BAHRAM N. VAKIL, MUMBAI V. ASST CIT 16(2), MUMBAI

ITA 1213/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0130 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: JEHANGIR D J MISTRI
• Keywords: Capital asset; Business income; Wrong claim; Sham transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' B ' BENCH, MUMBAI BEFORE SHRI G.S. PANNU , ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 1213 /MUM/ 2015 (ASSESSMENT YEAR: 2010 - 11 ) SHRI BAHRAM N. VAKIL NEPTUNE COURT 60 NEPEAN SEA ROAD MUMBAI 400006 VS. ACIT, CIRCLE - 16(2) 2ND FLOOR, MATRU MANDIR TARDEO, MUMBAI 400007 PAN AABPV1253D APPELLANT RESPONDENT APPELLANT BY: SHRI JEHANGIR D.J. MISTRI RESPONDENT BY: SHRI T.A. KHAN DATE OF HEARING: 07 .03.2018 DATE OF PRONOUNCEMENT: 0 9 . 03.2018 O R D E R PER SANDEEP GOSAIN , JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - 30 , MUMBAI DATED 02 . 0 1 .201 5 FOR A.Y. 2010 - 11 . 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE CIT(A) TREATING THE SHORT TERM CAPITAL GAIN OF ` 9,60,885/ - ON SALE OF SHARES HELD FOR LESS THAN ONE YEAR AS BUSINESS INCOME. 3. AT THE OUTSET THE LEARNED A.R. SUBMITTED THAT IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008 - 09 AND DECIDED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 12.07.2017 IN ITA NO. 5769/MUM/2012. THE LEARNED D.R. FAIRLY CONCEDED THAT THE ISSUE INVOLVED THE APPEAL IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE MENTIONED ORDER OF THE TRIBUNAL. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREUNDER: - 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO GONE THROUGH THE ITA NO. 1213 /MUM/ 2015 SHRI BAHRAM N. VAKIL 2 STATEMENT OF SHARES ENCLOSED BY ASSESSEE AT PAGES 4 TO 10 OF ASSESSEES PAPER BOOK, WHEREIN COMPLETE DETAILS OF SHARES PURCHASED AND SOLD ON SHORT TERM BASIS IS FILED. WE FIND THAT THE ASSESSEE HAS RETAINED THE SHARES FOR MORE THAN ONE DAY IN EACH OF THE CASE AND TAKEN DELIVERY AND KEPT IN THE DEMAT A/C MAINTAINED WITH THE PORTFOLIO MANAGER KODAK SECURITIES LTD. WE ARE OF THE VIEW T HAT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE HAS KEPT THESE SHARES AS INVESTMENT AND TAKEN PHYSICAL DELIVERY OF SHARES AND AFTER TAKING PHYSICAL DELIVERY KEPT THE SAME IN DEMAT A/C MAINTAINED WITH PORTFOLIO MANAGER KODAK SECURITIES LT D. FURTHER, THE ASSESSEE HAS NOT BORROWED ANY MONEY FOR THE INVESTMENT RATHER HE HAS INVESTED HIS SURPLUS FUNDS FOR PURCHASE AND SALE OF SHARES. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INTENTION OF THE ASSESSEE OR OBJECTIVE OF THE ASSESSEE IS IN VESTMENT AND THE INTENTION OF THE ASSESSEE AT THE TIME OF MAKING INVESTMENT SHOULD BE THE GUIDING FACTOR FOR DECIDING THE ISSUE. ACCORDINGLY, IN THE PRESENT CASE, WE ARE OF THE VIEW THAT GAINS ARISING OUT OF THE SALE AND PURCHASE OF SHARES IS ASSESSABLE AS CAPITAL GAINS. FOR THE PURPOSE OF CONSISTENCY ALSO, THIS ISSUE HAS BEEN SETTLED BY THE CBDT CIRCULAR NO.6 OF 2016, DATED 29 - 02 - 2016, WHERE CBDT HAS CLARIFIED BY ISSUING THE FOLLOWING CIRCULAR: - SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES 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, WHET HER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK - IN - TRADE OR PERSONAL ASSETS 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. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT 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 DETERMINATION AND HAS LED TO A LOT OF UNCERTAIN TY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFERENT 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 CIRCULAR 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 APPLICATION 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 PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN ITA NO. 1213 /MUM/ 2015 SHRI BAHRAM N. VAKIL 3 TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHAR ES AND SECURITIES (LE. 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 RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHAL L TAKE INTO ACCOUNT THE FOLLOWING 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/SECURITIES WOULD BE TREATED AS IT S 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 TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SA ME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFEREN T/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) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED B Y THE CBDT 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL NOT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPITAL GAIN / SHORT TERM CAPITA L LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SALE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF S HARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. IN VIEW OF THE ABOVE ADMITTED POSITION THAT THE ASSESSEE IS CONSISTENTLY DISCLOSING THIS GAIN ARISING OU T OF SALE AND PURCHASE OF SHARES IN MUTUAL FUND UNDER THE HEAD OF CAPITAL GAINS AND REVENUE IS ACCEPTING THE SAME. THE ASSESSEE HAS KEPT THIS AS INVESTMENT AND TAKEN PHYSICAL DELIVERY AND KEPT THESE SHARES IN DEMAT A/C. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE HAS RIGHTLY DISCLOSED THE SAME AS CAPITAL GAINS AND WE ALLOW THE CLAIM ITA NO. 1213 /MUM/ 2015 SHRI BAHRAM N. VAKIL 4 OF THE ASSESSEE. THIS ISSUE OF REVENUES APPEAL IS DISMISSED AND THAT OF ASSESSEE IS ALLOWED. 4. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH AND IN ORDER TO MAINTAIN CONSISTENCY WITH EARLIER YEAR THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH MARCH, 2018 . SD/ - SD/ - ( G.S. PANNU ) ( SANDEEP GOSAIN ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 9 TH MARCH, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) - 30 , MUMBAI 4. THE CIT - 19 , MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.