ACIT, CHENNAI V. Shri R F Dadabhoy, CHENNAI

ITA 1300/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2385 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN JT
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER] I.T.A.NO.1300/MDS/2011 ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(3) CHENNAI VS SHRI R.F.DADABHOY NO.13, FIRST STREET SUBBARAO AVENUE CHENNAI 600 006 [PAN AGPPR 0498 C] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. MADHAVAN, JT. CIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 11-04-2013 DATE OF PRONOUNCEMENT : 11-04-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REV ENUE AGAINST THE ORDER OF THE LD. CIT(A)-V, CHENNAI, DATED 4.4.2011. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE REVEN UE IS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE INCOME FRO M SALE OF SHARES I.T.A.NO. 1300/11 :- 2 -: SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS A ND NOT UNDER THE HEAD BUSINESS AS HAD BEEN DONE BY THE ASSESSING O FFICER. 3. THE BRIEF FACTS OF THE CASE ARE THAT FOR THE ASSESS MENT YEAR UNDER CONSIDERATION THE ASSESSEE, IN THE RETURN OF INCOME HAD SHOWN LONG TERM CAPITAL GAINS OF ` 16,52,280/- ON SALE OF SHARES AND SHORT TERM CAPITAL GAINS OF ` 8,29,603/- FROM SALE OF SHARES. THE ASSESSING OFFICER TREATED THE CAPITAL GAINS ON THE SALE OF SH AREAS AS BUSINESS INCOME AND BROUGHT THE SAME TO TAX ON THE GROUND TH AT THERE WERE NUMEROUS TRANSACTIONS ON DAILY BASIS, THE MAIN ACTI VITY WAS DEALING IN SHARES ETC. MOST OF THE ASSESSEES INCOME WAS FROM TRANSACTIONS IN SHARES AND THE ASSESSEE WAS DEVOTING THE NEEDED AT TENTION ON ACCOUNT OF PURCHASE AND SALE OF SHARES WHICH WAS NO T PERFORMED WITH A MOTIVE TO INVEST IN SHARES ETC. SO AS TO STRENGT HEN HIS FINANCIAL POSITION BUT PERFORMED AS A ROUTINE ACT WHICH WAS P ERFORMED BY PEOPLE WHO ARE DOING THE BUSINESS OF PURCHASE AND S ALE OF SHARES. 4. ON APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICE R, THE LD. CIT(A) HELD THAT THE INCOME FROM SHARE TRANSACTIONS WAS TO BE ASSESSED AS CAPITAL GAINS BY FOLLOWING HIS ORDER FO R ASSESSMENT YEAR 2006-07 IN I.T.A.NO. 480/2008-09 DATED 10.3.2011. I.T.A.NO. 1300/11 :- 3 -: 5. THE LD. A.R OF THE ASSESSEE FILED BEFORE US COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF PASSED IN I.T.A.NO. 1029/MDS/2011, IN ASSESSMENT YEAR 2006-07, DATED 23 .1.2013, AND SUBMITTED THAT THE ORDER OF THE LD. CIT(A) HOLDING THAT THE INCOME FROM TRANSACTION OF SHARES WAS TO BE ASSED UNDER TH E HEAD CAPITAL GAINS WAS UPHELD BY THE TRIBUNAL AND THE APPEAL OF THE REVENUE WAS DISMISSED. HE SUBMITTED THAT IN THE PRESENT YEAR A LSO, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, THE LD. CIT(A) HAS FOL LOWED HIS ORDER FOR ASSESSMENT YEAR 2006-07 WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL. HE SUBMITTED THAT THE FACTS AND ISSUE INVOLVED ARE SAME IN THIS YEAR ALSO AND THEREFORE, THE APPEAL OF THE REVENUE SHOUL D BE DISMISSED. 6. THE LD. DR AGREED WITH THE ABOVE SUBMISSION OF THE LD. A.R OF THE ASSESSEE. 7. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IN TH E INSTANT CASE, THE ASSESSEE HAS SHOWN INCOME FROM SHARE TRA NSACTION AS SHORT TERM CAPITAL GAIN OF ` 8,29,603/- AND LONG TERM CAPITAL GAINS OF ` 16,52,280/- WHICH THE ASSESSING OFFICER ASSESSED UN DER THE HEAD BUSINESS INCOME. BOTH THE PARTIES BEFORE US HAVE A GREED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN FAVOUR OF THE ASSESSEE AND AGAINST THE I.T.A.NO. 1300/11 :- 4 -: REVENUE AND UPHELD THE CLAIM OF THE ASSESSEE THAT INCOME FROM SHARE TRANSACTION SHOULD BE ASSESSED UNDER THE HEAD CAPIT AL GAINS. WE FIND THAT THE TRIBUNAL, IN ASSESSMENT YEAR 2006-07, HAS HELD AS UNDER: 5. WE HAVE HEARD BOTH SIDES. PERUSED THE ORDERS O F THE AUTHORITIES BELOW. THE COMMISSIONER OF INCOME TAX ( APPEALS), IN HIS ORDER HAS DEALT WITH THIS ISSUE ELABORATELY AND CAME TO THE CONCLUSION THAT THE ASSESSEE WHO IS WORKING AS DIRE CTOR IN A COMPANY IS ONLY AN INVESTOR AND NOT A TRADER. THE C OMMISSIONER OF INCOME TAX (APPEALS), WHILE HOLDING SO, OBSERVED AS UNDER :- 5. I HAVE CAREFULLY CONSIDERED THE FACTS AS WELL A S THE ARGUMENTS OF THE LEARNED AUTHORISED REPRESENTATIVE. HAVE ALSO GI VEN SERIOUS CONSIDERATION TO ALL THE PRECEDENTS RELIED ON BY TH E LEARNED AUTHORISED REPRESENTATIVE. THE MAIN THRUST OF THE A RGUMENT IS THAT THE APPELLANT HAS BEEN ONLY AN INVESTOR ALL ALONG A ND THE TRANSACTIONS IN SUCH INVESTMENTS HAVE BEEN SHOWN UN DER CAPITAL GAINS IN ALL THE EARLIER YEARS THE MAGNITUDE OF THE TRANSACTIONS ARE NOT VOLUMINOUS AND EVEN IF THEY ARE, THE SAME CANNO T BE A GROUND FOR TREATING THE ACTIVITY AS BUSINESS IN THE PLACE OF INVESTMENT, THE TRANSACTIONS ARE DELIVERY BASED TRANSACTION AND NO BORROWED FUNDS WERE USED FOR MAKING SUCH INVESTMENTS AND THE PLETH ORA OF DECISIONS QUOTED SUPPORT HIS PLEA THAT THE INCOME F ROM THE LONG TERM CAPITAL GAINS/ SHORT TERM CAPITAL GAINS SHOULD BE TAXED UNDER THESE HEADS ONLY AND NOT TREATED AS BUSINESS INCOME. 5.1 THERE IS NO DISPUTE ABOUT THE FACT THE APPELLAN T IS INDEED DEALING IN INVESTMENT IN SHARES IN THE PAST FOR MAN Y YEARS AND OFFERED THE SAME UNDER THE HEAD CAPITAL GAINS. IT I S ALSO TRUE THAT THE FINANCE ACT 2004 IMPOSED SECURITIES TRANSACTION TAX ON SALE AND PURCHASE OF SHARES WHETHER THE ASSESSEE EARNS P ROFIT OR NOT OR SUFFERS A LOSS AND SIMULTANEOUSLY THE LEGISLATURE E XEMPTED LONG TERM CAPITAL GAINS U/S 10(38) FROM THE LEVY OF TAX AND SUBJECTED TO TAX @ 10% ON SHORT TERM CAPITAL GAINS PROVIDED SECU RITIES TRANSACTION TAX HAS BEEN PASSED ON SUCH TRANSACTION S. IN THIS CONTEXT THE HON'BLE ITAT IN THE CASE OF GOPAL PUROH IT VS. JCIT 122 TTJ 87 HELD AS UNDER IN PARA 8.1 5.2. 'IN OUR VIEW, THE LEGISLATIVE CHANGE OF THIS N ATURE, WHEREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTIONS, RESULTING INTO ANY ADVANTA GE CANNOT BE TAKEN AWAY BY THE REVENUE AUTHORITIES IN THIS MANNE R AND IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT, PRINCIPLE O F CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE RES JUDI CATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER AN ASSESS EE EARNS THE I.T.A.NO. 1300/11 :- 5 -: PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION O F SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO INDIVIDUAL (S) ENTERING INTO THESE TRANSACTIONS. THUS, IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED' . ANOTHER IMPORTANT ASPECT TO BE CONSIDERED HERE IS T HAT THE APPELLANT IS NOT A SHARE BROKER NOR HE IS HAVING A REGISTRATI ON WITH ANY STOCK EXCHANGE. MORE OVER SOME OF THE SCRIPTS HAVE BEEN H ELD FOR MORE THAN 5 YEARS AND IT IS NOT THE CASE OF THE ASSESSIN G OFFICER THAT THERE WERE ANY DERIVATIVE TRANSACTIONS BY THE APPELLANT N OR IT IS THE CASE OF THE ASSESSING OFFICER THAT THERE WERE TRANSACTIONS WITHOUT ANY DELIVERY. THE INTENTION OF THE APPELLANT CANNOT BE READ FROM HIS MIND BUT IT REFLECTS IN HIS CONDUCT, THE WAY HE TREATS T HE TRANSACTIONS. THE APPELLANT HAS NOT BORROWED ANY MONEY FOR INVESTING IN SHARES AND USED HIS OWN SURPLUS FUNDS AND THESE FACTS ARE BORN E OUT ON RECORD. YET ANOTHER ASPECT, AS RIGHTLY STRESSED BY THE LEAR NED AUTHORISED REPRESENTATIVE IS THE FACT THAT THE APPELLANT HAS R ECEIVED SUBSTANTIAL DIVIDEND AND THAT IS ALSO DISCLOSED IN THE RETURN O F INCOME FILED. AFTER CONSIDERING THE TOTALITY OF THE FACTS, I HOLD THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES BY THE APPELLANT CANNOT BE TREATED IN THE LINE OF TRADING IN SHARES NOR CAN BE TREATED AS AN ADVENTURE IN THE NATURE OF TRADE. FOR THE REASONS GIVEN ABOVE, I HOL D THAT THE ENTIRE INCOME FROM THE SALE AND PURCHASE OF SHARES IT TO B E ASSESSED UNDER THE HEAD 'CAPITAL GAINS' AS RIGHTLY DECLARED BY THE APPELLANT EITHER AS LONG TERM CAPITAL GAINS (L TCG) OR SHORT TERM CAPIT AL GAINS (LTCG) DEPENDING UPON THE PERIOD OF HOLDING. I THER EFORE DIRECT THE ASSESSING OFFICER TO ACCEPT THE CAPITAL GAIN DECLAR ED BY THE APPELLANT FROM THE SALE OF SHARES AND DELETE THE ADDITION MAD E TREATING THE LONG TERM CAPITAL GAINS AS BUSINESS INCOME. 6 . ON GOING THROUGH THE ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS), WE FIND NO GOOD REASON TO INTERFERE WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T THE ASSESSEE IS ONLY AN INVESTOR AND THE INTENTION OF T HE ASSESSEE IS ONLY TO INVEST IN SHARES AND THERE IS NO MOTIVE OF TRADING IN BUSINESS ACTIVITIES IN SHARES. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO HELD THAT ALL THE TRANSACTIONS ARE D ELIVERY BASED TRANSACTIONS AND NO BORROWED FUNDS WERE UTILIZED FO R MAKING SUCH INVESTMENTS . THE ASSESSEE HAS BEEN DEALING IN INVESTMENTS IN SHARES IN EARLIER YEARS AND REPORTED AS INCOME FROM SALE OF SHARES EITHER UNDER THE HEAD SHORT TER M CAPITAL GAINS OR LONG TERM CAPITAL GAINS AND THIS POSITION WAS NO T DISTURBED BY THE DEPARTMENT. THE REVENUE COULD NOT FILE ANY MATE RIAL EVIDENCE TO REBUT THE ABOVE FINDINGS OF THE COMMISS IONER OF INCOME TAX (APPEALS). IN THE CIRCUMSTANCES, WE AFFI RM THE ORDER I.T.A.NO. 1300/11 :- 6 -: OF COMMISSIONER OF INCOME TAX (APPEALS). 8. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL PA SSED IN ASSESSMENT YEAR 2006-07, WE DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THURSDAY, THE 11 TH OF APRIL, 2013, AT CHENNAI. SD/- SD/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 11 TH APRIL, 2013, RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR