Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Thursday, 20 August 2015 19:50

Foreign Travel for expansion is Revenue in nature - Capital Gains cannot be business income when assessee maintains two portfolios - Bombay Tribunal Featured

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1. When assessee is maintaining two seperate portfolio for investment and business short term capital gains can not be taxed as Business Income

2. Foreign Travel incurred for expansion of business is revenue expenditure


1. Assessee company is engaged in providing consultancy services in the field of private placement of shares to foreign institutional investors

2. Assessee also engaged in the business of arranging finance and advising on insurance business

3. During the year the assessee has dealt in purchase and sale of shares

4. Assessee has maintained seperate portfolios for trading assets and investments and accordingly declared capital gains and business income on the corresponding portfolios

5. AO did not agree and assessed capital gains as business income

6. Assessee claimed foreign travelling expenditure to the tune of 11.84 lacs

7. AO disallowed foreign travelling expenditure on the ground that it is capital expenditure or pre-operative expenses

8. Assessee had dividend income of Rs. 42.05 lacs and disallowed Rs. 2.07 lacs u/s 14A in the return

9. AO applied Rule 8D and computed disallowance u/s 14A to the tune of Rs. 13.57 lacs

10. In the appeal before the CIT(A) assessment of Capital Gains as Business Income and disallowance of  Foreign Travelling Expenditure was confirmed and addition u/s 14A was set aside and restored back to the AO to calculate disallowance as per the order.

11. AO moved to the Tribunal and matter was decided in favour of the assessee giving relief on all the issues


1. On whether Capital Gains is Business Income - It is well settled proposition that a person is entitled to maintain two separate portfolios, one for its investment and another one for its trading assets. For this proposition, one may gainfully refer to the Circular No.4/2007 dated 15-06-2007 issued by the CBDT and also the decision rendered by Hon’ble Bombay High Court in the case of Gopal Purohit (2010)(228 CTR 582)...We notice that the assessing officer has not brought any material on record to show the contrary, which means that the AO has arrived at the adverse conclusion only on surmises. Accordingly, we are of the view that the gains arising on its sale should be assessed as Short term capital gains only.

2. On Disallowance of foreign travel expenses - It is a settled proposition that the expenditure incurred for expansion of the existing  business activities is revenue in nature. It is also well settled that the expenditure need not produce revenue immediately, since it is usual that these expenditure may bear fruits in future. The assessee has also submitted that these expenses have not been incurred by the directors, but the representatives of the assessee company who hold high educational qualification, meaning thereby the element of personal expenditure is also ruled out. Hence, we are of the view that the tax authorities are not right in law in holding that the travelling expenses are capital/pre-operative in nature.

3. On Section 14A and Rule 8D - The provisions of Rule 8D should not applied in the instant case, since the disallowance computed under Rule 8D works out to disproportionately higher figure of Rs.13,57,011/-. Hence, considering the facts discussed above, we are of the view that the disallowance of Rs.2,07,022/- made by the assessee does not call for any interference. In view of the above, we set aside the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A of the Act to the amount disallowed by the assessee.

Cases referred to

Gopal Purohit (2010)(228 CTR 582)

Additional Info

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