The Income Tax Appellate Tribunal Mumbai while allowing the Setoff of Losses held that Holding Company’s Capital Gain Treated as Business Income.
Facts
The assessee is a holding company and has made investment in the joint venture in JM Morgan Stanley Security Pvt Ltd in which the assessee is holding 49% along with Morgan Stanley (India) Securities Pvt Ltd (MSSPL) which holds 51% share.
The assessee filed return of income for A.Y. 2008- 09 declaring total income at Rs.1191,60,94,839/-. The case was selected for scrutiny and the assessment order under section 143(3) was passed on 06/12/2010 assessing the total income at Rs.1761,62,51,490/-. During the year under consideration, the assessee has shown long term capital gain of Rs.1730,58,51,513/- on sale of shares in JMMSSPL to MSSPL.
The Assessing Officer proceeded to treat this gain as the business income of the assessee for the reason that the assessee was in the business of shares and securities as a broker and was also involved in share trading business.
The CIT(A) upheld the order of assessment by holding that the termination of the joint venture was to avoid commercial inconvenience accruing in the future as a joint venture and that termination was a result of split of business arrangement between the assessee and its partners.
Submissions
AR submitted that the shares are held as investments and reflected under the head “investments” in the financials of the assessee from year to year and that the assessee has earned a substantial dividend on the said investments.
DR submitted that CIT(A) has not appreciated the fact that at the very outset when the assessee entered in the Joint Venture with the Morgan Stanley Group in the year 1999, it was its “institutional equity business” (including the existing institutional equity sales and trading business assets of the assessee) which had been transferred by it to the Joint Venture Company, namely, J.M. Morgan Stanley Securities Pvt. Ltd.
Decision
The two member bench of Aby T Varkey (Judicial Member) and Ms. Padmavathy S. (Accountant Member) noticed that the AO rejected the claim of set off of short term capital loss of Rs. 4,65,44,19,508/- and long term capital loss of Rs. 54,90,36,870/- on the ground that the assessee with the help of its own group companies made a colourable device to artificially create loss to cancel profit earned on sale of 49% shares to the J.V. and thereby evade the tax.
It was further noted that the shares were sold by the assessee from the Demat account for which the consideration is received by the assessee and that shares sold had been issued under the ESOP scheme of the Trust where the options are being exercised by the assessee.
The bench set aside the order of the CIT(A) disallowing the setoff of long term capital loss of Rs.54,90,36,870/- and short term capital loss of Rs.4,65,44,19,508/-.
Case title: M/s J.M. Financial Ltd v/s Deputy Commissioner of Income-tax
Citation: I.T.A. No.3987/Mum/2015
