Punjab-Haryana High Court
Ranbaxy Holding Company vs Commissioner Of Income Tax on 29 September, 2006
Equivalent citations: (2007)208CTR(P&H)413
Bench: Adarsh Kumar Goel, Rajesh Bindal
JUDGMENT
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 & 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.
4. 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 & Sons v. CTT
(b) Janki Ram Bahadur Ram v. CIT .
(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.
5. The CIT(A) reversed the view taken by the AO following its earlier view in the case of Vesta Investment & Trading Co. dt. 27th May, 1998. Shares held under the investment portfolio were treated as capital asset and not stock-in-trade.
6. The Tribunal after referring to the decisions of the Hon'ble Supreme Court in Ramnarain Sons (P) Ltd. v. CIT , Janki Ram Bahadur Ram v. CIT and Dalhousie Investment Trust Co. Ltd. v. CIT (1968) 68 ITR 486 (SC), held that the AO ought to have made further enquiry into the matter and remanded the case for a fresh decision.
The Tribunal dismissed the appeals filed by the Revenue in respect of Vesta Investment & Trading Co. against which IT Appeal Nos. 517 and 518 of 2005 have been filed by the Revenue, raising following substantial questions of law:
(i) Whether the Tribunal in the facts relevant to the case was right in holding that income earned on sale of shares, reflected in the portfolio of investment, is not a business income but capital gains, especially in the circumstances of the case that it has been paying interest on borrowed capital for purchase of these shares?
(ii) Whether the Tribunal in the facts relevant to the case was right in treating the additional ground of appeal as infructuous?
7. We have heard earned Counsel for the parties.
8. Earned Counsel for the assessee submitted that there was no justification for remand of the matter to the AO and in case the Tribunal did not agree with the view taken by the CIT(A), the Tribunal could take its own decision and if it was so considered necessary, the Tribunal could seek report of the AO on the point. On the other hand, the submission of the earned Counsel for the Revenue is that since the assessee had not been able to substantiate its claim fully before the Tribunal, the Tribunal adopted the right course in remanding the case back to the AO to examine the facts regarding the intention of the assessee at the time of purchase of the shares and also the manner in which the interest on the loans raised by the assessee to purchase the shares had been dealt with by the assessee.
9. It is well-settled that appellate Court ought not to remand a matter unless the lower authority had not gone into the merits of the case and had not recorded findings on all the issues. Appellate authority can permit fresh evidence to be led before itself or formulate an issue of fact and seek report of the lower authority on such issue.
10. In view of the above, we allow these appeals, set aside the order of the Tribunal and direct the Tribunal to pass a fresh order in accordance with law. As is evident from findings recorded by the Tribunal in para 24 of the impugned order, complete facts had not been gone into by the AO in these cases for which these were remanded back to the AO. In the facts and circumstances of case and to reduce further litigation, we deem it appropriate to direct the Tribunal to seek a remand report from the AO on the issues mentioned in the impugned order as regards the intention of the assessee at the time of purchase of the shares and also the aspect as to how the interest paid by the assessee on the loans raised for investment in these shares was dealt with i.e. as to whether the same was claimed as a business expense or not. This is only an indication of the issues on which remand report can be sought, otherwise the same can be formulated with assistance of both the parties. On receipt of the remand report, the Tribunal will decide the issue finally.
11. We also find that the appeals filed by the Revenue are also liable to be allowed so that the Tribunal can deal with the whole issue-the issues being interconnected.
The parties are directed to appear before the Tribunal for further proceedings on 15th Nov., 2006.