Commissioner of Income Tax v. Pnb Finance & Industries Ltd

MANMOHAN, J. OCTOBER 18, 2010 vk/kapil

* THE HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on: 8th September, 2010 % Judgment Pronounced on: 18th October, 2010 + ITA No.306/2010 COMMISSIONER OF INCOME TAX ..... Appellant Through: Ms. Sonia Mathur, Adv. versus PNB FINANCE & INDUSTRIES LTD. ..... Respondent Through: Ms. Kavita Jha and Ms. Akanksha Aggarwal, Advs. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes DIPAK MISRA, CJ In this appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity "the Act"), the revenue, calling in question the legal substantiality of the order dated 17th December, 2008 in ITA No.3640/Del/2007 pertaining to the assessment year 2003-04 passed by the Income Tax Appellate Tribunal, Delhi Bench "F" (for short `the tribunal"), has sought to raise the following substantial questions of law:- (a) Whether on the facts of the present case, the ITAT was justified in law in holding that the income earned by the assessee from sale of shares and securities was liable to be assessed as income from business as against long term capital gain declared by the assessee? (b) Whether if answer to the above question is in favour of Revenue, whether the Tribunal was justified in deleting the addition of Rs.2,65,77,430/- made by the Assessing Officer by disallowing set off of income against long term capital loss of earlier year? (c) Whether in the context of facts of the present case, the Tribunal has correctly interpreted the principle of law laid down by the Hon"ble Apex Court in the judgments relied upon? (d) Whether the order passed by the ITAT is vitiated by perversity on account of non-application of mind to the specific observations made by the Assessing Authority? 2. The basic facts which are requisite to be stated for adjudication of this appeal are that the assessee-respondent is a company engaged in the business of sale and purchase of shares. It filed its return declaring an income of Rs.60,05,375/- in which it included short term capital gain at Rs.38,476/- and long term capital gain at NIL after set-off of long term capital loss of previous years amounting to Rs.2,08,24,174/-. The return was processed under Section 143(1) of the Act. Thereafter, the case was selected for scrutiny and a notice under Section 143(2) of the Act was issued. In the course of assessment proceedings, the assessing officer observed that in computation of the income filed, the assessee had shown long term capital gain at Rs.2,08,24,174/-which had been set off against the long term capital loss of the assessment year 1995-96 amounting to Rs.2,02,45,035/- and of the assessment year 1996-97 at Rs.5,79,139/-. On a query being raised by the assessing officer as to why sale of investment be not treated as business or trading receipts as the assessee is an investment company having main business of purchase and sale of shares, it was submitted by the assessee that it was registered as an investment and finance company having its main activity of investing its funds in long term securities like shares, debt and equity mutual funds, etc for generating dividend, interest and profit and loss on sale of investments and all the investments of the company are of long term nature and had not been held as stock-in-trade since the financial year 1999-2000 in which year all the investments held as stock-in-trade were transferred to the investment portfolio. It was contended on behalf of the assessee that the said practice of taking all its securities under the investment head had since then been followed and the revenue had never raised any query on that score. The assessing officer perused the clarification given by the assessee, referred to the Memorandum of Association and the decisions rendered in CIT V. Sutlej Cotton Mills Supply Agency Ltd, (1975) 100 ITR 706 (SC), Ra