DCIT, New Delhi V. M/s. Rajasthan Global Securities Ltd., New Delhi

ITA 106/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86927 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 06-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Business income; Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.106/DEL/2014 ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE 15(1), NEW DELHI. VS. RAJASTHAN GLOBAL SECURITIES LTD., 301-303, CA CHAMBERS, 18/12, WEA, KAROL BAGH, NEW DELHI. PAN: AAACR4122R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KAPIL GOEL, ADVOCATE DEPARTMENT BY : SHRI VIKRAM SAHAY, SR. DR DATE OF HEARING : 10.03.2015 DATE OF PRONOUNCEMENT : .03.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 11.10.2013 IN RELATION TO THE ASSESSM ENT YEAR 2010-11. ITA NO.106/DEL/2014 2 2. THE ONLY ISSUE RAISED IS AGAINST TREATING THE P ROFIT OF RS.15,91,05,689/- ARISING FROM SALE OF SHARES OF S ATYAM COMPUTERS AS SHORT-TERM CAPITAL GAIN AGAINST BUSINESS INCOME ASSESSED BY THE AO. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, AT THE MATERIAL TIME, WAS ENGAGED IN THE BUSINESS OF TRADI NG OF SHARES. APART FROM THAT, IT ALSO KEPT ITSELF ENGAGED IN `INVESTME NT IN SHARES. DURING THE YEAR IN QUESTION, THE ASSESSEE EARNED, INTER ALIA, A PROFIT OF RS.16,41,33,017/- FROM THE SALE OF SHARES OF SATYAM COMPUTERS LTD., WHICH WAS DECLARED AS SHORT-TERM CAPITAL GAIN. T HE AO OBSERVED THAT THE ASSESSEE PURCHASED 70,44,801 SHARES OF SATYAM C OMPUTERS DURING THE PERIOD 9.4.2009 TO 3.6.2009 AND SUCH SHARES WER E SOLD IN ENTIRETY DURING THE PERIOD JUNE,2009 TO JANUARY, 2010 FOR A CONSIDERATION OF RS.51.18 CRORE, REALIZING A PROFIT OF RS.16.41 CROR E, ON WHICH SECURITY TRANSACTION TAX (STT) WAS PAID TO THE TUNE OF RS.6, 39,749/-. ON BEING CALLED UPON TO EXPLAIN AS TO WHY PROFIT FROM SALE O F SUCH SHARES BE NOT CONSIDERED AS BUSINESS INCOME AS AGAINST THE SHO RT-TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE, IT WAS SUBMITTED THAT THE ASSESSEE WAS ITA NO.106/DEL/2014 3 MAINTAINING TWO PORTFOLIOS VIZ., `STOCK-IN-TRADE A ND `INVESTMENT. THE ASSESSEE EXPLAINED THAT MOST OF THE PURCHASES WERE CLASSIFIED AS STOCK- IN-TRADE AT THE TIME OF TRANSACTION ITSELF AND ONLY A FEW TRANSACTIONS WERE CONSIDERED AS INVESTMENT, WHICH FULFILLED THE COMPA NYS INVESTMENT POLICY. THE ASSESSEE CLARIFIED THAT THE SHARES OF SATYAM COMPUTERS WERE PURCHASED WITH THE INTENTION OF KEEPING THEM FOR A FAIRLY REASONABLE PERIOD OF TIME. THESE WERE PURCHASED IN HUGE QUANT ITIES. THE ASSESSEE ALSO STATED THAT IT TRADED IN ALMOST 100 SCRIPS IN THE CAPITAL MARKET SEGMENT AND OUT OF THESE ONLY ONE SCRIP WAS PURCHAS ED AND SOLD DURING THE YEAR WHICH WAS CLASSIFIED AS INVESTMENT AND PRO FIT THERE FROM WAS TAKEN AS SHORT-TERM CAPITAL GAIN. THE REASON FOR TREATING PROFIT FROM SALE OF SUCH SCRIPS AS CAPITAL GAIN WAS GIVEN AS T HE INITIAL INTENTION OF THE ASSESSEE TO PURCHASE AND RETAIN THEM FOR A CONS IDERABLE PERIOD OF TIME AND NOT FOR IMMEDIATE RESALE. IT WAS ALSO STA TED THAT 70.44 LAC SHARES OF SATYAM COMPUTERS WERE PURCHASED WHICH CON STITUTED INVESTMENT OF MORE THAN 43.65% OF ITS NET WORTH AS ON 31.3.2009. THE ASSESSEE STATED THAT THESE SHARES WERE KEPT FOR A P ERIOD OF NINE MONTHS. THE AO DID NOT FIND ANY WEIGHT IN THE SUBMISSIONS A DVANCED ON BEHALF ITA NO.106/DEL/2014 4 OF THE ASSESSEE. HE OBSERVED THAT IN MARCH, 2009 I TSELF, THE SEBI HAD GIVEN ITS NOD FOR THE BIDDING PROCESS TO SELECT AN INVESTOR THROUGH OPEN AUCTION AND ON 13.4.2009, TECH MAHINDRA WON THE BID FOR ACQUIRING 51% STAKE IN SATYAM COMPUTERS @ RS.58 PER SHARE AND , HENCE, MADE AN OPEN OFFER TO ALL SATYAM SHAREHOLDERS AT THIS RATE. HE, THEREFORE, HELD THAT THE OBJECT OF THE ASSESSEE WAS NOT TO STAY INV ESTED IN THESE SHARES AND EARN DIVIDEND, BUT, TO REALIZE IMMEDIATE PROFIT ON INCREASE IN THE PRICE OF SUCH SHARES. CONSIDERING THIS AND OTHER R EASONS, THE AO TREATED THE PROFIT OF RS.16.41 CRORE FROM SALE OF SHARES OF SATYAM COMPUTERS LTD., AS BUSINESS INCOME. THE LD. CIT(A) GOT CON VINCED WITH THE ASSESSEES SUBMISSIONS AND DIRECTED TO TREAT SUCH S HARES AS `INVESTMENT AND THE RESULTANT PROFIT AS SHORT-TERM CAPITAL GAI N. THE REVENUE IS AGGRIEVED AGAINST THIS VIEW CANVASSED BY THE LD. FI RST APPELLATE AUTHORITY. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE WANT TO MAKE IT CLEAR THAT ANY DECISION TO HOLD SHARES AS `INVESTMENT OR `STOCK-IN-TRADE DEPENDS ON A HOST OF FACTORS. THERE CAN BE NO SINGL E CRITERIA TO DECIDE ITA NO.106/DEL/2014 5 THE NATURE OF SHARES PURCHASED. IN FACT, IT IS THE CUMULATIVE EFFECT OF ALL THE RELEVANT FACTORS, WHICH IS TAKEN INTO CONSIDERA TION FOR REACHING A CONCLUSION AS REGARDS THE NATURE OF SHARES AND THE RESULTANT INCOME ARISING FROM THEIR TRANSFER. THERE MAY BE SOME FAC TORS INDICATING THE PURCHASE OF SHARES AS INVESTMENT, WHILE OTHERS MAY POINT TOWARDS STOCK- IN-TRADE. IT IS THE HOLISTIC CONSIDERATION OF ALL SUCH FACTORS WHICH IS KEPT IN VIEW WHILE DECIDING AS TO WHETHER THE SHARES PUR CHASED BY THE ASSESSEE CONSTITUTED STOCK-IN-TRADE OR INVESTMENT. 5. THE FACTOR WHICH IS CLAIMED BY THE LD. DR TO BE STRONGLY AGAINST THE TREATMENT OF SHARES AS `INVESTMENT IS THAT THE OPEN AUCTION WAS HELD ON 13.4.2009 BY THE SEBI FOR SELECTING INVESTOR IN WHICH TECH MAHINDRA WON THE BID AND THE ASSESSEE STARTED PURCHASING THE SHARES OF SATYAM COMPUTERS FROM 9 TH APRIL, 2009 AND CONTINUED TO DO SO TILL 3 RD JUNE, 2009. THE MATCHING OF PURCHASE DATES CLOSE TO 13.4 .2009 WERE CLAIMED TO BE INDICATIVE OF THE ASSESSEES INTENTION TO RE AP THE IMMEDIATE PROFIT ON THEIR SALE. THE ARGUMENT OF THE LD. DR THAT THE ASSESSEE ENTERED INTO SUCH SHARES AT A TIME WHEN THEY WERE AT THE LOWEST PRICE AND HENCE THERE ITA NO.106/DEL/2014 6 COULD BE NO POSSIBILITY OF MAKING INVESTMENT, CANNO T BE CONSIDERED AS DECISIVE FOR HOLDING SUCH SHARES AS STOCK-IN-TRADE . A PERSON MAY THINK OF MAKING INVESTMENT IN THE SHARES OF A COMPANY AT A PRICE WHICH IS QUITE LOW AND, THEN, MAINTAIN POSITION IN IT FOR A PERIOD BY ALLOWING IT TO PROSPER. THERE IS NO RULE OF PURCHASING SHARES AS I NVESTMENT ONLY WHEN THE PRICE OF SHARES OF A COMPANY IS AT THE PEAK. 6. THERE IS ANNEXURE TO THE ASSESSMENT ORDER WH ICH DIVULGES THE DATES OF PURCHASE OF THESE SHARES STARTING FROM 9 TH APRIL TILL 1 ST JUNE, 2009 ON TEN OCCASIONS AND, THEREAFTER, THE SALE STARTED FRO M 4 TH JUNE, 2009 TILL 18 TH JANUARY, 2010. THE ASSESSEE PAID STT AT THE TIME O F SALE OF SUCH SHARES. THIS ANNEXURE INDICATES THAT THE ASSESSEE FIRSTLY P URCHASED ALL THE SHARES OF SATYAM COMPUTERS OVER A PERIOD OF TIME AND, THER EAFTER, STARTED THEIR DISPOSAL. IN OTHER WORDS, THERE IS NO FREQUENT IN AND OUT OF THESE SHARES. 7. IT IS MANIFEST FROM PAGE 10 OF THE IMPUGNED ORDER THAT THE ASSESSEE HAD THE INITIAL INTENTION TO HOLD THESE SHARES AS ` INVESTMENT WHICH IS DISCERNIBLE FROM THE FACT THAT THESE WERE ENTERED I NTO THE `INVESTMENT REGISTER MAINTAINED U/S 372A(5) OF THE COMPANIES A CT, 1956 AT THE ITA NO.106/DEL/2014 7 TIME OF THEIR PURCHASE. THIS IS ANOTHER REASON TO SHOW THE ASSESSEES INTENTION OF HOLDING SHARES IN SATYAM COMPUTERS AS INVESTMENT AB INITIO . 8. ANOTHER FACTOR WHICH IS OF PARAMOUNT IMPORTANC E IS THE ASSESSEES CONTENTION RAISED BEFORE THE LEARNED FIRST APPELLAT E AUTHORITY THAT THESE SHARES WERE PURCHASED OUT OF THE ASSESSEES OWN FUN DS WITHOUT MAKING ANY BORROWING. THIS ARGUMENT OF THE ASSESSEE HAS N OT BEEN CONTROVERTED ON BEHALF OF THE REVENUE BY ANY COGENT MATERIAL. 9. APART FROM THAT, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE TOOK DELIVERY OF SUCH SHARES AFTER MAKING FULL PAYMENT A ND IT WAS NOT A CASE OF SETTLING THE TRANSACTION OF PURCHASE AND SALE OF SUCH SHARES DURING THE SETTLEMENT PERIOD ITSELF. THIS IS ANOTHER REASON T O INDICATE THAT THE INTENTION OF THE ASSESSEE TO HOLD THEM AS INVESTMEN T. 10. ANOTHER FACTOR WHICH NEEDS TO BE MENTIONED IS THAT THE ASSESSEE WAS CONSISTENTLY HOLDING SOME OTHER SHARES AS INVES TMENT OVER A PERIOD OF TIME AND WAS REGULARLY EARNING INCOME FROM THEIR SALE BY DECLARING PROFIT AS SHORT-TERM CAPITAL GAIN OR LONG-TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF THEIR HOLDING. THERE IS NO DOUBT THAT ITA NO.106/DEL/2014 8 SHARES OF SATYAM COMPUTERS WERE NOT PURCHASED OR T REATED AS INVESTMENT IN ANY OF THE EARLIER YEARS, BUT AT LEAS T THIS FACTOR SHOWS THAT THE ASSESSEE WAS ALSO ENGAGED IN THE PURCHASE OF SH ARES AS INVESTMENT AND SHOWING PROFIT FROM THEIR SALE UNDER THE HEAD ` CAPITAL GAINS. THIS TREATMENT OF PROFIT FROM SALE OF SHARES HELD AS INV ESTMENT HAS NOT BEEN DISPUTED BY THE AO IN THE ASSESSMENTS MADE U/S 143( 3) OF THE ACT. THE ASSESSEE HAS PLACED ON RECORD A COPY OF THE ASSESSM ENT ORDERS FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR IN WHICH THE RE WAS SHORT-TERM CAPITAL GAIN OF RS.17.21 CRORE WHICH HAS BEEN ACCE PTED BY THE AO VIDE HIS ORDER DATED 29.12.2011. SIMILARLY, THERE IS AN ORDER PASSED U/S 143(3) FOR ASSESSMENT YEAR 2006-07 ACCEPTING THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS AS WELL AS IN INVESTMENT OF SHARES. A COPY OF SUCH ORDER DATED 31.10.2008 IS AVAILABLE ON RECORD FROM WHICH IT IS MANIFEST THAT THERE IS NO ALTERATION IN THE CHARACT ER OF INCOME SHOWN BY THE ASSESSEE. THE PRINCIPLE OF CONSISTENCY IN TERM S OF THE ASSESSEE HOLDING SHARES AS STOCK-IN-TRADE AS WELL AS INVESTM ENT, CANNOT BE LOST SIGHT OF. ITA NO.106/DEL/2014 9 11. WHEN WE CONSIDER THE CUMULATIVE EFFECT OF ALL T HE FACTORS OBTAINING IN THIS CASE, WE HAVE NO DOUBT IN OUR MINDS THAT TH E LD. CIT(A) RIGHTLY PROCEEDED TO ACCEPT THE ASSESSEES CONTENTION OF P URCHASING THE SHARES OF SATYAM COMPUTERS AS `INVESTMENT RATHER THAN `ST OCK-IN-TRADE. WE, THEREFORE, UPHOLD THE SAME. 12. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.03.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 11 TH MARCH, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.