ACIT, Circle - 31, Kolkata, Kolkata V. Pradyumna Dalmia, Kolkata

ITA 1280/KOL/2010

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3351 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 01-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2010
• Court: TRIBUNAL
• Department Lawyers: SANJAY M UKHERJEE JCITLD
• Assessee Lawyers: R N BAJORIA
• Keywords: Capital asset; Business income; Rule of consistency; Earning of tax free income; Retrospective amendment; Permanent establishment; Advance ruling; Question of law; Futures and options
• Section: 143(3); 14A; 10B; 145

Judgement Text

ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 1280/KOL/2010 A.Y: 2007-08 A.C.I.T, CIR-31, KOLKATA VS. SHRI PRADYUMNA DALMIA PAN: AFNPD 6485Q (APPELLANT) (RESPONDEN T) ITA NO. 1245/KOL/2010 A.Y: 2007-08 SHRI PRADYUMNA DALMIA VS. A.C.I.T, CIR-31, KOLKATA (APPELLANT) (RESPONDE NT) FOR THE APPELLANT: SHRI SANJAY MUKHERJEE, J CIT, LD. SR.DR FOR THE RESPONDENT: SHRI R.N BAJ ORIA, SR. ADVOCATE & SHRI A.K. GUPTA, FCA, LD.AR DATE OF HEARING: 15-12--2015 DATE OF PRONOUNCEMENT: 20 -0 1-2016 ORDER SHRI M.BALAGANESH, AM THESE CROSS APPEALS OF THE REVENUE AND ASSESSEE AR ISE OUT OF THE ORDER OF THE LEARNED CIT(A)-XIX, KOLKATA IN APPEAL NO. 113/CIT(A )-XIX/ACIT,CRICLE-31/2009- 10 DATED 30.4.2010 FOR ASST YEAR 2007-08 AGAINST TH E ORDER OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT). THESE APPEALS ARE TAKEN UP TOGETHER AND DISPOSED OFF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 2 ITA NO. 1245/KOL/2010 ASSESSEES APPEAL 2. THE ONLY ISSUE TO BE DECIDED IN ASSESSEES AP PEAL FOR ASST YEAR 2007-08 IS AS TO WHETHER DISALLOWANCE U/S 14A OF THE ACT READ WITH R ULE 8D OF THE RULES COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS AN INDIVIDUAL DERIVING INTEREST INCOME FROM BUSINESS OF ADVANCING OF LOAN , INTERES T FROM BANK DEPOSITS, DIRECTOR FEES, DIVIDEND, INTEREST ON PUBLIC PROVIDENT FUND , LONG TERM AND SHORT TERM CAPITAL GAINS ON SALE OF SHARES. THE ASSESSEE DERIVED A DIVIDEN D INCOME OF RS.5,29,685/-, INTEREST INCOME FROM PUBLIC PROVIDENT FUND OF RS. 2,48,879/- AND LONG TERM CAPITAL GAINS OF RS. 14,03,563/- (EXEMPT) FOR THE ASST YEAR 2007- 08 WHICH DO NOT FORM PART OF TOTAL INCOME. THE LEARNED AO CALLED FOR INFORMATION REGA RDING THE INCURRENCE OF EXPENDITURE BY THE ASSESSEE FOR THE PURPOSE OF EARN ING THIS DIVIDEND INCOME. IN RESPONSE TO THIS, THE ASSESSEE REPLIED THAT NO EXPE NSES WERE INCURRED FOR THE PURPOSE OF DERIVING THE DIVIDEND INCOME. THE LEARNED AO NOT S ATISFIED WITH THE REPLY SOUGHT TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT REA D WITH RULE 8D OF THE RULES AND DISALLOWED RS. 3,41,676/- WHICH WAS UPHELD BY THE L EARNED CIT(A) ON FIRST APPEAL. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUND:- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER OF INCOME TAX-XIX, KOLKATA ERR ED IN CONFIRMING THE DISALLOWANCE OF RS.3,41,676 MADE BY THE ASSESSING OFFICER U/S. 144A OF THE I T ACT, 1961 RE AD WITH RULE 8D OF THE I.T RULES. 2.2. THE LEARNED AR ARGUED THAT THE PROVISIONS OF RULE 8D OF THE IT RULES COULD BE MADE APPLICABLE ONLY FROM ASST YEAR 2008-09 AS HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ& BOYCE MANU FACTURING CASE REPORTED IN 328 ITR 81 (BOM) AND FAIRLY PLEADED THAT SINCE PROVISIONS OF SECTIO N 14A OF THE ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 3 ACT HAS GOT RETROSPECTIVE APPLICATION IN THE STATUT E, DISALLOWANCE THEREON COULD BE RESTRICTED TO 1% OF EXEMPT INCOME AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS R.R.SEN & BROTHERS P LTD IN G .A.NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDE D TO THE SUBMISSION OF THE LEARNED AR. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE R ELEVANT ASSESSMENT YEAR UNDER APPEAL IS 2005-06 AT WHICH POINT OF TIME , THE PROV ISIONS OF RULE 8D WAS NOT IN FORCE AND THE SAME WAS MADE APPLICABLE ONLY FROM ASST YEA R 2008-09 AS DECIDED IN THE DECISION OF GODREJ & BOYCE MANUFACTURING. HOWEVER, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DERIVED TAXABLE INCOME AS WELL AS TAX FREE INCOME AND INCURRED EXPENDITURE FOR DERIVING BOTH THE INCOMES AND HENCE DISALLOWANCE IS DEFINITELY WARRANTED IN TERMS OF SECTION 14A WHICH IS BROUGHT IN THE STATUTE BOOK WITH RETROSPECTIVE EFFECT FROM 1.4.1962. THE DISALLOWA NCE HAD TO BE MADE ONLY ON AN ESTIMATED BASIS WITH REGARD TO THE EXPENDITURE INCU RRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS M/S R.R.SEN & BROTHERS P LTD IN GA NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013 HAD HELD AS UNDER:- THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRE D BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDE R INCOME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1% OF SUCH DIV IDEND INCOME, WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT, WE D IRECT THE LEARNED AO TO DISALLOW 1% OF EXEMPT INCOME UNDER THIS ISSUE AND ACCORDINGL Y, THE GROUND NO.1 RAISED BY THE ASSESSEE IN ITA NO. 1245/KOL/2010 IS PARTLY ALLOWED . 2.4 THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 4 ITA NO. 1280/KOL/2010 DEPARTMENTAL APPEAL 3. THE ONLY ISSUE TO BE DECIDED IN THE APPEAL OF T HE REVENUE FOR ASST YEAR 2007-08 IS AS TO WHETHER THE LEARNED CITA WAS JUSTIFIED IN HOLDING THAT THE SURPLUS ARISING OUT OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAINS AS AGAINST BUSINESS INCOME TREATED BY THE LEARNED AO, CONSIDERING THE FREQUENCY OF TRANSACTIONS, PERIOD OF HOLDING AND MAGNITUDE OF TR ANSACTION OF SHARES. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LE ARNED AO NOTICED THAT THE ASSESSEE HAS SHOWN INCOME FROM SHORT TERM CAPITAL GAINS IN R ESPECT OF SURPLUS ARISING OUT OF PURCHASE AND SALE OF SHARES AMOUNTING TO RS. 57,27, 722/-. THE ASSESSEE ARGUED THAT HE IS HAVING ONLY INVESTMENT PORTFOLIO IN HIS BALANCE SHEET AND HENCE THE RESULTANT SURPLUS WOULD ONLY BE TAXABLE AS CAPITAL GAINS. THE ASSESSEE HAD ALSO DERIVED LONG TERM CAPITAL GAINS OF RS. 14,03,563/- WHICH WAS CLAIMED AS EXEMPT U/S 10(38) OF THE ACT BY THE ASSESSEE. THE LEARNE D AO OBSERVED THAT : - THE FREQUENCY OF TRANSACTIONS IN SHARES WAS HIGH AND THE NATURE OF TRANSACTION AMOUNTED TO TRADING RATHER THAN INVESTMENT. - JUST BECAUSE THE ASSESSE HAS BEEN SHOWING THE TRA NSACTIONS AS LONG TERM AND SHORT TERM INVESTMENTS IN THE EARLIER YEARS, IT CANNOT BE HELD THAT TRANSACTIONS THIS YEAR ALSO SHALL BE OF THE SAME NATURE. - THE ASSESSEES INTENTION CLEARLY IS SELLING OF SH ARES FOR EARNING QUICK PROFITS AND NOT EARNING THE DIVIDENDS. - THE FREQUENCY AND TIME OF HOLDING OF SHARES SUGGE STS THAT THE TRANSACTIONS ARE ADVENTURE IN THE NATURE OF TRADE. JUST BECAUSE THE ASSESSEE HAS CLAIMED THAT THE TRANSACTIONS ARE IN THE NATURE OF INVESTMENT DOES N OT LEAD TO THE CONCLUSION THAT THE TRANSACTIONS ARE IN THE NATURE OF INVESTMENTS. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 5 BASED ON THESE OBSERVATIONS, THE LEARNED AO SHIFTED THE SHORT TERM CAPITAL GAINS OF RS. 57,27,722/- TO BUSINESS INCOME , BUT HOWEVER , HE GRANTED EXEMPTION FOR LONG TERM CAPITAL GAINS OF RS. 14,03,563/- U/S 10(3 8) OF THE ACT. ON FIRST APPEAL, THE LEARNED CIT(A) APPRECIATED THE CONTENTIONS AND ACCEPTED THE CLAIM OF SHORT TERM CAPITAL GAINS OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THE LD.CIT(A) ERRED IN BOTH LAW AND FACT IN TREA TING THE INCOME OF RS. 57,27,722/- AS SHORT TERM CAPITAL GAIN INSTEAD OF B USINESS INCOME WITHOUT CONSIDERING THE FREQUENCY OF PURCHASE AND SALES OF SHARES, PERIOD OF HOLDING AND MAGNITUDE OF TRANSACTIONS OF SHARES . 2. THE LD.CIT(A) ALSO ERRED IN LAW WITHOUT RELYING ON CBDT CIRCULAR NO. 4 OF 2007 AND THE DECISION OF AUTHORITY FOR ADVANCE R ULING IN 288 ITR 641 ON THIS SUBJECT. 3.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO. IN ADDITION TO THIS, HE SUBMITTED THAT OUT OF THE TOTAL GAINS O N SHARE TRANSACTIONS OF RS. 57,27,722/- DERIVED BY THE ASSESSEE, A SUM OF RS. 53,55,489/- W AS DERIVED OUT OF SALE OF 35231 SHARES OF TEXMACO LTD. THE LEARNED DR SUBMITTED TH AT THE STOCK EXCHANGE RATES OF TEXMACO LTD BOTH HIGH AND LOW FIGURES FOR EACH MONT H COMMENCING FROM APRIL 2005 TO MARCH 2006 (ASST YEAR 2006-07) AND FROM APRIL 20 06+ TO MARCH 2007 (ASST YEAR 2007-08) DOWNLOADED FROM THE OFFICIAL WEBSITE. BA SED ON THIS , HE ARGUED THAT THE DIVIDENDS AT THE RATE OF 30% WERE DECLARED BY TEXMA CO LTD ON 12.5.2006 AND IMMEDIATELY AFTER THE SAME, THE SHARES OF TEXMACO L TD DWINDLED TO RS. 751/- IN JUNE 2006 AS AGAINST RS. 1,018/- IN MAY 2006. THE LEAR NED DR ARGUED THE HOLDING PERIOD OF MOST OF THE SHARES WERE LESS THAN 30 DAYS AND HE NCE THE INTENTION OF THE ASSESSEE WAS ONLY TO EARN PROFITS OUT OF BUYING AND SELLING OF SHARES AND NOT TO HOLD THE SAME AS INVESTMENT FOR LONG TERM PURPOSES. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 6 3.3. IN RESPONSE TO THIS, THE LEARNED AR REPLIED T HAT ALL THE SHARES WERE HELD FOR THE PURPOSE OF LONG TERM INVESTMENTS AND EARNED SUBSTAN TIAL DIVIDENDS AND THERE WAS NO MOTIVE TO USE THE SHARES FOR THE PURPOSE OF TRADING AND THAT THE INTENTION WAS TO INVEST IN SHARES AND THAT THE SHARES WERE HELD AS LONG TER M INVESTMENT ONLY IN EARLIER YEARS AND GAINS FROM SALE OF INVESTMENTS ALWAYS ASSESSED UNDER THE HEAD CAPITAL GAINS. HE FURTHER ARGUED THAT THE ASSESSEE HAD MADE INVESTMEN TS IN EARLIER YEARS AND INCOME ARISING FROM SALE OF INVESTMENT HAS BEEN ACCEPTED A ND ASSESSED AS INCOME FROM CAPITAL GAINS BY THE REVENUE. HE FURTHER ARGUED T HAT THE CBDT CIRCULAR NO. 4 OF 2007 NOWHERE STATES THAT EVERY GAIN ARISING FROM THE S ALE OF SHARES HAS TO BE ASSESSED AS BUSINESS INCOME. HE FURTHER EXPLAINED THAT ASSE SSEE HAS EARNED SHORT TERM CAPITAL GAINS OF RS. 53,55,489/- FROM SALE OF SHARES OF M/S TEXMACO LTD WHICH WAS ACQUIRED BY HIM IN FINANCIAL YEAR 2005-06 AND KEPT AS INVEST MENT IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2006. HE FURTHER ARGUED THAT T HE ASSESSEE HAD DERIVED BOTH LONG TERM AS WELL AS SHORT TERM CAPITAL GAINS ON SALE OF 2269 SHARES OF TEXMACO LTD. THE CLAIM OF EXEMPTION FOR LONG TERM CAPITAL GAINS HAS BEEN ACCEPTED BY THE LEARNED AO FOR THE ASSESSMENT YEAR UNDER APPEAL. HE ARGUED TH AT WHEN A PARTICULAR SCRIP HELD AS INVESTMENT BY THE ASSESSEE IS SOLD IN THE OPEN MARK ET THROUGH A RECOGNIZED STOCK EXCHANGE, HOW CAN THE LEARNED AO DISPUTE THE SHORT TERM CAPITAL GAIN ARISING OUT OF SALE OF SUCH SCRIP WHILE ACCEPTING THE LONG TERM CA PITAL GAINS THEREON. HENCE THE VIEW OF THE LEARNED AO IS FALLACIOUS ONLY WITH AN INTENT TO AVOID CONFERRING CONCESSIONAL RATE OF TAX ON SHORT TERM CAPITAL GAINS TO THE ASSE SSEE IN TERMS OF SECTION 111A OF THE ACT. WITH REGARD TO THE COMMENTS OF THE LEARNED AO ON THE HOLDING PERIOD OF SHARES AND FREQUENCY OF TRANSACTIONS, THE LEARNED AR ARGUE D THAT IT IS FOR THE ASSESSEE TO DECIDE WHEN TO INVEST AND WHEN TO EXIT FROM THE RES PECTIVE SHARES. THE LEARNED AR INFORMED THAT THE PART OF THE SHARES OF M/S TEXMACO LTD WERE SOLD BASED ON FAVOURABLE MARKET CONDITIONS AND THE SAID COMPANY A ND ASSESSEE CONTINUED TO RETAIN 20000 SHARES OF M/S TEXMACO LTD IN ITS BALANCE SHEE T UNDER INVESTMENT PORTFOLIO. THE LEARNED AR FURTHER ARGUED THAT THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ONLY UN DER INVESTMENT PORTFOLIO AND THE ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 7 SAME HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YE ARS IN THE SCRUTINY ASSESSMENT PROCEEDINGS AND IN SUBSEQUENT ASSESSMENT YEAR. IN RESPONSE TO THE ARGUMENT OF THE LEARNED DR THAT PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, THE LEARNED AR ARGUED THAT THE PRINCIPLE OF CONSIST ENCY CANNOT BE GIVEN A GO BYE AND FOR WHICH HE PLACED RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RADHASAOMI SATSANG REPORTED IN 193 ITR 321(SC) . THE LEARNED AR FURTHER ARGUED THAT EVEN THE INVESTMENT ACTIVITIES WERE CAR RIED OUT BY THE ASSESSEE ONLY WITH AN INTENTION TO MAKE PROFITS OUT OF SUCH INVESTMENTS W HICH ARE DULY OFFERED TO TAX AS CAPITAL GAINS BY THE ASSESSEE. HENCE THE REASONING OF THE LEARNED AO THAT THE ASSESSEE HAD MADE PROFITS WOULD NOT VITIATE THE INTENTION OF CARRYING ON THE INVESTMENT ACTIVITIES OF THE ASSESSEE. THE LEARNED AR EXPLA INED THE ENTIRE TRANSACTIONS FROM THE DETAILS FILED IN THE PAPER BOOK STATING THAT MOST O F THE SHARES WERE HELD FOR MORE THAN ONE YEAR ALSO FOR WHICH LONG TERM CAPITAL GAINS WER E REPORTED BY THE ASSESSEE AND IT IS FOR THE ASSESSEE TO DECIDE WHEN TO EXIT FROM THE RE LEVANT INVESTMENT DEPENDING UPON THE FAVOURABLE MARKET CONDITIONS. ACCORDINGLY, HE PRAYED FOR CONFIRMATION OF THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE CONTAINING THE SCRUTINY ASSESSMENT ORDER OF THE ASSESSEE FOR THE ASST YEAR 2006-07 , ORDER OF LEARNED CIT(A) FOR ASST YEAR 2008-09 TREATING THE SURPLUS FROM SHA RE TRANSACTIONS AS CAPITAL GAINS INSTEAD OF BUSINESS INCOME, AGAINST WHICH ORDER, WE ARE INFORMED BY THE LEARNED AR THAT NO FURTHER APPEAL HAS BEEN PREFERRED BY THE RE VENUE BEFORE US . STATEMENT OF TOTAL INCOME FOR THE ASST YEARS 2005-06 TO 2008-09 ; AUD ITED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31.3.2007 & 31.3.2006 AND DETAILS OF SH ORT TERM CAPITAL GAINS SCRIP WISE. 4.1. WE FIND THAT THE ASSESSEE IS ENGAGED IN INVE STMENT ACTIVITY OF PURCHASE AND SALE OF SHARES FOR YEARS TOGETHER AND THE SAME HAS BEEN ACCEPTED AS CAPITAL GAINS BY THE REVENUE. HENCE WE FIND LOT OF FORCE IN THE DECISIO N OF THE HONBLE APEX COURT RELIED ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 8 ON BY THE LEARNED AR IN THE CASE OF RADHASAOMI SATS ANG REPORTED IN 193 ITR 321 (SC) ON THE PRINCIPLE OF CONSISTENCY. WE ARE ALSO IN AGREEMENT WITH THE ARGUMENTS OF THE LEARNED AR THAT JUST BECAUSE THE ASSESSEE HAD M ADE PROFITS OUT OF ITS INVESTMENT ACTIVITIES, THE SAME CANNOT BE CONCLUDED THAT THE A SSESSEEE HAD CARRIED ON WITH AN INTENTION TO DO BUSINESS. FOR THAT MATTER, EVERY A SSESSEE WOULD ONLY TRY TO MAKE PROFITS OUT OF THEIR ACTIVITIES BE IT INVESTMENT OR BUSINESS . WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE INTENDED TO MAKE ONLY PROFITS FROM DEALING IN SHARES OR WHETHER THE SHARES WERE PURCHASED WITH A VIEW TO EARN DIVID END INCOME WHICH IS ALSO PROFIT. THE GAINS ARISING IN THE FORMER CASE WOULD BE IN TH E NATURE OF TRADE AND HENCE BUSINESS INCOME AND THE LATTER WOULD BE FOR THE PURPOSE OF I NVESTMENT AND HENCE RESULTANT GAIN WOULD BE CAPITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD REPORTED BOTH DIVIDEND INCOME AND OFFERED SHORT TERM AND LONG TERM CAPITAL GAINS ON THE INVESTMENT ACTIVITIES. WE ALSO FIND THAT THE EXEMPTION CLAIMED FOR LONG TE RM CAPITAL GAINS OF RS. 14,03,563/- HAS BEEN ACCEPTED AND GRANTED BY THE LE ARNED AO IN THE ASSESSMENT YEAR UNDER APPEAL. 4.2. WHETHER INTRODUCTION OF CONCESSIONAL RATE OF TAX ON SHORT TERM CAPITAL GAINS AND EXEMPTION OF LONG TERM CAPITAL GAINS PURSUANT T O INTRODUCTION OF SECURITIES TRANSACTION TAX (STT) WOULD CHANGE THE CHARACTER OF THE TRANSACTION WE FIND THAT THE ENTIRE GAMUT OF TRANSACTIONS ARE T O BE VIEWED IN THE CONTEXT OF DOMINANT INTENTION OF THE ASSESSEE WHETHER TO HOLD A PARTICULAR SCRIP IN INVESTMENT PORTFOLIO OR IN TRADING PORTFOLIO. WE FIND THAT THE LEVY OF SECURITIES TRANSACTION TAX HAS BEEN INTRODUCED IN THE STATUTE WITH EFFECT FROM 1 ST OCTOBER 2004 RELEVANT TO ASST YEAR 2005-06, WHEREIN IF A SALE OF SHARES TRANSACTI ON IS ROUTED THROUGH A RECOGNIZED STOCK EXCHANGE AND SECURITIES TRANSACTION TAX IS SU FFERED BY THE ASSESSEE, THEN THE LONG TERM CAPITAL GAINS ARISING ON SUCH SALE WOULD BE EX EMPT U/S 10(38) OF THE ACT. SIMILARLY WITH EFFECT FROM 1.4.2005, THE SHORT TERM CAPITAL GAINS , IF SUBJECTED TO LEVY OF SECURITIES TRANSACTION TAX, WOULD BE LIABLE FOR CONCESSIONAL RATE OF TAX AS AGAINST THE ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 9 NORMAL RATE OF TAX @ 30%. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD NOT CONVERTED ANY OF THE SHARES UNDER INVESTMENT CATEGORY INTO ST OCK IN TRADE. 4.2.1. AS STATED SUPRA WE FIND THAT CERTAIN SHARES UNDER INVESTMENT PORTFOLIO WERE HELD BY THE ASSESSEE FOR QUITE A LONG TIME. JUST BECAU SE IF DURING THE MID OF THE RELEVANT FINANCIAL YEAR, CERTAIN TAX BENEFITS HAVE BEEN GIVE N IN RESPECT OF CAPITAL GAINS, THAT CANNOT, IN ANY WAY, LEAD TO AN ASSUMPTION OR PRESUM PTION THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES WAS THAT OF A TRADER AND NOT OF AN INVESTOR. THE TREATMENT OF THE INVESTMENT IN THE BOOKS OF ACC OUNTS OF THE ASSESSEE IS ALSO A RELEVANT GUIDING FACTOR. THE ISSUE OF TREATMENT O F INCOME FROM SHARE TRANSACTION AS SHORT TERM CAPITAL GAINS OR BUSINESS INCOME HAS IN FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT 2004 WITH EFFECT FROM 1.10 .2004. IT IS AN ADMITTED FACT ON RECORD THAT PRIOR TO AMENDMENT WHEN THE TAX ON SHOR T TERM CAPITAL GAINS WAS AT PAR WITH BUSINESS INCOME, THE DEPARTMENT HAS BEEN CONSI STENTLY ACCEPTING THE TREATMENT OF INCOME BY THE ASSESSEE AS CAPITAL GAINS. MERELY BE CAUSE THE RATE OF TAX HAS BEEN REDUCED IN RESPECT OF SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS HAVE BEEN MADE EXEMPT DURING THE YEAR BY WAY OF AN AMENDMENT TO THE PROVISIONS , THAT ITSELF, CANNOT BE A GROUND FOR THE LEARNED AO TO DEPART FRO M ITS CONSISTENT STAND OF TREATING THE ASSESSEE AS AN INVESTOR AND THEREBY TO CHARGE T HE INCOME EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS BUSINESS INCOME. FROM THE RECORDS, IT IS FOUND THAT AT THE TIME OF PURCHASE AND SALES EVEN DURING THE PERIOD P RIOR TO 1.10.2004, THE ASSESSEE WAS NOT GUIDED OR INFLUENCED BY LOWER TAX RATE IN CASE OF SHORT TERM CAPITAL GAINS AS THE RATE FOR BUSINESS INCOME AND SHORT TERM CAPITAL GAINS WA S AT PAR. THE ASSESSEE, HOWEVER, WAS TREATING HIMSELF AS AN INVESTOR AND KEEPING THE DELIVERY BASED SHARES AS INVESTMENTS IN HIS ACCOUNT IRRESPECTIVE OF THE PROB ABLE TAX IMPLICATION AS THERE WERE NO SUCH TAX IMPLICATIONS AS DISCUSSED ABOVE. THUS, TH E INTENTION OF THE ASSESSEE, WHILE PURCHASING THE SHARE, IS THE IMPORTANT AND GUIDING FACTOR AS TO WHETHER THE SAME WAS PURCHASED WITH AN INTENTION OF INVESTMENT OR TRADIN G. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 10 4.3. INTENTION OF THE ASSESSEE WE FIND THE INTENTION OF THE ASSESSEE TO MAINTAIN T HE SHARE TRANSACTIONS UNDER INVESTMENT PORTFOLIO FROM THE VERY BEGINNING IS QUI TE EVIDENT FROM THE BOOKS OF ACCOUNTS WHEREIN ASSESSEE HAD CONSIDERED THE SHARE PURCHASES UNDER INVESTMENT CATEGORY. THIS PRACTICE HAS NOT BEEN FOUND FAULT B Y THE REVENUE IN THE EARLIER ASSESSMENT YEARS EVEN IN SCRUTINY PROCEEDINGS. IT IS ALSO NOT IN DISPUTE THAT IN RESPECT OF SHARES RETAINED UNDER INVESTMENT CATEGORY THE ASSESSEE HAD TAKEN DUE DELIVERY OF SHARES ON ITS PURCHASE AND GIVEN DUE DELIVERY OF SH ARES ON ITS SALE. IT IS SETTLED LAW THAT A PARTICULAR INCOME IS FROM BUSINESS OR FROM I NVESTMENT MUST BE DECIDED ACCORDING TO THE GENERAL COMMON SENSE VIEW OF THOSE WHO DEAL WITH THOSE MATTERS IN THE PARTICULAR CIRCUMSTANCES. THE MOST EXCRUCIATIN G FACTOR TO BE LOOKED INTO AT THIS JUNCTURE IS THE CONDUCT OF THE ASSESSEE. 4.4. FREQUENCY OF TRANSACTIONS THE NEXT POINT TO BE ADDRESSED IN THIS ISSUE IS WHE THER THE FREQUENCY OF TRANSACTIONS WOULD ALONE INDICATE THE TRADING ACTIVITY. IN THIS REGARD, WE FIND THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL HAD AN OCCASION TO CONSIDER THE SAME IN THE CASE OF JANAK S. RANGAWALLA VS ACIT REPORTED IN (2007) 11 SOT 627 (M UM), WHEREIN IT WAS HELD THAT : IT IS THE INTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. T HOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL N OT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURC HASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CA PITAL GAINS BOTH ON LONG TERM AND SHORT TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SH ARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION TO HOLD THE SHAES IN INDIAN COMP ANIES AS AN INVESTMENT ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 11 AND NOT AS STOCK IN TRADE. THE MERE MAGNITUDE OF T HE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING A SSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. THE ASSES SING OFFICER IS DIRECTED TO SET OFF THE LONG TERM CAPITAL LOSS AGAINST THE SHOR T TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION. THE GROUNDS OF APPEA L RAISED BY THE ASSESSEE ARE ALLOWED. 4.4.1. WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS MERLIN HOLDING P LTD REPORTED IN (2015) 375 ITR 118 (CAL) FOR THE ASST YEARS 2005- 06 AND 2006-07 HAD HELD AS BELOW:- HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD ADDUCED PROOF TO SHOW THAT SOME TRANSACTIONS WERE INTENDED TO BE BUS INESS TRANSACTIONS, SOME TRANSACTIONS WERE INTENDED TO BE BY WAY OF INV ESTMENT AND SOME TRANSACTIONS WERE BY WAY OF SPECULATION. THE REVENU E HAD NOT BEEN ABLE TO FIND FAULT FROM THE EVIDENCE ADDUCED. THE MERE FACT THAT THERE WERE 1,000 TRANSACTIONS IN A YEAR OR THE MERE FACT THAT THE M AJORITY OF THE INCOME WAS FROM THE SHARE DEALING OR THAT THE MANAGING DIRECTO R OF THE ASSESSEE WAS ALSO A MANAGING DIRECTOR OF A FIRM OF SHARE BROKERS COULD NOT HAVE ANY DECISIVE VALUE. THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAD CONCURRENTLY HELD AGAINST THE VIEWS OF THE ASSESSIN G OFFICER. ON THE BASIS OF THE SUBMISSIONS MADE ON BEHALF OF THE REVENUE, IT WAS NOT POSSIBLE TO SAY THAT THE VIEW ENTERTAINED BY THE COMMISSIONER (APPE ALS) OR THE TRIBUNAL WAS NOT A POSSIBLE VIEW. THEREFORE, THE DECISION OF THE TRIBUNAL COULD NOT BE SAID TO BE PERVERSE. NO FRUITFUL PURPOSE WAS LIK ELY TO BE SERVED BY REMANDING THE MATTER . 4.4.2. WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS H K FINANCIERS (P) LTD REPORTED IN (2015) 61 TAXMANN.CO M 175 (CAL) FOR THE ASST YEAR 2007-08 HAD HELD AS BELOW:- 3. THE ASSESSING OFFICER HAS LAID STRESS ON MOTIVE . TO BEGIN WITH MOTIVE IS SOMETHING, WHICH IS LOCKED IN THE MIND OF THE PE RSON. NO DIRECT EVIDENCE AS REGARDS MOTIVE IS POSSIBLE. MOTIVE CAN BE INFERR ED FROM THE CONDUCT OF THE PERSON CONCERNED BUT THAT IS BOUND TO REMAIN AN INFERENCE, WHICH MAY OR MAY NOT BE CORRECT. WE HAVE TODAY DICTATED A JUD GMENT IN THE CASE OF CIT V. MERLIN HOLDING (P.) LTD [IT APPEAL NO. 101 O F 2011, DATED 12-5- 2015] WHEREIN THE FOLLOWING VIEWS HAVE BEEN EXPRESS ED BY US: ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 12 'FROM THE TENOR OF THE SUBMISSIONS MADE BY MR. SARA F NOTED ABOVE, IT APPEARS THAT THE CASE OF THE REVENUE IS THAT IN THE FACTS OF THE CASE THE FINDING THAT THE INCOME WAS EARNED FROM INVESTM ENT COULD NOT HAVE BEEN RECORDED. IF THAT IS THE PROPOSITION THE N IT IS FOR THE REVENUE TO SHOW THAT SUCH A FINDING IS NOT POSSIBLE IN LAW. THAT WAS NOT EVEN SUGGESTED. WHAT REMAINS THEN IS A QUESTION OF APPRECIATION OF EVIDENCE, WHICH HAS ALREADY BEEN DO NE. NO FRUITFUL PURPOSE IS LIKELY TO BE SERVED BY REMANDING THE MAT TER. WE DO NOT FIND ANY ISSUE, WHICH HAS REMAINED UNATTENDED. FOR THE AFORESAID REASONS, WE HOLD THAT THE JUDGMEN T UNDER CHALLENGE IS NOT PERVERSE.' 4. THE JUDGMENT IN THE CASE OF DALHOUSIE INVESTME NT TRUST CO. LTD. V. CIT [ 1968] 68 ITR 486 (SE) REFERRED BY THE ASSESSING O FFICER DOES NOT ASSIST THE REVENUE BECAUSE IN THAT ON APPRECIATION OF FACTS IT WAS FOUND AS FOLLOWS:- 'ON THE FACTS, THAT THE APPELLANT DEALT WITH THE SH ARES OF MCLEOD AND CO. AND THE ALLIED COMPANIES AS STOCK-IN-TRADE, THAT THEY WERE IN FACT PURCHASED EVEN INITIALLY NOT AS INVESTMENTS BUT FOR THE PURPOSE OF SALE AT A PROFIT AND THEREFORE THE TRANS ACTIONS AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. THE PROFIT DERIVED BY THE APPELLANT FROM THE SALE OF SHARES WAS THEREFORE A R EVENUE RECEIPT AND AS SUCH LIABLE TO INCOME-TAX.' 5. THE FACTS OF THE CASE ARE NOT SHOWN TO BE SIMI LAR WITH THOSE IN THE CASE OF DALHOUSIE INVESTMENT. 6. FOR THE AFORESAID REASONS, WE ARE OF THE OPINIO N THAT THE VIEWS EXPRESSED BOTH BY THE CIT AND THE TRIBUNAL FOR REAS ONS EXPRESSED THEREIN ARE A POSSIBLE VIEW. IT IS, THEREFORE, NOT OPEN TO THE REVENUE TO CONTEND THAT THE VIEW TAKEN BY THE TRIBUNAL IS PERVERSE. QU ESTION FORM ULATED AT THE TIME OF ADMISSION OF THE APPEAL DOES NOT APPEAR TO HAVE BEEN CORRECTLY FORMULATED. THE QUESTION COULD ONLY BE, WHETHER THE VIEWS EXPRESSED UPON APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E WERE PERVERSE. THE QUESTION IS NOW FORMULATED AND IS ANSWERED IN THE N EGATIVE. THE APPEAL IS THUS DISMISSED. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 13 4.5. EXISTENCE OF BORROWED FUNDS THE NEXT POINT TO BE ADDRESSED IN THIS ISSUE IS THE EXISTENCE OF BORROWED FUNDS FOR MAKING INVESTMENTS. IT IS FOUND FROM THE MATERIAL S AVAILABLE ON RECORD THAT NO BORROWINGS WERE EFFECTED BY THE ASSESSEE FOR THE PU RPOSE OF MAKING INVESTMENT IN SHARES. THIS IS ALSO QUITE EVIDENT FROM THE FACT THAT THE LEARNED AO WHILE RESORTING TO MAKE ADDITIONS U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES, DID NOT RESORT TO MAKE ANY ADDITION IN TERMS OF RUL E 8D(2)(II) OF THE RULES. THIS GOES TO PROVE THAT THE OWN FUNDS HAVE BEEN UTILISED FOR INVESTMENT ACTIVITIES OF THE ASSESSEE. 4.5.1. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF JCIT VS BAJRANGLAL CHOWDHURY REPORTED IN (2015) 58 TAXMANN. COM 204 (CAL) HAD HELD AS BELOW:- L. THE APPEAL IS DIRECTED AGAINST A JUDGMENT AND OR DER DATED MARCH 13, 2014, BY WHICH THE LEARNED INCOME-TAX APPELLATE TRI BUNAL DISMISSED AN APPEAL PREFERRED BY THE REVENUE. 2. THE ASSESSING OFFICER HELD THAT THE TRANSACTION IN SHARES UNDERTAKEN BY THE ASSESSEE WAS IN THE NATURE OF A BUSINESS TRANSA CTION AND NOT INVESTMENT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, AN APPEAL WAS PREFERRED BY THE ASSESSEE WHICH WAS ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) HOLDING THAT THE TRANSACTION WAS REALLY I N THE NATURE OF AN INVESTMENT. THE APPELLATE AUTHORITY DISCUSSED REASO NS AS TO WHY WAS THE TRANSACTION IN THE NATURE OF AN INVESTMENT. THE REV ENUE PREFERRED AN APPEAL. THE LEARNED TRIBUNAL AGREEING WITH THE APPE LLATE AUTHORITY DISMISSED THE APPEAL. THE REVENUE HAS ONCE AGAIN CO ME UP IN APPEAL BEFORE US. 3. MR. SARAF, LEARNED ADVOCATE APPEARING FOR THE RE VENUE, STRENUOUSLY SUBMITTED THAT THE FINDING OF THE LEARNED TRIBUNAL IS PERVERSE. THE TRIBUNAL IGNORED THE FACT THAT THE SHARES ALLEGEDLY PURCHASE D IN JULY WERE NOT TAKEN DELIVERY OF TILL DECEMBER NOR WAS ANY PAYMENT MADE WHEN THE PURCHASE WAS ALLEGEDLY MADE IN THE MONTH OF JULY. THIS SUBMI SSION OF MR. SARAF EVIDENTLY IS BASED ON MISREADING OF THE EVIDENCE. I T WOULD APPEAR FROM THE ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 14 ASSESSMENT ORDER THAT PAYMENT WAS MADE FOR THE SHAR ES IN THE MONTH OF JULY ITSELF THROUGH BILL ACCOMMODATION FACILITY. 4. MR. SARAF RELIED UPON A JUDGMENT IN THE CASE OF CFT V. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. [1975] 100 ITR 706 (SC). H E DREW OUR ATTENTION TO THE FOLLOWING FINDING RECORDED BY THE APEX COURT (PAGE 713) : 'THE FINDING OF THE HIGH COURT THAT THE CLAUSES OF THE MEMORANDUM OF ASSOCIATION, VIZ., CLAUSES 10, 12, L3, 28 AND 29 DO NOT AUTHORISE THE COMPANY TO ACQUIRE AND SELL SHARES AS BUSINESS HAS NO RELEVANCE IN VIEW OF THE AFORESAID RESOLUTION OF THE ASSESSEE AND OF THE FACT THAT IT HAD BEEN DEALING IN SHARES IN A COMMERCIAL SPIRIT AS IS EVID ENT FROM ITS CLAIM FOR LOSS IN DEALINGS IN THE SHARES OF M/S. TITAGHUR PAPER MI LLS LTD. AND DEVALUATION OF SHARES OF M/S. PILANI INVESTMENT CORPORATION ON THE BASIS THAT THEY HAD FALLEN IN VALUE. SECONDLY, THE TRIBUNAL SAID THAT FROM 1947 TO 1956, NO DIVIDEND HAD BEEN DECLARED BY THE RAYON COMPANY AND THAT THE MONEY WH ICH WENT INTO THE PURCHASE OF THESE SHARES WAS BORROWED BY THE ASSESS EE. IN OTHER WORDS, THE VIEW OF THE TRIBUNAL WAS, IT WAS WITH BORROWED FUND S THAT THE ASSESSEE PURCHASED THE SHARES. IT IS NO DOUBT TRUE THAT THER E WAS NO EVIDENCE TO SHOW THAT THE MONEY WAS SPECIFICALLY BORROWED FOR THE PU RPOSE OF BUYING SHARES. BUT THERE WAS EVIDENCE BEFORE THE TRIBUNAL FOR ITS FINDING THAT THE LIABILITIES OF THE ASSESSEE EXCEEDED ITS ASSETS. THE FINDING, T HEREFORE, THAT THE SHARES WERE PURCHASED WITH THE BORROWED FUNDS ON WHICH THE ASSESSEE WAS PAYING INTEREST, WAS A FINDING SUPPORTED BY EVIDENCE. THE REASONING OF THE TRIBUNAL THAT IT IS MOST IMPROBABLE THAT THE ASSESS EE WOULD BE INVESTING BORROWED MONEY ON WHICH INTEREST WOULD HAVE TO BE P AID IN SHARES WHICH YIELDED NO DIVIDEND WAS CORRECT. WE CANNOT SAY THAT THIS WAS NOT A RELEVANT CIRCUMSTANCES FOR THE TRIBUNAL TO TAKE INTO CONSIDE RATION FOR COMING TO THE CONCLUSION THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF BUSINESS.' 5. IT WOULD APPEAR FROM THE AFORESAID FINDING THAT THE APEX COURT WAS OF THE OPINION THAT THE VIEW FORMED BY THE TRIBUNAL WAS A POSSIBLE VIEW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE JUDGMENT I S NOT, HOWEVER, AN AUTHORITY FOR THE PROPOSITION THAT SINCE PURCHASE W AS MADE BY BORROWED FUNDS, IT IS BOUND TO BECOME A BUSINESS TRANSACTION . THE TRIBUNAL IN THAT CASE HAD TAKEN A POSSIBLE VIEW. THEREFORE, THE APEX COURT DID NOT INTERFERE. 6. NO OTHER SUBMISSION WAS MADE. WE ARE OF THE OPI NION THAT THE VIEW TAKEN BY THE LEARNED TRIBUNAL IN THIS CASE IS ALSO BASED ON EVIDENCE AND IS A POSSIBLE VIEW. THERE IS, AS SUCH, NO REASON WHY THE HIGH COURT SHOULD INTERFERE. ) ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 15 7. FOR THE AFORESAID REASONS, WE REFUSE TO ADMIT TH E APPEAL, WHICH IS, ACCORDINGLY, DISMISSED. 4.6. PERIOD OF HOLDING OF SHARES WE FIND THAT ONE OF THE MAIN ARGUMENTS OF THE REVEN UE SEEMS TO BE THE SHORTER DURATION FOR WHICH THE SHARES WERE HELD BY THE ASSESSEE. IN THIS REGARD, WE HAD GONE THROUGH THE ENTIRE DETAILS OF SHORT TERM CAPITAL GAINS SCRI P WISE CONTAINING THE NAME OF THE SCRIP, DATE OF PURCHASE, NUMBER OF SHARES PURCHASED , PURCHASE PRICE, DATE OF SALE, NUMBER OF SHARES SOLD, SALE PRICE AND RESULTANT BOO K PROFIT OR LOSS WHICH FORMS PART OF THE PAPER BOOK FILED BY THE ASSESSEE. WE FIND FROM THE SAID WORKINGS OF SHORT TERM CAPITAL GAINS, 11 OUT OF THE 39 SCRIPTS WERE SOLD WITHIN A PERIOD OF 30 DAYS AS STATED BY THE LEARNED DR. WE ALSO FIND THAT THE MAJORITY OF THE SURPLUS OF RS. 53,55,489/- HAD BEEN DERIVED BY THE ASSESSEE ON SALE OF PART OF THE SHARES OF M/S TEXMACO LTD AND AFTER THIS SALE, THE ASSESSEE WAS HOLDING 20000 SHA RES OF M/S TEXMACO LTD AS ITS INVESTMENTS AS ON 31.3.2007. SIMILARLY THE ASSESS EE HAD SOLD 5500 SHARES OF G.E.SHIPPING LTD AFTER HOLDING IT FOR A PERIOD OF 9 MONTHS AND MADE SURPLUS OF RS. 4,63,384/-. WE FIND FROM THE ENTIRE 39 SCRIPS, THE AVERAGE HOLDING PERIOD OF SHARES BY THE ASSESSEE IS 4 MONTHS. IN THIS REGARD, WE DULY APPRECIATE THE ARGUMENTS OF THE LEARNED AR THAT IT IS FOR THE ASSESSEE TO DECIDE WH EN TO PURCHASE AND AT WHAT TIME IT HAD TO EXIT FROM A PARTICULAR SCRIP. WE FIND THAT THE CONDUCT OF THE ASSESSEE CLEARLY PROVES THAT THE INVESTMENTS WERE PURCHASED ONLY WIT H A VIEW TO EARN DIVIDEND INCOME AND NOT WITH AN INTENTION TO TRADE IN THE SAME. WE ALSO FIND THAT THE LEARNED AO HAD DULY ACCEPTED THE CLAIM OF LONG TERM CAPITAL GA INS EXEMPTED U/S 10(38) OF THE ACT WHICH STRENGTHENS THE STAND OF ASSESSEE MAINTAINING THE SHARES AS INVESTMENTS. HENCE THE ASSESSEE CANNOT BE CLASSIFIED AS A TRADER IN SHARES. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 16 4.6.1. WE FIND THAT THIS ASPECT HAS BEEN CONSIDERE D BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS RELIANCE TRADING ENTERPRISES LTD IN ITA NO. 944/KOL/2008 DATED 3.1.2008 WHEREIN IT WAS HELD THAT : WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS AS WELL AS THE DOCUMENTS CONTAINED IN THE PAPER BOOK FILED BEFORE US. THERE IS NO DENYING THE FACT THAT AS PER THE ACCOUNT MAINTAINED THE ASS SESSEE HAD ACTED BOTH AS A TRADER AS WELL AS INVESTOR IN SHARES AS PER THE M EMORANDUM AND ARTICLES OF ASSOCIATION. ACCOUNTS WERE MAINTAINED FOR TRADI NG / BUSINESS SHARES WHICH ARE HELD AS STOCK IN TRADE AND SEPARATELY FOR INVESTMENT SHARES WHICH ARE HELD AND SHOWN IN BALANCE SHEET UNDER THE HEAD INVESTMENT REPRESENTING CAPITAL ASSETS. THE DECISIONS USED TO BE TAKEN BY THE ASSESSEE AT THE TIME OF PURCHASE ITSELF BASED ON DIFFERENT F ACTORS WHETHER ANY SHARE AND SECURITY WAS TO BE HELD AS INVESTMENT OR TRADIN G. WHEN THE SHARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES, TH E VOLUME OF TRANSACTION OF SUCH SHARES CANNOT ALTER ITS STATUS FROM INVESTM ENT TO TRADING . PROFIT ON SALE OF SUCH INVESTMENT SHARES HELD, AS CAPITAL ASS ETS ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN. PERIOD OF HOLDING OF SUCH A SSETS CANNOT DETERMINE ITS STATUS OR CHANGE IT FROM INVESTMENT (CAPITAL) TO TR ADING (STOCK IN TRADE) . THE AUDITED ACCOUNTS FOR THE ASSESSMENT YEAR 04-05 AND THE EARLIER YEARS PLACED IN THE PAPER BOOK MADE IT CLEAR THAT EVERY Y EAR THE ASSESSEE HAD ACQUIRED SHARES FOR TRADING PURPOSE AND SEPARATELY ALSO FOR INVESTMENT PURPOSE WITH AN INTENTION TO EARN DIVIDEND INCOME I N ADDITION TO THE PROSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMEN T SHARES AT AN APPROPRIATE OPPORTUNE MOMENT WITHOUT MAKING ANY HUR RY FOR SELF IGNORING DIVIDEND. THE INVESTMENT SHARES AND SECURITIES PU RCHASED AND HELD TILL THEIR SALE HAD DUAL PURPOSE I.E. FOR EARNING DIVIDEND AS AN INCIDENTAL INCOME AS WELL AS TO MAKE PROFIT ON SHARES AT APPRO PRIATE TIME . THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER BY TREAT ING THE INVESTMENT SHARES AS TRADING SHARES WAS BASED PURELY ON ASSUMP TIONS AND PRESUMPTIONS WITHOUT BRINGING ANY RECORD ANY MATERI AL OR EVIDENCE IN SUPPORT THEREOF. THE ASSESSING OFFICER DID NOT REJ ECT THE BOOKS OF ACCOUNTS VIS A VIS THE AUDITED ACCOUNTS U/S 145 OF THE IT AC T BEFORE ARRIVING AT SUCH A CONCLUSION. THE ASSESSING OFFICERS FINDING CANNOT THEREFORE BE ACCEPTED. 4.7. WE FIND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME ALSO WHICH IS QUITE REFLECTIVE OF THE INTENTION OF INVESTMENT AND NOT F OR PROFIT MOTIVE THOUGH AN INVESTOR IS NOT PRECLUDED FROM REALIZING ITS INVEST MENT WHICH MAY RESULT INTO PROFIT IN FAVOURABLE CIRCUMSTANCES. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 17 4.8. WE ALSO FIND THAT THE PRACTICE FOLLOWED BY TH E ASSESSEE BY OFFERING CAPITAL GAINS FOR INVESTMENT ACTIVITIES IN THE EARLIER YEARS HAVE BEEN CONSISTENTLY ACCEPTED BY THE REVENUE IN SECTION 143(3) PROCEEDINGS FOR THE ASST YEARS 2006-07 AND 2008-09 (BY NOT PREFERRING FURTHER APPEAL TO TRIBUNAL AGAINST C ITA ORDER AS INFORMED BY LEARNED AR), COPY OF WHICH ORDERS ARE PLACED ON RECORD BEFO RE US. THE ASSESSMENT YEAR UNDER APPEAL BEFORE US IS ASST YEAR 2007-08. WE DO NOT FIND ANY LOGICAL REASON FOR THE REVENUE TO DEVIATE FROM ITS CONSISTENT STAND TA KEN IN THE EARLIER YEARS AND SUBSEQUENT YEAR. 4.9. WITH REGARD TO THE RELIANCE PLACED BY THE REV ENUE ON THE DECISION OF AUTHORITY OF ADVANCE RULING (AAR) REPORTED IN 288 ITR 641 , WE F IND THAT IT ONLY ADVANCES THE CASE OF THE ASSESSEE. THE LD.CIT(A) IN HIS ORDER H ELD AS UNDER: 5.4 IN THAT CASE THE APPLICATIONS WERE FILE D FOR ADVANCE RULINGS BY NUMBER OF FOREIGN INSTITUTIONAL INVESTORS (FII) WHO HAD INVESTED IN SHARES AND SECURITIES IN LARGE NUMBER OF INDIAN COM PANIES. THE INVESTMENTS WERE MADE AFTER OBTAINING PERMISSIONS F ROM RESERVE BANK OF INDIA UNDER FEMA AND IT WAS IN CONFORMITY WITH SEBI REGULATIONS. ON SCRUTINY OF APPLICATIONS FILED BY VARIOUS APPLICANT S THE AUTHORITY NOTED THAT NON-RESIDENT ENTITIES FROM THE JURISDICTION WHERE CAPITAL GAINS WAS EXEMPT FROM TAXES, CLAIMED THE GAINS FROM TRANSACTION OF S ALE AND PURCHASE OF SECURITIES ON INDIAN STOCK MARKET AS CAPITAL GAI NS. WHILE IN RESPECT OF IDENTICAL TRANSACTIONS SOME OTHER INSTITUTIONS TREA TED THE INCOME ARISING FROM SUCH TRANSACTION AS BUSINESS PROFIT. THESE ENT ITIES FURTHER CLAIMED THAT THEY DID NOT HAVE PERMANENT ESTABLISHMENT IN I NDIA. REFERRING TO THE VOLUME AND FREQUENCY OF TRANSACTIONS; SYSTEMATIC AN D ORGANIZED ACTIVITIES CARRIED OUT IN SHARES, IT WAS ARGUED THAT THESE INS TITUTIONAL INVESTORS WERE CARRYING ON BUSINESS OF SHARE DEALING AND TRADING A ND THEREFORE INCOME WAS ASSESSABLE AS BUSINESS INCOME. SINCE THESE ENT ITIES DID NOT HAVE PERMANENT ESTABLISHMENT IN INDIA THE BUSINESS PROF ITS WERE CLAIMED TO BE NOT LIABLE TO TAX IN INDIA. THE AUTHORITY THEN EXAM INED THE FACTS RELATING TO INVESTMENTS MADE BY THESE FIIS; AAR WENT THROUGH T HE ARTICLES OF TRUST DEEDS OF THESE ENTITIES; CONSIDERED THE SEBI REGUL ATIONS AND THEN HELD THAT FROM VARIOUS TRANSACTIONS IN SECURITIES IN INDIA CA RRIED OUT BY THE APPELLANTS IT WAS SEEN THAT THEY WERE IN THE HABIT OF KEEPING THE HOLDINGS IN VARIOUS INDIAN COMPANIES FROM A FEW MONTH TO A FEW YEARS WHICH CLEARLY ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 18 INDICATED THAT THE MOTIVE AND INTENTION OF THE APPL ICANTS WAS TO EARN RETURN IN THE FORM OF CAPITAL GAINS RATHER THAN EARN BUSIN ESS PROFITS . THE AAR HELD THAT IN THE CASE OF TRADING, THE SECURITIES WHICH WERE PURCHASED AND SOLD, WOULD BE TERMED IN THE BOOKS OF THE PERSON ACQUIRIN G IT AS STOCK IN TRADE AND NOT INVESTMENTS. THE INTENTION OF THE FOREIGN INSTITUTION, AS WAS EVIDENT AT THE TIME OF PURCHASE OF SECURITIES WAS A RELEVA NT FACTOR AND OFTEN THE CONCLUSIVE FACTOR IN DETERMINING WHETHER THE TRANS ACTION WAS IN THE NATURE OF TRADE OR IN THE NATURE OF INVESTMENT. THE AUTHOR ITY THEN AT PAGE 649 OBSERVED THAT THE GERMANE QUESTION IN ALL THESE AP PLICATION WAS WHETHER SECURITIES WHICH WERE SUBJECT MATTER OF PURCHASE AN D SALE BY THE APPLICANTS WERE HELD BY THEM WAS OF STOCK IN TRADE SO AS TO GI VE RISE TO BUSINESS INCOME OR INVESTMENT IN CAPITAL ASSETS SO AS TO YIE LD CAPITAL GAIN. WHILE DECIDING THE GERMANE QUESTION THE AUTHORITY CONSIDE RED THE SUBMISSIONS OF THE APPLICANTS WHEREIN IT WAS ARGUED THAT THE USE O F THE TERM ' INVESTMENT' IN SEBI REGULARS OR APPLICATIONS MADE WAS NOT DETER MINATIVE OF NATURE OF INCOME ARISING FROM THE TRANSACTION AND IT WAS TO B E DETERMINED ON THE BASIS OF INTENTION AND CIRCUMSTANCES. FOR THE PURPO SE OF INCOME TAX, THE TERM 'INVESTMENT OR INVESTMENTS' WAS TO BE TAKEN IN THE 'BUSINESS SENSE' OF LAYING OUT MONEY FOR PROFIT AND NATURE OF INCOME HA D TO BE CONSIDERED AS PER INCOME TAX STATUTE AND HOT IN THE CONTEXT OF FI I REGULATION AND NOT WITH REFERENCE TO THE TERMINOLOGY EMPLOYED. IT WAS CONT ENDED THAT THE APPLICANTS DEVOTED THEIR ENTIRE RESOURCES TO THE E ARNING OF INCOME BY WAY OF TRADING IN SECURITIES AND IT WAS SO DONE AFTER THE STUDY AND RESEARCH IN A BUSINESS LIKE MANNER AND MERELY BECAUSE SOME SECURI TIES WERE HELD BY THE APPLICANTS FOR RELATIVELY LONGER PERIODS, THE INCOM E FROM TRANSACTIONS IN SECURITIES COULD NOT BE CONSIDERED AS CAPITAL GAINS . THE AAR CONSIDERED THESE SUBMISSIONS OF THE FIIS BUT ULTIMATELY HELD THAT THE FIIS HAD MADE PURCHASE AND SALE OF SECURITIES OF INDIAN COMPANIES AS PER SEBI REGULATION FOR INVESTMENT PURPOSES. AAR HELD THAT AS PER THE S CHEME OF THE GOVT. FIIS HAD ACQUIRED SHARES AND SECURITIES AS INVESTMENTS A ND NOT AS STOCK IN TRADE. THE AUTHORITY NOTED THAT THE BOOKS OF ACCOUN TS OF THE APPLICANTS WERE NOT PRODUCED AND EXAMINATION OF ENTRIES IN BOOKS OF ACCOUNT OF THE APPLICANT WAS RELEVANT IN CONSIDERING WHETHER THE S ECURITIES WERE HELD AS STOCK IN TRADE OR INVESTMENTS. THE AUTHORITY PARTIC ULARLY OBSERVED THAT THEY HAD NO CLUE ABOUT THE MAINTENANCE OF THE ACCOUNTS O F THE APPLICANT AND IF THESE WERE PRODUCED; THEN FROM THE ACCOUNTS AUTHORI TY WOULD HAVE BEEN IN A POSITION TO ASCERTAIN WHETHER THE SHARES WERE ENT ERED IN THE BOOKS OF ACCOUNT AS STOCK IN TRADE OR CAPITAL ASSETS. THE A UTHORITY OBSERVED THAT UNDER THE PRINCIPLES OF ACCOUNTING STOCK IN TRADE HAD TO BE VALUED AT END OF EACH YEAR IN THE CASE OF SHARE TRADING, TO ARRIV E AT OR PROFIT OF BUSINESS WHEREAS IN THE CASE OF INVESTMENTS IN CAPITAL ASSET S, GAINS WOULD BE DETERMINED ONLY ON SALE OF SUCH ASSETS. IN ABSENCE OF BOOKS THE AAR PRESUMED THAT SHARES & SECURITIES WERE HELD AS INVE STMENTS, AS PER SEBI ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 19 REGULATION AND THEREFORE THE AAR HELD THAT PROFIT A RISING TO FIIS APPLICANTS FROM SALE OF SECURITIES IN INDIA COULD NOT BE TREAT ED AS BUSINESS INCOME. (5.5) FROM CAREFUL READING OF THE DECISION OF THE AAR, I FIND THAT THE SAID DECISION ADVANCES THE APPELLANT'S CASE. IN THIS JUD GMENT THE AAR HAS REFERRED TO THE HISTORIC BACKGROUND UNDER WHICH THE CAPITAL MARKETS IN INDIA WERE OPENED TO INSTITUTIONAL INVESTORS FROM A BROAD PRIOR TO 1992 THE FOREIGN ENTITIES WERE NOT ALLOWED FREE ACCESS TO I NDIAN CAPITAL MARKETS. THE FIIS BROUGHT IN HUGE FOREIGN CAPITAL AND THEY ACQU IRED SUBSTANTIAL HOLDINGS IN THE SHARES OF INDIAN COMPANIES. THE INV ESTMENTS B. THE FOREIGN INSTITUTIONAL INVESTORS WERE SEVERAL TIMES MORE TH AN THE INSTITUTIONAL INVESTMENT BY INDIAN COMPANIES. THE VOLUME OF BUSIN ESS UNDERTAKEN BY FIIS IS SEVERAL TIMES THEN INVESTMENTS MADE BY IND IAN' COMPANIES AND INSTITUTIONS. ACCORDING TO THE AAR THE QUESTION WH ETHER THE ACQUISITION OF SECURITIES IS FOR BUSINESS PURPOSE OR BY WAY OF INV ESTMENT; CAN BE DECIDED WITH REFERENCE TO THE INTENTION OF THE PURCHASER AT THE TIME OF ACQUISITION OF SECURITY ITSELF. FOR THIS PURPOSE THE AUTHORITY HE LD THAT THE ENTRIES MADE IN THE BOOKS THE PURCHASER ARE RELEVANT BECAUSE IN C ASE OF PURCHASE OF SECURITIES FOR BUSINESS PURPOSES; THEY ARE SHOWN B Y WAY OF STOCK IN TRADE WHEREAS IN THE CASE OF INVESTMENT; SHARES ARE DIS CLOSED IN THE ACCOUNTS AS INVESTMENTS. IF IN CASE OF FOREIGN INSTITUTIONAL IN VESTORS WHO REGULARLY CARRIED ON THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AT REGULAR INTERVALS AND IN LARGE VOLUME, THE SAID ACTIVITY IS CONSIDERED AS INVESTMENT ACTIVITY THEN BY THE SAME MEASURE THE SAME ACTIVI TY CARRIED ON BY AN INDIAN ENTITY CANNOT BE CONSIDERED AS BUSINESS ACTI VITY. IN MY OPINION THE JUDICIAL PRINCIPLE APPLICABLE TO FOREIGN INSTITUTIO NAL INVESTORS ARE EQUALLY APPLICABLE TO THE INDIAN ENTITIES AS WELL. IN BOTH CASES THE TAX ENTITIES REGULARLY CARRY ON INVESTMENTS TRANSACTIONS IN IND IAN SECURITIES. THERE IS REGULARITY OF TRANSACTION AND THE VOLUMES ARE LARGE IN BOTH THE CASES. IN PARTICULAR IN THE APPELLANTS CASE THE EVIDENCE ON RECORD ESTABLISHED THAT CLEAR DISTINCTION WAS ALWAYS MAINTAINED BETWEEN THE TRADING STOCK, IF ANY, AND INVESTMENT. IN THE CIRCUMSTANCES, APPLYING THE RATIO LAID BY AAR IN 228 ITR 641 I HOLD THAT THE GAINS DERIVED ON TRANS FER OF INVESTMENTS WAS ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS PRO FIT. 4.10. WE FIND THAT THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS GOPAL PUROHIT REPORTED IN (2011) 336 ITR 287 (BOM) AND 22 8 CTR 582 (BOM) HAD CONSIDERED THE ISSUE UNDER CONSIDERATION AND HELD A S UNDER:- 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE LEARNED AR ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 20 BEFORE US. WE FIND THAT THE ASSESSEE HAS BEEN ENGAG ING HIMSELF IN THE SHARE TRANSACTIONS BOTH AS AN INVESTOR AND AS WELL AS TRA DER. IT IS SEEN THAT THE ASSESSEE HAD CLEARLY BIFURCATED THE INVESTMENT AND TRADING TRANSACTIONS INCLUDING SPECULATIVE SHARE TRANSACTIONS IN HIS BOO KS OF ACCOUNTS AND IT IS ALSO SEEN THAT THE AVERAGE PERIOD OF HOLDING OF SHA RES RANGE FROM ONE MONTH TO MORE THAN ONE YEAR AND ACCORDINGLY SHORT T ERM OR LONG TERM CAPITAL GAINS ARE DULY OFFERED TO TAX BY THE ASSESS EE DEPENDING UPON THE PERIOD OF HOLDING THE SHARES. IT IS ALSO SEEN THAT THE LEARNED AO HAD ALSO ACCEPTED THE STAND OF THE ASSESSEE IN THE IMMEDIATE LY SUCCEEDING ASSESSMENT YEAR AS INVESTMENT TRANSACTIONS UNDER SC RUTINY PROCEEDINGS VIDE 143(3) ORDER DATED 12.10.2009. WE FIND THAT THE FRE QUENCY OF TRANSACTIONS DOES NOT REALLY MATTER AND WHAT IS TO BE SEEN IS TH E INTENTION OF THE ASSESSEE WHETHER HE WANTS TO PENETRATE INTO THE CAPITAL MARK ET FOR THE PURPOSE OF INVESTMENT OR FOR MAKING SPECULATIVE GAINS BY DOING DAY TRADING AND DEALING IN FUTURES AND OPTIONS. IT IS ALSO SEEN THA T THE LEARNED AO HAD CLEARLY STATED IN HIS ASSESSMENT ORDER THAT THE INT EREST ON BORROWINGS WERE PAID BY THE ASSESSEE ONLY FOR TRADING IN SHARES AND THIS ITSELF GOES TO PROVE THAT THE ASSESSEE HAD CLEARLY BIFURCATED HIS ACTIVI TIES INTO TWO PARTS - ONE TOWARDS INVESTMENT IN SHARES OUT OF OWN FUNDS OF TH E ASSESSEE AND OTHER TOWARDS TRADING IN SHARES OUT OF OWN AND BORROWED F UNDS OF THE ASSESSEE. IT IS ALSO SEEN THAT THE ASSESSEE HAS BEEN DOING THIS ACTIVITY CONSISTENTLY. IT IS ALSO SEEN FROM THE BALANCE SHEET FILED BY THE ASSES SEE THAT THE ASSESSEE HAD CLEARLY CLASSIFIED THE SHARE TRANSACTIONS UNDER THE HEAD INVESTMENTS. THIS ITSELF CLEARLY PROVES THE INTENTION OF THE ASSESSEE THAT HE IS ONLY INTERESTED IN SHARE MARKET ONLY AS AN INVESTOR AND NOT OTHERWISE. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY DEALT WITH BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GO PAL PUROHIT REPORTED IN 228 CTR 582 (BOM), WHEREIN THE QUESTIONS RAISED BEFORE THE BOMBAY HIGH COURT AND DECISION RENDERED THEREON ARE AS BE LOW:- '(A) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN TREATING THE INC OME FROM SALE OF 7,59,003 SHARES FOR RS.5,00,12,879/- AS AN INCOME FROM SHORT TERM CAPITAL GAIN AND SALE OF 3,88,797 SHARES FOR RS.6,65,02,340/- AS LON G TERM CAPITAL GAIN AS AGAINST THE 'INCOME FROM BUSINESS' ASSESSED BY THE A. O. ? (B) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON 'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRI NCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS AUTHORITIES DID NOT TREAT T HE ASSESSEE AS A SHARE TRADER IN PRECEDING YEAR, IN SPITE OF EXISTENCE OF SIMILAR TRANSACTION, WHICH CANNOT IN ANY WAY OPERATE AS RES JUDICATA TO PRECLU DE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS BUSINESS ACTIVITIES IN CURRENT YEAR? (C) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW., THE HON 'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRE SENTATION IN THE BOOKS OF ACCOUNT IS THE MOST CRUCIAL SOURCE OF GATHERING INT ENTION OF THE ASSESSEE AS ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 21 REGARDS TO THE NATURE OF TRANSACTION WITHOUT APPREC IATING THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS ALONE ARE NOT CONCLUSIVE PROO F TO DECIDE THE INCOME? THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TR ANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DES CRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PUR ELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE P RINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESS EE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING I N SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PR ESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSA CTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED EITHER AS SHO RT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOS E BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNA L HAS OBSERVED IN PARAGRAPH 8.1. OF ITS JUDGMENT THAT THE ASSESSEE HA S FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMEN T AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFF ERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIP LE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED THE REVE NUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RA ISE ANY SUBSTANTIAL QUESTION. IN SO FAR AS QUESTION (C) IS CONCERNED, AGAIN THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPOSITION THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. THE TRIBUNAL HAS APPLIED THE CORRECT PRINCIPLE IN ARRIVING AT TH E DECISION IN THE FACTS OF THE PRESENT CASE. THE FINDING OF FACT DOES NOT CALL FOR INTERFERENCE IN AN APPEAL UNDER SECTION 260A. NO SUBSTANTIAL QUESTION OF LAW IS RAISED. THE APPEAL IS ACCORDINGLY DISMISSED. ITA NOS. 1245 & 1280/KOL/2010-C-AM SHRI PRADYUMNA DALMIA 22 IT IS PERTINENT TO NOTE THAT THE DECISION OF BOMBAY HIGH COURT WAS SUBJECTED TO FURTHER APPEAL BY THE REVENUE BEFORE THE HONBLE APEX COURT AND THE SPECIAL LEAVE PETITION (SLP) WAS DISMISSED BY THE SUPREME COURT. 4.11. ON APPRECIATION OF CUMULATIVE EFFECT OF SEV ERAL FACTORS PRESENT AS CULLED OUT ABOVE AND IN VIEW OF THE FACTS AND CIRUCMSTANCES, W E HOLD THAT THE SURPLUS IS CHARGEABLE TO CAPITAL GAINS ONLY AND ASSESSEE IS NO T TO BE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN ITA NO. 1280/KOL/2010 FOR ASST YEAR 2007-08 ARE DIS MISSED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 1245/KOL/2010 IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 1280/K OL/ 2010 IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 2 0 -01-2016 1.. THE APPELLANT: SHRI PRADYUMNA DALMIA 2/3 SARA T BOSE ROAD, KOL-20. 2 THE RESPONDENT: THE ASSISTANT COMMISSIONER OF IN COME-TAX, CIR-31 10B MIDDLETON ROW, 4 TH FL., KOL - 71. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( MAHAVIR SINGH JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 20-01/2016 COPY OF THE ORDER FORWARDED TO: -