Shri Amit Vanubhai Mehta, Mumbai V. The Income tax Officer,Ward-6(1), Surat

ITA 1173/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9061 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RICHHA RASTOGI
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 1173/AHD/2013 & 2869/AHD/2014 (ASSESSMENT YEARS: 2009-10 & 2010-11) AMIT VANUBHAI MEHTA 201-A, MONARCH GARDENS, AMAR WIRE MILL COMPOUND, R.A. KIDWAI ROAD, SEWREE (WEST), MUMBAI-400015 V/S ITO, WARD-6(1), SURAT (APPELLANT) (RESPONDENT) PAN: ABJPM9268Q APPELLANT BY : SHRI M.K. PATEL, AR RESPONDENT BY : MS. RICHHA RASTOGI, SR. D.R. ( )/ ORDER DATE OF HEARING : 06 -03-201 7 DATE OF PRONOUNCEMENT : 09-03-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 1173/AHD/2013 & 2869/AHD/2014 ARE TWO SEPA RATE APPEALS OF THE ASSESSEE PREFERRED AGAINST TWO SEPARATE ORDERS OF T HE LD. CIT(A)-I, SURAT ITA NOS. 117 3/AHD/13 & 2869/AHD/14 . A.YS. 2009 -10 & 2010-11 2 DATED 12.03.2013 & 25.09.2014 PERTAINING TO A.YS. 2 009-10 & 2010-11 RESPECTIVELY. 2. SINCE THE FACTS INVOLVED IN THE IMPUGNED APPEALS AR E COMMON IN BOTH THE YEARS UNDER CONSIDERATION, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 3. THE COMMON GRIEVANCE OF THE ASSESSEE RELATES TO THE TREATMENT OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INC OME. 4. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E STATED THAT THE IMPUGNED ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE CO-ORDINATE BENC H IN A.Y. 2006-07 IN ITA NOS. 62 & 63/AHD/2010 AND 3309 & 3310/AHD/2011 AND ALSO IN ITA NOS. 2044 & 2045/AHD/2008. 5. THE LD. D.R. FAIRLY CONCEDED TO THIS. 6. WE HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE BEF ORE US. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOWS THAT THE LD. CIT(A) WHILE CONFIRMING THE ASSE SSMENT FOLLOWED THE FINDINGS GIVEN IN A.YS. 2005-06 TO 2007-08. A PERUS AL OF THE ORDER OF THE CO- ORDINATE BENCH IN ITA NOS. 2044 & 2045/AHD/2008, 62 & 63/AHD/2010 AND 3309 & 3310/AHD/2011 SHOW THAT IDENTICAL ISSUES WER E CONSIDERED BY THE CO-ORDINATE BENCH, THE RELEVANT FINDINGS READ AS UN DER:- ITA NOS. 117 3/AHD/13 & 2869/AHD/14 . A.YS. 2009 -10 & 2010-11 3 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E ORDERS OF THE AUTHORITIES BELOW. THE DISPUTE IS REGARDING THE NATURE OF INCOM E ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCO ME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CA PITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CON FLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE BALANCE SHEET, THE ASSESSEE HAS S HOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMENT SHARES HAVE BEEN VAL UED AT COST. THE HON'BLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTR IAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS -WI THIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECOR DS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT ' 9. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONT ROVERSIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE SAME READS AS UNDER:- SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASS ETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITAL ASSETS OR STOCK-IN-TRADE/TRADING ASSETS OR BOTH. ITA NOS. 117 3/AHD/13 & 2869/AHD/14 . A.YS. 2009 -10 & 2010-11 4 DETERMINATION OF THE CHARACTER OF A PARTICULAR INVE STMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETE RMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK- IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT' ) HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIR CULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRI NCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF I NCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPE CT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS G ENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOW ING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURIT IES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRA NSFER, IF THE ASSESSEE ITA NOS. 117 3/AHD/13 & 2869/AHD/14 . A.YS. 2009 -10 & 2010-11 5 DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQU ENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOP T A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHAL L CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS C LAIMS OF LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER S HAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINI NG CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVE D FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 10. CONSIDERING THE FACTS IN HAND, IN THE LIGHT O F THE AFOREMENTIONED CIRCULAR OF THE BOARD AND THE CHART EXHIBITED HEREINABOVE, IN O UR CONSIDERED OPINION, THE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHA SE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVEST OR AND SHOWING THE SHARES AS INVESTMENT, WE DO NOT FIND ANY REASON TO DISTURB TH E INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVESTOR AND, T HEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAINS BE IT SHORT TERM OR LONG TERM. ITA NOS. 117 3/AHD/13 & 2869/AHD/14 . A.YS. 2009 -10 & 2010-11 6 7. CONSIDERING THE SIMILARITY OF FACTS, WE RESPECTFULL Y FOLLOW THE FINDING OF THE CO-ORDINATE BENCH (SUPRA) AND ACCORDINGLY WE SET AS IDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO TREAT THE SHORT T ERM CAPITAL GAIN AS SUCH. 8. SINCE, WE HAVE DIRECTED THE A.O. TO TREAT THE GAINS ARISING OUT OF THE SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAINS, T HE A.O. IS DIRECTED TO DECIDE THE ISSUE OF CARRY FORWARD AND SET OFF OF RE LATED LOSSES AS PER THE PROVISIONS OF THE LAW. 9. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09 - 03- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 09/03/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD