Whether Gains arising out of investments portfolio are business income or Capital Gain ?
Where assessee company had maintained accounts with applicable accounting standards and revenue was unable to find fault with assessee’s claim, capital gains arising out of investments portfolio was to be taxable under head ‘Capital gain‘ and not as business income
HIGH COURT OF CALCUTTA
Commissioner of Income-tax, Kolkata-IV
H K Financiers (P.) Ltd.
IT APPEAL NO. 117 OF 2011
MAY 12, 2015
S.B. Saraf, Adv. for the Appellant. J.P. Khaitan, Sr. Adv. for the Respondent.
1. The subject matter of challenge in the appeal is a judgment and order dated 12th November, 2010 pertaining to the assessment year 2007-2008. Views of the Tribunal precisely are as follows:—
“On the other hand, the Ld. Counsel for the assessee by referring the written submission made before the Assessing Officer at pages 30 to 32 and at pages 35 to 43, contended that since the assessee-company has maintained the accounts with applicable accounting standards, the investments which have been classified as long term or carried at cost whereas the shares kept in the portfolio of the stock-in-trade has been valued at market rate. He further submitted that the total number of transactions with purchases as well as sales are 220 in number and the ratio between purchase and sale is 59:41 and the holding period in respect of 77 sale transactions are more than 12 months and 13 transactions which is less than 12 months. Under these circumstances he requested to uphold the order to the Ld. CIT (A) and delete that of the Assessing Officer.
After hearing the rival submissions and on careful perusal of the material available on record, keeping in view of the fact that the assessee has shown the shares which are declared by him either long term or short term capital gains in the investment portfolio and there is no dispute that the same are being valued at cost and on the share holding of the assessee which are stock-in-trade has been valued either at market rate or costs in trade. We find no justification of the Assessing Officer to treat the capital gains arising out of which are short term as well as long term investments portfolio to treat the same as business income. Therefore, we find no infirmity in the order of the Ld. CIT (A) to be inferred with.”
2. Therefore, question for consideration was whether the benefit on account of short-term capital gain and long-term capital gain was properly claimed by the assessee. The revenue was unable to find fault with the claim of the assessee. The revenue was not in a position to support the judgment of the assessing officer who refused to treat the same the way the assessee wanted for the following reasons:—
“It is concluded that those shares were purchased and sold with the motive of earning profit and not with object of investing in those shares in order to derive income from that investments. The systematic, organized and planned manner of transactions together with volume and frequency of transactions point to the only conclusion that the shares could not have been purchased for investment. This conclusion is also strongly supported by the Hon’ble Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. vs. CIT (68 ITR 486 ). In view of the above discussion the total amount of Capital Gain for Rs.39,18,709/- as shown by the assessee in its return of income is being taken as Business Income instead of Capital Gain as claimed by the assessee. ”
3. The assessing officer has laid stress on motive. To begin with motive is something, which is locked in the mind of the person. No direct evidence as regards motive is possible. Motive can be inferred from the conduct of the person concerned but that is bound to remain an inference, which may or may not be correct. We have today dictated a judgment in the case ofCIT v. Merlin Holding (P.) Ltd. [IT Appeal No. 101 of 2011, dated 12-5-2015] wherein the following views have been expressed by us:
“From the tenor of the submissions made by Mr. Saraf noted above, it appears that the case of the revenue is that in the facts of the case the finding that the income was earned from investment could not have been recorded. If that is the proposition then it is for the revenue to show that such a finding is not possible in law. That was not even suggested. What remains then is a question of appreciation of evidence, which has already been done. No fruitful purpose is likely to be served by remanding the matter. We do not find any issue, which has remained unattended.
For the aforesaid reasons, we hold that the judgment under challenge is not perverse.”
4. The judgment in the case of Dalhousie Investment Trust Co. Ltd. v. CIT  68 ITR 486 (SC) referred by the assessing officer does not assist the revenue because in that on appreciation of facts it was found as follows:—
“On the facts, that the appellant dealt with the shares of McLeod and Co. and the allied companies as stock-in-trade, that they were in fact purchased even initially not as investments but for the purpose of sale at a profit and therefore the transactions amounted to an adventure in the nature of trade. The profit derived by the appellant from the sale of shares was therefore a revenue receipt and as such liable to income-tax.”
5. The facts of the case are not shown to be similar with those in the case of Dalhousie Investment.
6. For the aforesaid reasons, we are of the opinion that the views expressed both by the CIT and the Tribunal for reasons expressed therein are a possible view. It is, therefore, not open to the revenue to contend that the view taken by the Tribunal is perverse. Question formulated at the time of admission of the appeal does not appear to have been correctly formulated. The question could only be, whether the views expressed upon appreciating the facts and circumstances of the case were perverse. The question is now formulated and is answered in the negative.
The appeal is thus dismissed.