Income Tax Appellate Tribunal - Mumbai
Smt. Neerja Birla vs Assistant Commissioner Of Income-Tax on 23 October, 1997
Equivalent citations: [1998]66ITD148(MUM)
ORDER
M. V. R. Prasad, A.M.
1. The assessee is a lady born in 1971 to the Kasliwal's, who own the S. Kumar Group of Companies. On 15-2-1988 she was engaged to Mr. Kumarmangalam Birla, son of late Sri Aditya Birla who was the leading industrialist of the country. The marriage was celebrated on 17-5-1989.
2. The assessee purchased 2,50,000 shares of Indo-Gulf Fertilizers & Chemicals Corporation Ltd. (hereinafter referred to as 'IGFCCL'), and subsequently another lot of 7,00,000 shares of the same company. In the appeal for the year under consideration, we are concerned with the purchase and sale of the second lot of 7,00,000 shares. Specifically, the issue raised in this appeal is whether the surplus arising to the assessee on the sale of 7,00,000 shares is assessable under the head 'Profits & gains of business' or under the head 'Capital gains'. The revenue implications of the issue are substantial as capital gains are assessed at a lower tax and also are eligible for certain deductions under section 48 of the Income-tax Act.
3. For understanding the issue raised in this appeal, it will be useful to set out the earlier transactions of the assessee. The assessee did not maintain any books of accounts; she, however, had certain bank accounts and current account in certain concerns. She had certain shareholdings and other assets and details of her investments are given at page 54 of the appellant's paper book and they are reproduced below :
As at As at As at As at
Mar. 89 Mar. 90 Mar. 91 Mar. 92
Hindalco Inds. Ltd. 2000 3200 3200
Hindustan Gas & Inds. 5585 5585 5585
Manjushree Plantations 2025 2025 3037
Grasim Inds. Ltd. 120 120 120
Birla Consultants P. Ltd. 3080 3080 3080
Grasim Inds. Ltd. (Debnt) 45 45 45
S. Kumars Synfabs Ltd.
Unit Trust of India (ME) 1000 2000
Unit Scheme-1964 980 980
MRPL
MRPL (Debentures)
Indo Gulf Fertilisers &
Chem. 250000 250000 700000
9% IRFC Bonds 28000
It may be observed that apart from the shares of IGFCCL the other investments are not relatively speaking substantial.
3.1 This above position is evident from the valuations put upon the other shares in the wealth-tax assessment for the year ending 31-3-1991 which may be seen at page-40 of the paper book; details of which are as follows :
Name of Company No. of share Rate per Amount Total 1 M/s. Hindalco Indo. Ltd. 3200 Rs. 194.70 Rs. 623040 2 M/s. Hindustan Gas & Inds. Ltd. 5585 Rs. 41.35 Rs. 230940 3 M/s. Manjushree Plantations 2025 Rs. 137.46 Rs. 278357 4 M/s. Grasim Inds. Ltd. 120 Rs. 124.90 Rs. 14988 5 M/s. Birla Consultants P. Ltd. 3080 Rs. 24.90 Rs. 76692 6 M/s. Grasim Inds. Ltd. (Debentures) 45 Rs. 32.50 Rs. 1463 7 Unit Trust of India : (a) Master Equity plan 1000 Rs. 10.00 Rs. 10000 (b) Unit Scheme-1964 980 Rs. 14.20 Rs. 13916 Rs. 1249396
3.2 Mr. Aditya Birla, father-in-law of the assessee, was the Chairman of IGFCCL from about 1986. The assessee purchased 2,50,000 shares of IGFCCL in the year ending 31-3-1989, i.e., after her engagement to Mr. Kumarmangalam Birla. She purchased these shares from one Shri Umakant Nangalia as under :
27-10-1988 33000 shares Rs. 4,15,800
27-10-1988 65000 shares Rs. 8,19,000
22-11-1988 26400 shares Rs. 3,35,280
22-11-1988 115600 shares Rs. 14,63,920
28-11-1988 10000 shares Rs. 1,26,000
Share transfer fees Rs. 30,000
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250000 Rs. 31,90,000
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3.3 It may be mentioned that the purchase price of 2,50,000 shares was paid out of her current account with M/s. S. Kumars Research Services, a family concern of the assessee. It may be observed that this lot of 2,50,000 shares was purchased after the assessee's engagement to Mr. Kumarmangalam Birla.
4. The assessee subsequently purchased another lot of 7,00,000 shares of IGFCCL through two brokers, i.e., M/s. Jhawar & Company, Calcutta and M/s. S. S. Dalmia, Calcutta. The purchases made through M/s. Jhawar & Company were as follows :
Advice No. Dated No. of shares Amount
1550 22-6-1990 1,00,000 Rs. 18,07,000
1551 19-6-1990 75,000 Rs. 14,41,500
---------------
Rs. 32,48,500
---------------
The purchases made through M/s. Shyam Sunder Dalmia were as follows :
Advice No. Dated No. of shares Amount
75 27-6-1990 1,50,000 Rs. 28,65,000
584 29-6-1990 1,50,000 Rs. 28,12,500
585 29-6-1990 1,50,000 Rs. 28,50,000
587 29-6-1990 75,000 Rs. 14,32,500
---------------
Rs. 99,60,000
---------------
It may be observed that the total shares purchased from M/s. Jhawar & Co., and M/s. S. S. Dalmia aggregated 7,00,000 shares and the cost of acquisition work out to Rs. 1,32,08,500 and along with the share transfer fees of Rs. 1,17,000 the aggregate works out to Rs. 1,33,25,500. The cost of acquisition of these shares was met subsequently through the sale proceeds of the first lot of 2,50,000 shares which were received on 11-10-1990. So, initially the cost of acquisition was met through temporary accommodation given by the brokers concerned. It may be observed that the above lot of 7,00,000 shares was purchased after the assessee's marriage and the total share holdings of the assessee in IGFCCL at one stage is of the order of 9,50,000 shares.
4.1 The assessee subsequently sold the first lot of 2,50,000 shares held in IGFCCL through M/s S. S. Dalmia for Rs. 1,05,25,000 on 11-9-1990 as follows :
1,50,000 shares at the rate of Rs. 42 per share Rs. 63,00,000
1,00,000 shares at the rate of Rs. 42.25 per share Rs. 42,25,000
---------------
Rs. 1,05,25,000
---------------
4.2 As already mentioned the cheque for the sale proceeds of 2,50,000 shares was received on 11-10-1990, i.e., about a month after the sale and it was deposited in the assessee's bank account with UCO Bank and a copy of this account may be seen at page 35 of the paper book. Besides the sale proceeds of 2,50,000 shares, the assessee also obtained a loan of Rs. 30 lakhs from M/s. S. S. Dalmia and deposited this amount on 16-10-1990 into her said account in UCO Bank. The available funders were utilised for making the following payments :
11-10-1990 Payment to M/s. S. S. Dalmia for
purchase of 4,50,000 shares of
IGFCCL Rs. 85,27,500
11-10-1990 Payment to M/s. S. S. Dalmia for
the purchase of 75,000 shares of
IGFCCL Rs. 14,32,500
16/17-10-1990 Payment to M/s. Jhawar & Co. for
purchase of 1,75,000 shares of
IGFCCL Rs. 32,48,500
It may be observed that the payment for the 7,00,000 shares of IGFCCL purchased in second lot was met out of the sale proceeds of the first lot of 2,50,000 shares of IGFCCL of Rs. 1,05,25,000 and the loan taken from M/s. S. S. Dalmia on 16-10-1990 of Rs. 30 lakhs. In other words, the acquisition of the second lot of 7,00,000 shares of IGFCCL was out of borrowed funds.
4.3 The position is not much different even with regard to the initial purchase of first lot of 2,50,000 shares of IGFCCL. They were also acquired out of borrowed funds though the funds were borrowed only from the family concern of the assessee. The payment for the 2,50,000 shares was made out of the current account of the assessee with the family concern of the assessee M/s. S. Kumars Research Services. Aggregate amount of Rs. 31,60,000 was debited on different dates between November 3, 1988 and December 16, 1988.
4.4 The account of the assessee with M/s. S. Kumars Research Service may be seen at pages-52 and 53 of the paper book which shows the following debit balances up to 31-3-1991 :-
31-3-1988 Rs. 1,85,176 31-3-1989 Rs. 30,09,665 31-3-1990 Rs. 24,79,558 31-3-1991 Rs. 24,85,219 It is only on 24-12-1991 the account was more or less squared up.
4.5 The assessee has also another current account with another family concern of the assessee, i.e., S. Kumars & Co. which has been separately filed before us and this account shows the following debit balances :-
31-3-1989 Rs. 8,65,749 31-3-1990 Rs. 16,87,411 31-3-1991 Rs. 17,09,411 This account has also been squared up by 24-12-1991.
4.6 From the above debit balances in this current accounts of the assessee with the two family concerns, it may be observed that even the acquisition of the 2,50,000 shares is only out of borrowed funds. We have already indicated hereinabove the other investments held by the assessee, the value of which as on 31-3-1991 was only of the order of about Rs. 12,50,000. So, it is clear that the purchase of both the first lot of 2,50,000 shares of IGFCCL and the second lot of 7,00,000 shares of IGFCCL was made substantially out of the borrowed funds, whether it be from family concerns or from outside parties.
4.7 At this stage we may also mention that the funds borrowed from the family concerns are said to be interest free. It may also be observed that the shareholdings or other assets of the assessee before her engagement to Mr. Kumarmangalam Birla, i.e., before the acquisition of the first lot of 2,50,000 shares of IGFCCL were not really big. In the statement filed by the assessee before us and reproduced hereinabove the shareholdings as on 31-3-1989 are shown only at 2,50,000 shares of IGFCCL which indicates that she did not have any other shares on that date. It is only with the acquisition of 2,50,000 shares and the subsequent acquisition of 7,00,000 shares of IGFCCL that the assessee went into the share market in a big way. The operations in the share market after her engagement are on altogether a different scale from what they were before her engagement.
5. For the assessment year 1991-92, the assessee returned the surplus realised on the sale proceeds of 2,50,000 shares of IGFCCL under the head 'Capital gains'. The capital gains were returned at Rs. 29.30 lakhs after claiming the deduction under section 48(2) of the Act of Rs. 44,05,000. The Assessing Officer accepted the claim of the assessee that the shares in question were held as investments and so assessed the surplus under the head 'Capital gains' as claimed. However, the CIT took action under section 263 in respect of this assessment year and we shall advert to it presently.
6. For the assessment year 1992-93, the assessee returned the surplus on the sale of 7,00,000 shares of IGFCCL purchased in second lot under the head 'Capital gains'. She returned the capital gains in question at a figure of Rs. 1,02,90,870 as per the following computation :
"Gross sale proceeds Rs. 3,97,46,775
Less : Dividend @ Re. 1 per share
in respect of 6,77,600 shares Rs. 6,77,600
------------------
Hence sale proceeds Rs. 3,90,69,175
Less : Cost of acquisition of shares Rs. 1,33,27,000
(Cost price of share Rs. 1,32,08,500
share transfer fees Rs. 1,17,000
Bank charges Rs. 1,500)
Gross long term capital
gains ------------------
Rs. 2,57,42,175
Less : Deduction under
section 48(2) Rs. 1,54,51,305
-----------------
Net long-term capital gains Rs. 1,02,90,870"
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The Assessing Officer, however, took the view for this assessment year that the surplus on the sale of 7,00,000 shares has to be assessed under the head 'Business'. He observed that the assessee had carried on an adventure in the nature of trade. He relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT v. Sugar Dealers [1975] 100 ITR 424 wherein the Hon'ble High Cowl has held as follows :
"Profit arising from even a solitary transaction can sometimes be held to be a revenue income if the transaction can be said to be an adventure in the nature of trade."
The Assessing Officer has also obser1ved in page-7 of his order that at one point of time the assessee was having about 9,50,000 shares of M/s. IGFCCL. He observed that no ordinary person can think of purchasing such huge quantity of shares of this company and that too only with borrowed funds. He also refuted the argument of the assessee that the assessee was having substantial amount of her own funds available for deployment in the purchase of 7,00,000 shares of IGFCCL as the sale of 2,50,000 shares of IGFCCL was three months after the purchase of 7,00,000 shares. The assessee failed in its appeal before the CIT (Appeals) also who observed that the Assessing Officer had discharged the burden of establishing that the transaction of purchase and sale of 7,00,000 shares was an adventure in the nature of trade. He made the following observations also :
"(ii) It is a well-settled law that even solitary transaction may be treated as an adventure if the circumstances so permit;
(iii) she had utilised borrowed capital and the first borrowing made by her for investment in the first lot of shares was interest free. The utilisation of borrowed capital, as she did not have her own funds to make the purchases, has the trappings of a business nature;
(iv) the sale of second lot of shares was made within a comparatively small period of 16 months calculated with reference to the dates of their acquisition, whereas the investments with the intention to earn dividend income are not generally made for such small periods;
(v) she had no intention of holding the shares for herself as is evident from the bulk purchase of shares of a single company;
(vi) the repetition of the transaction, appears to be in pursuance of a scheme to deal in the shares and earn the income;
(vii) it is not also shown that the sale was occasioned by any special necessity of the appellant at the relevant time;
(viii) the appellant had unloaded the entire shareholding during the said period when the share prices were continuing to rise. No ordinary investor will unload the entire shareholding in this manner in case if she was interested in the return on her investments by way of earning the dividend income;
(ix) no ordinary person can think of making a heavy investment in bulk purchases of shares of a single company unless there is a definite inside information about the working of the company;
(x) the decision given in the earlier years was not binding in the assessment proceeding for the subsequent years; and
(xi) it cannot be said that when the Assessing Officer was framing the assessment for the earlier assessment year 1991-92 all the material facts were before him or he had inquired into greater detail."
6.9 After the order of the CIT (Appeals) for the assessment year 1991-92 became available the CIT has mentioned before took action under section 263 in respect of the assessment year 1991-92. He held that the purchase and sale of first lot of 2,50,000 shares of IGFCCL was also a plung into the waters of trade. He held as follows :
"In view of the foregoing, it is hold that the acceptance of the claim of the assessee in respect of the long-term capital gains on sale of shares of IGFCCL and allowing the deduction of Rs. 44,05,000 under section 48(2) of the Act was erroneous and prejudicial to the interests of revenue. The under assessment has resulted into the loss of legitimate revenue. As a logical corollary to this finding, the Assessing Officer has to ascertain the amount of interest that is to be allowed against income from business relating to the transactions of the aforesaid shares. It would not be legally permissible to allow such interest against income from other sources. As regards the acceptance of the claim of short-term capital gains in respect of the shares of M/s. AAC, M/s. G. K. Williams Ltd. and M/s. Hind Dev. Corpn. Ltd., though there are no revenue implications, in view of the factual position, namely, that the assessee is not an investor in share and that the gains from the transactions in these shares were speculative in nature, the Assessing Officer may rectify the assessment order in accordance with law. The Assessing Officer is directed to recompute the income under the relevant head and enhance the total income accordingly."
The Tribunal, however, cancelled the said order under section 263 vide its order dated 31-1-1997 in ITA No. 893 (Mumbai) 1996. The Tribunal held as follows :
"6. The rival submissions have been very carefully considered. It was pointed out during the hearing that even in assessment year 1989-90 the assessee did sell off some of the shares, but of a different company and the income therefrom had been assessed under the head 'Capital gains'. The assessee had been holding shares of different companies and all the acquisition, no doubt, had commenced after she was married to Mr. Kumarmanglam Birla in the year 1989. 2,50,000 shares were purchased in 1988, i.e., before her marriage and the source from which the purchase was made was from her individual current account with her parents' family concern, SKRS. The copies of the ledger account of the assessee in the books of SKRS have been provided which go to show that all the accounts were merged into SKRS and it was accordingly the source from which the initial investment in 2,50,000 shares was made. 7,00,000 shares came to be purchased in June 1990 at an average rate of Rs. 18.87 per share and the total purchase value was Rs. 1,32,08,500. The assessee necessarily had to find source from which she could pay off this amount. She waited for an opportune time when the share value propped up and the value that was found to be reasonable in September was accepted as the value would substantially cover the purchase liability. On the face of it, it is clear that the desire to hold larger number of shares was the reason behind the transaction of purchase and the sale of the earlier holdings. The resultant effect, of course, is that the capital worth of the person also goes up substantially. But to conclude that the said transaction was intended with a profit motive in the circumstances of the case is not correct because, as observed earlier, the desire was to hold larger number of shares by funding the purchase by sale of lesser number of shares by taking into account the share value as going up in the market. In the circumstances of the case, we are of the view that the transaction was one of capital transaction and not of business and, therefore, the result of the transaction, the gain thereof, is obviously a long-term capital gain because it suffice the condition of holding of shares.
Coming to the legality of the revision, we may observe that the Gujarat High Court in CWT v. Amichand C. Shah (HUF) case (supra) had categorically held that the subsequent year's findings could not be the basis for revision of an earlier assessment order. In that case the property was valued at a particular amount. In the subsequent assessment year the assessee had declared a higher value for the property. Because of such higher value declared by the assessee revision was proposed for the earlier assessment year. The Gujarat High Court was concerned with the term "record of any proceedings" and they have held that records of the proceedings mean the records based on which orders were passed. We may also observe that courts have been repeatedly holding that it is permissible for the assessing authorities to take a different view in a later year. We may not need to travel to the various decisions of various High Courts and Supreme Court, but it would suffice to state that what is decided in one year may not apply to the following year, which has been so held by the Supreme Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321. It was precisely for this reason that the Bombay High Court in CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 had observed that where a fundamental aspect permeating through the different assessment year has been found as a fact, one way or the other the authorities have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to the changed in the subsequent year. This particular decision is so provided to emphasis that the settled matter should not be disturbed. Accordingly upholding the various issues raised before us, we set aside the order of the CIT.
7. In the result, the appeal is allowed."
7. Before us, the learned counsel for the assessee contended that the purchase of 7,00,000 shares of IGFCCL was substantially out of the sale proceeds of the earlier lot of 2,50,000 shares and so, this transaction of purchase of a larger number of shares represents only a prudent change of investment. The learned counsel has heavily relied upon the order of the Tribunal for the assessment year 1991-92 in which it was held that the sale of the first lot of 2,50,000 shares was on capital account, i.e., the sale was of assets held as investment and not stock-in-trade. The learned counsel proceeded to argue that as according to him, the 7,00,000 shares were purchased out of the sale proceeds of the earlier lot of 2,50,000 shares and as the Tribunal had held that the sale of 2,50,000 shares was on capital account, the subsequent purchase of 7,00,000 shares of the same company must also be out of the same character, i.e., the purchase of these 7,00,000 shares represented the purchase of investments. He also pointed out that the assessee retained the 7,00,000 shares for a sufficiently long period and was in enjoyment of dividend of 6,92,500 on these shares which was duly returned for tax purposes. The learned counsel went further and argued that all the facts relating to the purchase and sale of the second lot of 7,00,000 shares, which is the subject-matter of this appeal were considered by the Tribunal in the aforesaid order for the assessment year 1991-92 and the Tribunal has actually held that the purchase of 7,00,000 shares was also on capital account. He pointed out that the very basis for taking of action under section 263 for the assessment year 1991-92 was the order of the CIT (A) for the assessment year 1992-93 in which he confirmed the view taken by the Assessing Officer that the purchase and sale of 7,00,000 shares was an adventure in the nature of trade. So, according to the learned counsel for the assessee, the issue raised in the present appeal has already been decided by the Tribunal for the assessment year 1991-92. In this context, he has relied upon the remarks of the Tribunal in its order for the assessment year 1991-92, which we have extracted hereinbefore. In particular, he relied on the observation of the Tribunal that the desire to hold large number of shares and to increase capital worth was the reason behind the transaction of purchase and sale of the earlier holdings of 2,50,000 shares. So, it is pleaded that as the purchase of 7,00,000 shares is motivated by considerations of holding a number of shares and as the purchase of earlier lot of 2,50,000 has been held to be on capital account, it must necessarily follow that the purchase of 7,00,000 shares was also on capital account and, as already mentioned, the issue had already been decided by the Tribunal for the assessment year 1991-92 in the said order. He has strenuously contended that as the Tribunal has reversed the order u/s 263 for the assessment year 1991-92, a different view cannot be taken for the present assessment year. He has stressed that a view taken in one year cannot be departed from in the subsequent year and in this context, he had relied upon the following decisions :-
(i) CIT v. Shree Nirmal Commercial Ltd. [1995] 213 ITR 361 (Bom.) (FB),
(ii) CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.).
The learned counsel has also pleaded that the assessee was only a young girl and she had no personal books of account and no office establishment to conduct a trading transaction. As the purchase and sale of 7,00,000 shares of IGFCCL is a solitary transaction, it is pleaded that the burden is on the department to prove that the assessee took a plunge into the waters of trade, as claimed by the revenue. In this context, the learned counsel for the assessee has relied upon the decision of the Apex Court in the case of Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21. It is also pleaded that in order to determine whether the relevant asset is a trading asset and the income arising from its sale is a business income or not, the totality of the facts and circumstances of the case has to be considered. It is also pleaded that there was no frequency of purchase and sale transaction and the circumstance that the shares were bought with money borrowed on interest could not alter the real character of the acquisition and that the subsequent disposal of the said shares could not convert what was initially a capital acquisition into a trading asset or the transaction into an adventure in the nature of trade. In fact, it is pleaded that the loan element in the acquisition of 7,00,000 shares is much less than in the acquisition of the earlier lot of 2,50,000 shares which had been held by the Tribunal as mentioned before to be on capital account.
8. The ld. Departmental Representative, on the other hand, contended that the issue before the Tribunal for the assessment year 1991-92 was only with regard to the purchase and sale of the first lot of 2,50,000 shares and so any decision given in respect of the assessment year 1991-92 should not come in the way of deciding afresh the issue in respect of a different transaction, i.e., the purchase and sale of 7,00,000 shares of IGFCCL in the second lot, in the present assessment year. He has also pleaded that there is no res judicata in income-tax matters and the Tribunal can come to a different conclusion in a subsequent year particularly when additional details became available. In this context, he has relied upon the decision of the jurisdictional High Court in the case of H. A. Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.) and the decision of the Apex Court in the case of New Jehangir Vakil Mills & Co. Ltd. v. CIT [1963] 49 ITR 137 and another decision of the Apex Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248. It is pleaded that the Tribunal did not notice that in the context of purchase of 7,00,000 shares, assessee obtained a loan of Rs. 30 lakhs from a broker and that even the 7,00,000 shares were subsequently sold and the sale proceeds were invested in some tax free bonds. The issue raised by the ld. Departmental Representative in this context is that if the assessee wanted to hold a large number of shares why did see sell the 7,00,000 shares and invest the sale proceeds in bonds. These are the additional facts, which according to the ld. Departmental Representative were not considered by the Tribunal in its order for the assessment year 1991-92 and so any conclusion arrived at by the Tribunal for that year should not come in the way of the Tribunal for arriving at a different view for the assessment year 1992-93. It is also pleaded that the earlier order of the Tribunal concern itself with an order u/s 263 passed by the CIT and so related to the jurisdiction of the CIT u/s 263 which is not the issue in the present appeal. He pleaded that even a single plunge into the waters of trade tantamounts to undertaking an adventure in the nature of trade and the absence of repeated transaction of purchase and sale of shares, he is not decisive of the issue raised in this appeal. The ld. Departmental Representative stressed that when a big block of shares are purchased with borrowed funds on which substantial interest liabiality is incurred, it is indicative of a trading transaction. In this context he has relied upon the decision of the Allahabad High Court in the case of Sugar Dealers (supra) and the decision of the Apex Court in the case of CIT v. Sutlej Cotton Mills Supply Agency [1975] 100 ITR 706. The ld. Departmental Representative pointed out that in the decision for the assessment year 1991-92, the Tribunal did not give due weightage to the fact that the assessee purchased even the 2,50,000 shares with borrowed funds and the decision of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (supra) has not been considered in the right perspective. It is also stressed that what is to be considered is the intention of the assessee at the time of acquisition of shares and if the intention is to resale them at a profit when the market appreciates the shares have to be treated as stock-in-trade and the surplus resulting from such sale becomes trading profits assessable to tax. In this context reliance is placed upon the decision of the Allahabad High Court in the case of CIT v. Raja Jagdish Pratap Sahi [1971] 79 ITR 235. It is also pointed out that even if the first lot of 2,50,000 shares were purchased on capital account, it does not necessarily follow that the subsequent acquisition of 7,00,000 shares was also on capital account.
9. In the rejoinder, the learned counsel for the assessee mentioned that even though there is no res judicata in income-tax proceedings, the Tribunal cannot take a different view unless there are additional circumstances. He pleaded that the loan element in the cost of acquisition of the 7,00,000 shares is not substantial. The sale proceeds of 2,50,000 shares of IGFCCL would be available to buy about 5,50,000 shares. Out of the second lot of 7,00,000 shares of IGFCCL, only about 1,50,000 shares had to be bought out of a loan taken for that purpose. He further proceeded to argue that even when the assessee bought the first lot of 2,50,000 shares, she had no funds of her own and, inspite of this, the Tribunal held in favour of the assessee for the assessment year 1991-92 and the same logic would hold good for the assessment year 1992-93 also. In other words, the argument advanced is that as the Tribunal held that the 2,50,000 shares were bought as investments, it has to be held that even the 7,00,000 shares were bought only as investments. He also mentioned that the decision of the Hon'ble Allahabad High Court in the case of Raja Jagdish Pratap Sahi (supra) and that of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (supra) relied on by the revenue are distinguishable on fact. Finally, he observed that, if it is held that any assets purchased with borrowed funds are necessarily indicative of a trading transaction, it means that only a rich man can buy investments and no poor man can ever think of buying anything as investment.
10. We have given our anxious consideration to the issues raised in this appeal. We are of the view that we have to hold in favour of the revenue. Firstly, we do not agree with the contentions of the ld. counsel for the assessee that the matter has already been decided by the Tribunal in its order for the assessment year 1991-92. The issue whether the purchase and sale of 7,00,000 shares of IGFCCL was a transaction of the nature of an adventure in trade was not before the Tribunal. The Tribunal was seized of only a similar issue in respect of the purchase and sale of the first lot of 2,50,000 shares of IGFCCL. It is true that some of the facts relating to the purchase and sale of 7,00,000 shares were available with the Tribunal, but their attention was focused only on the issue relating to the purchase and sale of 2,50,000 shares and that too in the context whether the conclusion arrived at by the Assessing Officer in the regular assessment in respect of the purchase and sale of these shares could be disturbed in an order u/s 263 passed by the CIT in exercise of his revisional jurisdiction. It is true that the Tribunal held that 2,50,000 shares were sold with a view to hold a larger number of shares and to increase capital worth, but the Tribunal did not, to our mind, express any opinion as to the nature of the holdings of 7,00,000 shares. In other words, it did not express any opinion as to whether these 7,00,000 shares were purchased as stock-in-trade or as investments. Increase in capital worth results even from trading profit. Actually, the issue relating to the 7,00,000 shares was not before the Tribunal. If we agree with the ld. counsel for the assessee and hold that the Tribunal decided the issue raised in the present appeal in its order for the assessment year 1991-92, it would, to our mind, tantamount to, what is called, begging the question, i.e., assuming the very premise that is to be decided or proved. We cannot take shelter behind the order of the Tribunal and hold that the issue has already been decided. The issue raised in the present appeal is not like the status of an assessee, which, once decided, becomes applicable necessarily for all the years. Whether shares are held as trading assets or investments is an issue, which cannot be decided once for all. Such an issue has to be examined separately for each assessment year in the light of the circumstances prevailing in that year. We are of the view that the issue relating to the purchase and sale of 7,00,000 shares has to be gone into by us and for this purpose, the cumulative effect of all the factors available for consideration for this assessment year has to be considered.
11. It is common ground between the parties that even a single transaction of purchase and sale of shares can, in certain circumstance, be of the nature of an adventure in the nature of trade. It is also common ground that to determine whether a relevant asset is a trading asset or an investment, the totality of the facts and circumstances has to be considered. It is also not disputed before us that it is the intention at the time of purchase of the assets in question that is most crucial to determine whether the asset bought is a trading asset or an investment. So, there is not much dispute about the basic legal principles that have to be considered for deciding this appeal. The dispute mostly is only about the ascertainment of the relevant factual circumstances and the inference to be drawn from them.
12. Even though it is not disputed before us that there need not be repetitive transactions to constitute a trade, it is useful to recall the following remarks of the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd., cited (supra) -
"It is not necessary to constitute trade that there should be a series of transactions, both of purchase and of sale. A single transaction of purchase and sale outside the assessee's line of business may constitute an adventure in the nature of trade. Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade. If there is repetition and continuity, the assessee would be carrying on a business and the question whether the activity is an adventure in the nature of trade can hardly arise. A transaction may be regarded as isolated although a similar transaction may have taken place a fairly long time before (See Commissioner of Inland Revenue v. Reinhold)."
The above decision of the Apex Court is also an authority for the proposition that when the shares are purchased with borrowed funds on which interest is paid, it is normally indicative of a trading transaction. In the case of Ramnarayan Sons (P.) Ltd. v. CIT [1961] 41 ITR 534, the Apex Court observed that in considering whether a transaction is or is not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee and the question whether the assessee's transactions in shares, properties or investments amount to trading in them is a mixed question of law and fact. In that case, as the shares were purchased for acquiring a managing agency of a company, it was held that the shares were purchased as investment inspite of the fact that they were purchased from borrowed money on which interest was paid. So, unless there are exceptional circumstances, which are indicative of a contrary position, borrowed funds on which interest is paid is normally indicative of a trading transaction.
13. Similar is the view taken by the Apex Court in the case of Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421 wherein also the shares purchased with borrowed funds to acquire a managing agency of a company were held as investments. The Hon'ble Allahabad High Court in the case of Raja Jagdish Pratap Sahi (supra), held that when the intention of the assessee at the time of acquisition of the shares is to resell them at a profit when the market appreciates, the shares are to be regarded as its stock-in-trade whereas, when an ordinary investor changes his investments, the surplus realised is capital in nature. In this case, Zamindari bonds were sold and invested in Tata ordinaries and the subsequent sale of the shares was held to be on capital account as the Tribunal found on material on record that the assessee had no intention at any time to use his shareholdings as stock-in-trade and to make a profit by the sale thereof.
14. In the case of Ashok Kumar Jalan v. CIT [1991] 187 ITR 316, the Hon'ble Bombay High Court held that a solitary transaction of purchase and sale of gold bonds did not amount to an adventure in the nature of trade because there was no evidence to show that the purchase of the bonds had been made with an intention to resell. The jurisdictional High Court also observed that the burden is on the revenue to prove that a solitary transaction amounted to an adventure in the nature of trade.
The following relevant observations of the High Court are illuminating -
"There does not appear to be any material which would establish that the only motive of the assessee in purchasing these bonds was to make a profit by selling them at a later date. The assessee had not purchased bonds in very large quantities thereby indicating a desire to trade in them; nor is there any material to show that he had no intention of retaining them bonds and exchanging them for gold on the due date, October 27, 1980 as he could have done. The assessee had the means to pay for these bonds and in fact he did pay for them. The mere fact that he sold them on October 1, 1980, is not sufficient for the purpose of coming to a conclusion that this was an adventure in the nature of trade. There is also no material to show that the assessee was carrying on any business similar to that of buying and selling bonds such as dealing in stock or shares; or that the resale of bonds was allied to the assessee's usual trade or business or was incidental to it. In these circumstances, in our view, the Department has not discharged the burden of establishing that this was an adventure in the nature of trade."
15. It may be observed from the above remarks that in that case the assessee had means to pay for the bonds and also the fact that the assets bought were not in very large quantities and so, it did not indicate a desire to trade in them. In other words, the High Court went, inter alia, by the means test and also the test of the size or scale of the transaction.
16. In the case of the assessee, we find that she purchased the first lot of 2,50,000 shares in October-November 1988 at an average rate of Rs. 12.60 to 12.70 per share. The second lot of 7,00,000 shares were purchased on different dates in the month of June, 1990 at average prices ranging between Rs. 18 and Rs. 19.10 per share. The relevant details of the purchase had already been given by us hereinbefore.
17. Now, the question to be seen is, what could be the intention of the assessee when she bought 7,00,000 shares i.e. whether they were bought with an intention of trading in them or not. There is no way of ascertaining the intetion except from the surrounding circumstances. The argument advanced before us was that the 7,00,000 shares in question were bought substantially with the sale proceeds of 2,50,000 shares purchased earlier. It is also made out that the assessee had to take only a loan of about Rs. 30,00,000 from a broker towards meeting the balance of the acquisition cost of 7,00,000 shares. We have to examine the correctness of this argument. When she bought the 7,00,000 shares in the month of June, 1990 at the average rates ranging between Rs. 18 to Rs. 19.10 per share, she could reasonably have expected to sell her 2,50,000 shares only at these rates. She actually sold them on 11-9-1990 at rates ranging between Rs. 42 and Rs. 42.68 per share. This wind-fall by way of a rise in the value of her shareholdings could not, we are constrained to observe, have been anticipated at the time of acquisition of 7,00,000 shares, with which we are concerned.
18. We have also to examine the financial position of the assessee at the time of acquisition of these 7,00,000 shares. We have already indicated that even the first lot of 2,50,000 shares were bought out of funds borrowed from her family concerns. We have also indicated hereinbefore the debit balance with S. Kumar Research Services and S. Kumar & Co. As on 31-3-1991, her debit balance with S. Kumar Research Services was Rs. 24,85,219 and with S. Kumar & Co., it was Rs. 17,09,411. The debit balance with M/s S. Kumar Research Services as on 31-3-1990 was Rs. 24,79,558 and with S. Kumar & Company, it was Rs. 16,87,411. We have also indicated the value of her other assets, i.e. exclusive of 2,50,000 and 7,00,000 shares in question and that was only about Rs. 12 lakhs as on 31-3-1991. So, the assessee assumed a liabiality of about Rs. 1,35,25,00 being the cost of 7,00,000 shares when the value of her 2,50,000 shares was only of the order of about Rs. 45 lakhs on the basis of the average purchase price of 7,00,000 shares. The assessee had to pay interest on the amounts borrowed from outsiders to purchase the 7,00,000 shares. Apart from the liabilities incurred in the context of 7,00,000 shares, she was owing funds to her family members. So, we cannot accept the contention of the ld. counsel for the assessee that the loan component in the acquisition cost of the 7,00,000 shares was less than that in the acquisition cost of the first lot of 2,50,000 shares. The financial position of the assessee has to be seen on the date of acquisition of the 7,00,000 shares and not subsequently, i.e. after she has sold the first lot of 2,50,000 shares. As already mentioned, the sale of 2,50,000 shares took place about 2 1/2 months after the assessee purchased the block of 7,00,000 shares in question. In a situation where the share prices fluctuate on a daily basis, the assessee could not have been certain at all that she could sell 2,50,000 shares at Rs. 42 per share and, out of the sale proceeds, acquire the entire or almost the entire block of 7,00,000 shares. It is inconceivable that a young lady of 21 years would have taken upon herself an interest bearing liability exceeding Rs. 1 crore unless she intended to trade in the 7,00,000 shares and, thus, clear the liability,. To our, mind she launched on an adventure in the nature of trade as defined by the Apex Court in the case of Sutlej Cotton Mills, cited supra.
19. We do not find any circumstance of sufficient weight to indicate that the assessee did not intend to trade in the 7,00,000 shares. The shares were not bought even to acquire control of the company. At any rate, no such argument has been advanced before us. One argument advanced before us was that the assessee did retain the shares till she enjoyed the dividend of Rs. 6,92,500 which was returned. To our mind, this factor does not counter the weight of the fact that the 7,00,000 shares were purchased only out of interest bearing borrowed funds. Dividend is a natural incident of shareholdings and the very smallness of the return on the investment indicates that the assessee could not have discharged even her interest liability through the dividend income. It is made out that the assessee did not have books of account and that she could not have traded in shares because, she was only a young and inexperienced lady. For an adventure in the nature of trade, no big organization by way of an office is required. To our mind, the youth and inexperience of the assessee cannot be made much of. Because of her family background, she must have been guided by people will versed in financial matters. At any rate, a young girl of her age without her background, would not normally even invest in shares on the scale she has done.
20. On a consideration of the cumulative effect of all the factors, we have to hold that the assessee bought the 7,00,000 shares as her trading assets. We would rely upon the insignia of trade or of an adventure in the nature of trade given by the Apex Court in the case of Sutlej Cotton Mills Supply Agency Ltd. cited supra and also the decision of the jurisdictional High Court in the case of Ashok Kumar Jalan (supra). Acquisition of the large block of shares, when the assessee had no ostensible means to pay for it, indicates as defined by the jurisdictional High Court in the above-cited case that it was a trading transaction. The Assessing Officer mentioned that the assessee could have had inside information because of the position of her father-in-law, as the Chairman of IGFCCL. As already mentioned by us, we are of the view that the family background of the assessee cannot be ignored in deciding the issue posed in this appeal. The fact that the assessee launched upon acquiring such a huge block of shares with borrowed funds only after her marriage cannot be ignored. The revenue has brought out sufficient number of significant details to discharge the onus of proving that the assessee launched on an adventure in the nature of trade.
21. We have already indicated the scope of the order of the Tribunal for the assessment year 1991-92. We are of the view that the scope of order of the Tribunal is restricted to the finding that 2,50,000 shares acquired in the first lot were acquired by way of investment. This finding does not preclude us from deciding the issue regarding the nature of the acquisition of 7,00,000 shares which is the issue posed in this appeal. In this view of the matter, we do not find it necessary to consider the case law cited by the ld. counsel for the assessee in which it has been held that the Tribunal cannot depart from its earlier decision, unless there is additional evidence. At any rate, the Tribunal did not have occasion to consider the fact that the entire 7,00,000 shares were obtained only out of borrowed funds because the sale of 2,50,000 shares was subsequent to the acquisition of 7,00,000 shares. We do not find any reference in the order of the Tribunal to the fact that the sale proceeds of 2,50,000 shares was not available to the assessee on the day or days she acquired 7,00,000 shares. Further, it appears that the assessee sold away even the bonds of the Indian Railway Finance Corporation which were acquired out of surplus left with the assessee out of the sale proceeds of 7,00,000 shares. As these facts of significance were not considered by the Tribunal, we are of the view that the finding given by the Tribunal for the assessment year 1991-92 in no way precludes us from coming to a contrary conclusion about the acquisition and sale of the 7,00,000 shares which is altogether a different issue.
22. Lastly, we may consider the argument of the ld. counsel for the assessee that no poor man can ever invest in shares, if it is held that acquisition of shares out of borrowed funds is necessarily indicative of a trading transaction. We are not holding that borrowed funds always and necessarily indicate a trading transaction. Our finding is based upon a consideration of the cumulative effect of the factors prevailing in this case. If the net worth of an assessee otherwise permits her to acquire shares, borrowed funds may not necessarily indicate a trading transaction. When the net worth of an assessee on the date of acquisition is negative or very small as in the present case, it is difficult to assume that she has borrowed funds on the scale she has done for investment purpose. In the circumstances, we uphold the order of the CIT(A) on this issue and hold that the profit of Rs. 2,57,42,175 derived by the assessee on the sale of 7,00,000 shares in question is assessable as business income.
23. The only other ground raised in this appeal reads as follows :-
"The CIT (A) also erred in upholding the action of the ACIT in treating a sum of Rs. 149 being a sale of fraction bonus coupon of shares in Manjushree Plantation Ltd. as business income."
The assessee received a fractional share in Manjushree Plantation Ltd. and so, it had to be sold. There is no evidence that the assessee sought to trade in this share. At any rate, there is no tax effect. Even as per the assessee, it is of the nature of a short-term capital gain. However, as the ground is taken, we have to allow this ground.
24. Subject to the above remarks, about Rs. 49 in respect of fractional share in Manjushree Plantation Ltd., the appeal is dismissed.