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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
Dated this the 13th day of January 2015 PRESENT
THE HON’BLE MR. JUSTICE N KUMAR
AND
THE HON’BLE MR. JUSTICE B. VEERAPPA
ITA No. 218 of 2009 BETWEEN:
The Commissioner of Income Tax
C.R. Building
Queens Road
Bangalore
The Assistant Commissioner of Income-Tax
Circle – 11(3)
C.R. Building
Queens Road
Bangalore
…Appellants
(By Sri K. V. Aravind, Advocate)
AND:
M/s. Kumergode Investments Ltd., No.68/A, H. Siddaiah Road Bangalore – 560 027
…Respondent
(By Sri A. Shankar & Sri Lava, Advocates)
2 This ITA filed U/s. 260A of I.T. Act, 1961 arising out of order dated 12-12-2008 passed in ITA No.836/Bang/2008 for Assessment year 2003-04. praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.836/BNG/2008, dated 12-12-2008 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Circle- 11(3), Bangalore.
This ITA coming on for hearing this day, N. KUMAR J., delivered the following:
J U D G M E N T
The Revenue has preferred this appeal against the order passed by the Tribunal setting aside the order passed by the Commissioner under Section 263 of the Income Tax Act, 1961, restoring the order of the Assessing Authority.
The Assessee Company is in the business of financial investments. During the year 2003-04, the assessee company earned capital gain of Rs.1,23,70,071/- from sale of shares and set off the same as against long term capital loss brought forward to the assessment year 1997-98 to the extent of Rs.30,53,944/-. While verifying the returns filed
3 for the earlier years, it was found that the assessee Company had already set off part of such loss which is brought forward from the assessment year 1997-98 to the extent of Rs.2,17,778/-. The assessee Company had not considered this while calculating the Long Term Capital Gains for the assessment year 2003-04. The assessee Company admitted the said fact. Therefore the assessee-Company’s claim of Rs.30,53,944/- was reduced to Rs.26,32,222/- and it was allowed as set off from the capital gain received during the assessment year 2003-04.
The Commissioner of Income Tax invoking his jurisdiction under Section 263 of the Income Tax Act, issued a notice calling upon the assessee to show cause as to why the amount claimed as Capital Gain should not be treated as income from business. The assessee filed their objection statement and pointed out the shares sold during the financial year 2002-03 was one solitary transaction and the shares sold were acquired a decade back and has been
4 reflected in the audited accounts as investments and it was never been considered as a part of stock in trade. Therefore it was contended that the income from sale of shares cannot be construed as business income. Over-ruling the objections the Commissioner proceeded to hold that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue and therefore the Assessing Officer was directed to make a fresh assessment in the light of the observations made in the order. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal.
The order passed by the Commissioner and the directions issued therein clearly indicate the question whether the shares sold by the assessee was in the course of the business or was it a capital gain, has to be ascertained by him. Therefore it is clear that the Commissioner was unable to determine whether the assesse’s sole transaction leading to rendering of long term capital gains was whether
5 part of assessee’s income holding shares as stock-in-trade or as investment.
The view as taken by the Assessing Authority is a possible view. When two views are possible, one which is sustainable in law was accepted by the Assessing Authority and the same cannot be considered as erroneous by the Commissioner. Therefore the order of the Commissioner was set aside on the ground that the order passed by the Assessing Authority is not erroneous. Aggrieved by the said order, the Revenue is in appeal.
The appeal was admitted to consider the following substantial questions of law:
Whether the Tribunal was correct in holding that the assessee has sold the shares in a solitary transaction and the same was not treated as stock in trade, the income arising from sale of shares has to be assessed under the head ‘Capital Gains’, hence the order of assessment is
6 not erroneous and prejudicial to the interest of the revenue?
Whether the Tribunal was correct in holding that the income from sale of shares has to be assessed under the head ‘Capital Gains’ when the Assessing Officer has not applied his mind regarding the activities carried on by the assessee and objections of the assessee stated in the memorandum of association before arriving at a conclusion that the income has to be assessed under the head ‘Capital Gains’?
The material on record clearly establishes that the share which is sold by the assessee was held by the assessee a decade back which has been reflected in the audited account as investment. It was never considered as part of stock-in-trade. It was a solitary transaction. In the light of this undisputed facts, when a possible view is taken by the Assessing Authority and accepted the case of the assessee that it has resulted in capital gains, as rightly held by the Tribunal, the Commissioner was in error in treating it
7 as a business income. In fact, he was not able to make up his mind and he has remanded the matter back to the Assessing Authority to find out whether it constitutes capital gain or business income.
In those circumstances, the Commissioner had no justification to invoke Section 263 of the Income Tax Act to initiate proceedings. The order passed by the Tribunal is just and legal and do not call for any interference. The substantial questions of law is answered in favour of the assessee and against the Revenue. No merit, appeal is Dismissed.
Sd/- JUDGE
Sd/- JUDGE
ksp/-