Income Tax Appellate Tribunal - Chandigarh
Vesta Investments & Trading Co. (P.) ... vs Commissioner Of Income-Tax on 27 May, 1998
Equivalent citations: [1999]70ITD200(CHD)
ORDER
Mehta
1. This appeal is filed by the assessee against the order passed by the Commissioner of Income-tax, Patiala under section 263 of the Income-tax Act, 1961 for assessment year 1991-92.
2. For assessment year 1991-92, the assessee-company filed its return of income on 24-12-1991 showing income at 'nil' figure. The Assessing Officer completed the assessment under section 143(3) vide order dated 3-6-1993 accepting the returned income. On a perusal of the said assessment order, the CIT felt that the Assessing Officer had erred in framing the assessment inasmuch as deduction claimed under section 48(2) amounting to Rs. 92,651 on sale of shares has been wrongly allowed treating the income as long-term capital gains.
The Commissioner accordingly issued a show-cause notice on 25-1-1996 calling upon the assessee to show cause as to why income on sale of shares treated as capital asset be not modified treating the shares as stock-in-trade and disallowing the excess deduction of Rs. 92,651 claimed and allowed under section 48(2). The assessee filed its representation on January 25, 1996 challenging the legality of the proceedings under section 263 oil the ground that the assessee, an investment company, is engaged in investment as well as trading in shares and debentures and separate accounts are maintained in respect of the investments and the trading activity in its books of account. According to the assessee, the shares held as capital assets have been sold during the year and long-term capital gains have been correctly computed. The assessee-company also gave a further reply dated February 29, 1996 stating that complete details with regard to purchase and sale of shares in the investment account as wen as business account have been duly furnished during assessment proceedings before the Assessing Officer and there was no justification for invoking the revisionary jurisdiction by the Commissioner under section 263. The Commissioner after considering the submissions made by the assessee held vide his order dated 27-3-1996 that the assessee regularly dealt in shares and securities and there was no justification for treating any part of the shareholding as capital asset within the meaning of section 2(14) of the Income-tax Act, 1961 and accordingly set aside the assessment to be made de novo after giving an opportunity of being heard to the assessee. Aggrieved with the order of the Commissioner, the assessee has filed the present appeal.
3. Assailing the impugned order of the Commissioner, the ld. counsel for the assessee argued that the assessee-company is a dealer in shares and debentures. The company also maintains a separate investment portfolio in respect of which separate entries/records are maintained in the books of account. According to the ld. counsel, there has not been any change in the holding pattern ever since inception and no stock has been converted into investment or vice versa. Referring to page 11 of the paper-book, the ld. counsel pointed out that investment portfolio as on 31-3-1991 has been reflected at Rs. 6,71,634 whereas stock-in-trade is reflected at Rs. 7,61,136. The ld. counsel further added that during the year relevant for assessment year 1991-92 under consideration, the assessee sold 8960 shares of M/s. Max India Ltd. and 1000 shares of M/s. Montari Industries Ltd. for an aggregate sale price of Rs. 5,68,680 and Rs. 3,00,780 respectively. Both the shares were duly reflected in investment portfolio maintained by the assessee from year to year. Long-term capital gains on the sale of these investments has been computed at Rs. 1,92,851 after claiming deduction under section 48(2) amounting to Rs. 92,651. Investments in the shares are long-term investments. Shares of M/s. Max India have been sold after a period of 2 1/2 years of acquisition and shares of M/s. Montari Industries Ltd. have been sold after a period of three years of acquisition. The ld. counsel for the assessee submitted that in the earlier assessment years, namely, assessment years 1987-88, 1989-90 and 1990-91, the Assessing Officer had duly accepted the gains from sale of investment in shares as capital gains and there was therefore no justification for making a departure for the assessment year under appeal without adducing any evidence in support thereof. The ld. counsel strongly urged that the proceedings under section 263 have been taken by the Commissioner merely on the basis of change in opinion and the impugned order of the Commissioner is, therefore, liable to be cancelled. The ld. counsel placed reliance on the following decisions :-
(i) L. Sohan Lal Gupta v. CIT [1958] 33 ITR 786 (All.),
(ii) Ramnarain Sons (P.) Ltd. v. CIT [1961] 41 ITR 534 (SC),
(iii) Bengal & Assam Investors Ltd. v. CIT [1996] 59 ITR 547 (SC),
(iv) CIT v. Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC); and
(v) D.L.E Housing & Construction (P.) Ltd. v. CIT [1983] 141 ITR 806/[1982] 9 Taxman 207 (Delhi).
4. The ld. D.R., on the other hand, supporting the order of the Commissioner argued that the principles laid down by the Hon'ble Supreme Court in the case of G. Venkataswami Naidu & Co. v. CIT [1959] 35 ITR 594, are squarely applicable to the case of the assessee and since the shares of M/s. Montari Industries Ltd. and M/s. Max India Ltd. have been purchased with an intention to make profit, the income from the sale of shares is liable to be assessed as business income and not as capital gains. The ld. D.R. further placed reliance on the following decisions in support of his submissions :-
(i) CIT v. Sitaram Agarwalla & Bros. [1990] 186 ITR 385/[1989] 45 Taxman 206 (Cal.),
(ii) Swarup Vegetable Products Industries Ltd. (No. 1) v. CIT [1991] 187 ITR 412/54 Taxman 175 (All.),
(iii) CIT v. M. M. Khambhatwala [1992] 198 ITR/144 (Guj.); and In concluding the ld. D.R. submitted that since statutory requirement, namely, that the order of the Assessing Officer is erroneous and prejudicial to the interest of revenue, has been fulfilled in the instant case, the revisionary order of the Commissioner deserves to be upheld.
5. We have carefully considered the rival submissions and also perused the orders of the tax authorities. We have also gone through the various decisions cited at Bar.
What emerges from a study of the various decisions cited before us is that no hard and fast rule may be laid down to determine the nature of an asset held by the assessee - Whether it is a capital asset or stock-in-trade. A number of factors like the nature of the asset involved, the dominant intention of the assessee for acquiring it, the period of retention thereof, the attendant circumstances leading to the sale thereof, the nature of business activities carried out by the assessee etc. are required to be taken into account before the asset in question is held to be capital asset or stock-in-trade. In each case it is the total effect of all relevant factors and circumstances that determines the nature and character of the asset.
6. Now coming to the factual aspects of the instant case, the assessee-company has been maintaining a separate investment portfolio right since assessment year 1985-86 along with the trading activity involving sale and purchase of shares. A clear demarcation has been maintained between the shares held as stock-in-trade and the shares held as capital investments and never in the past the demarcation has been doubted or disturbed by the tax authorities. Separate accounts/entries are recorded in respect of the two different categories of assets in the books of account maintained by the company. In the earlier assessment years, namely, assessment years 1987-88, 1989-90 and 1990-91, surplus realised by the assessee on sale of investment shares reflected in investment portfolio have been disclosed by the assessee as capital gains which have been assessed by the Assessing Officer accordingly. No fresh facts or evidence has been brought on record by the Commissioner of Income-tax which may justify a departure from the conclusions recorded in the earlier assessment years. The principle of res judicata is admittedly not applicable as a general rule to decisions of the income-tax authorities and the decisions given in an assessment for an earlier year are not binding either on the assessee or the department in a subsequent year but it is imperative for matured and developed jurisprudence that there should be finality and certainty in all litigations including the litigation arising out of the Income-tax Act and an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse and if no fresh facts have been brought on record to justify a departure from the earlier decisions. In the instant case before us, it has not been shown by the tax authorities that the earlier decisions were either arbitrary or perverse or that by the time the Commissioner passed the impugned order taking recourse to revisionary jurisdiction, fresh facts had come into existence and were noticed by the revisionary authority. On this consideration, this was not a proper case in which the revenue should have gone back on its approach adopted in this case right since assessment year 1985-86.
7. On going through the facts on record, it is manifestly clear that the dominant intention of the assessee while purchasing the shares for the purposes of investment is unequivocally demonstrated by the conduct of the assessee in recording the purchases in a separate investment portfolio account. It has been held by the Hon'ble Supreme Court in the case of Ramnarain Sons (P.) Ltd. (supra) and Hon'ble Allahabad High Court in the case of Sohan Lal Gupta (supra) that the intention of the assessee at the time of acquisition of the asset, whether the purchase is for the purposes of long-term investment or for the purposes of dealing in shares is the dominant factor for determining the nature of the asset. Applying this principle, in conjunction with the attendant facts and circumstances narrated above, we have no hesitation in holding that the income from sale of shares reflected in the investment portfolio account is liable to be assessed under the head "capital gains" and not "business income".
8. In view of the foregoing discussion, the impugned order of the Commissioner of Income-tax cannot be sustained. The order is, therefore, cancelled.
9. In the result, the appeal is allowed.