the simple reason that the shares were acquired out of the promoters' quota which had a five year lock-in period, and therefore, no dealer would acquire shares which could not be traded in the market for a period of five years.
5 The Tribunal, however, found merit in the alternative contention of the assessee. It has found as a matter of fact that merely because the assessee had acquired shares from the promoters' quota that by itself would not be sufficient to come to the conclusion that the acquisition was for the purpose of having control of the company. That while deciding the case of a shareholder the principal requirement for determining whether the investment of the borrowed funds was for the purpose of making or earning income has to be Page 4 of 5 HC-NIC Page 4 of 5 Created On Sat Jun 25 01:38:57 IST 2016 O/TAXAP/1189/2007 JUDGMENT judged in light of the facts of the case available on record, and therefore the Tribunal has come to the conclusion, on facts, that so far as the assessee was concerned it had not made the acquisition for the purpose of obtaining control of the company but was an investment simplicitor.
6 In these circumstances, there is no infirmity in the impugned order of Tribunal allowing deduction of interest paid on borrowed funds which have been found to have direct nexus with the investment made for acquisition of shares. In the result, in absence of any substantial question of law, the appeal is dismissed."
8. In view of the above, the question raised in the present appeals is answered in favour of the assessee and against the revenue. Consequently, the impugned judgment and order passed by the ITAT is modified to the aforesaid extent. Hence, the present Tax Appeals are allowed accordingly.
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