The ITO, Ward-8(2), Ahmedabad V. Smt. Shyama Gautam Sarabhai, Ahmedabad

ITA 1324/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6447 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND D.K. TYAGI, JUDICIAL MEMBER) ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 [ASSTT. YEAR : 2006-2007] ITO, WARD-8(2) AHMEDABAD. VS. SMT. SHYAMA GAUTAM SARABHAI RETREAT, OPP: UNDERBRIDGE SHAHIBAUG, AHMEDABAD. PAN : ABJPS 1294 A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PRAKASH DUBEY ASSESSEE BY : SHRI M.K. PATEL O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THIS APPEAL IS BY THE REVENUES AGAINST THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD DATED 13.02.2009 FOR A.Y.2 006-2007. THE SOLE EFFECTIVE GROUND RAISED IN THE APPEAL READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED N LAW AND ON FACTS IN DIRECTING THE AO NOT TO TREAT THE SHORT TERM CAPITAL GAIN OF RS.1 9,13,201/- AS WELL AS LONG TERM CAPITAL GAIN OF RS.17,25,799/- AS BUSINESS INCOME OF THE ASSESSEE. 2. AT THE TIME OF HEARING BEFORE US, IT WAS STATED BY THE LEARNED DR THAT THERE WAS FREQUENT TRANSACTIONS OF PURCHASE AN D SALE OF THE SHARES, THEREFORE, THE AO RIGHTLY TREATED THE SAME TO BE BU SINESS INCOME OF THE ASSESSEE AND NOT INCOME FROM SHORT TERM CAPITAL GAI N AND LONG TERM CAPITAL GAINS. THE LEARNED COUNSEL FOR THE ASSESSE E, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) AND HE HAS STAT ED THAT IN THE STATEMENT OF THE FACTS SUBMITTED BEFORE THE CIT(A), THE ASSES SEE HAS GIVEN ALL THE RELEVANT FACTS FROM WHICH IT WOULD BE EVIDENT THAT THE TOTAL CAPITAL GAIN ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 -2- WAS IN FACT RS.79,26,501/- OUT OF WHICH THE CAPITAL GAIN OF RS.42,87,501/- WAS ACCEPTED BY THE AO AS LONG TERM CAPITAL GAIN AN D ONLY IN RESPECT OF OTHER ITEMS, HE TREATED THE SAME TO BE BUSINESS INC OME. HE POINTED OUT THAT YEAR AFTER YEAR, THE ASSESSEE IS SHOWING INVES TMENT IN SHARES AS INVESTMENT AND IT WAS ALWAYS ACCEPTED AS INVESTMENT . THE ENTIRE INVESTMENT WAS OUT OF THE ASSESSEES OWN FUND AND T HERE WAS NO BORROWING. THE SUBMISSION OF THE ASSESSEE IN THE S TATEMENT OF THE FACTS READS AS UNDER: 1.1 THE ASSESSING OFFICER HAS TREATED FOLLOWING CAP ITAL GAIN AS BUSINESS INCOME: PARTICULARS AMOUNT (RS.) INCOME FROM SHORT TERM CAPITAL GAIN (TAXED @ 10% IN THE RETURN OF INCOME) 19,13,201 INCOME FROM LONG TERM CAPITAL GAIN (CLAIMED EXEMPT IN THE RETURN OF INCOME) 17,25,790 TOTAL 37,12,133 WHILE TREATING THE AFORESAID CAPITAL GAIN AS BUSINE SS INCOME, ASSESSING OFFICER HAS OBSERVED AS UNDER: (I) THE PERUSAL OF VOLUME OF TRANSACTIONS AND FREQUENCY OF DEALING IN SHARES PROVE THAT THE TRANSACTIONS ARE I N THE NATURE OF TRADE. (II) THE MOST OF THE SHARES WERE PURCHASED IN A.Y. 2005- 2006 AND HAS BEEN SOLD DURING THE YEAR WHICH MEANS THAT APPELLANT HAS INTENDED ONLY FOR EARNING PROFIT AND NOT DIVIDEND. (III) IN OTHER SCRIPTS ON WHICH LONG TERM CAPITAL GAIN IS EARNED WERE ACTUALLY PURCHASED WITH THE MOTIVE OF RE SALE AND DIVIDEND EARNED IS ONLY CO INCIDENCE. (IV) LOOKING TO THE STATEMENT OF TOTAL INCOME, IT IS NOT ICED THAT EXCEPT THE CAPITAL GAIN HEAD, THERE IS NO OTHER ACT IVITY AND MOST OF HER TIME HAS GONE INTO THE ACTIVITY OF TRAD ING. 1.2 IN THIS CONNECTION, APPELLANT STATE THAT ALL T HE TRANSACTIONS ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 -3- ENTERED INTO BY THE APPELLANT DURING THE PERIOD UND ER CONSIDERATION WERE MADE WITH AN INVENTION OF INVEST MENT. MERELY THE FACT THAT THE APPELLANT HAS BEEN ABLE TO SELL I TS INVESTMENTS AT AN AMOUNT HIGHER THAN THE COST OF ACQUISITION RESUL TING IN TO GAINS DOES NOT RENDER THE SAME AS OF A TRADING NATURE BUT REAL INTENTION OF APPELLANT BEHIND THE EXECUTION OF SUCH TRANSACTI ONS WAS TO MAKE SYSTEMATIC INVESTMENT. IN FACT, THE INTENTION OF TH E APPELLANT TO TREAT THIS AS INVESTMENT IS WELL SPELT OUT BY THE A CCOUNTING ENTRIES AND ALSO TREATMENT GIVEN IN BOOKS OF ACCOUNT. IT IS FURTHER STATED THAT AFORESAID SHARES/MUTUAL FUNDS ARE SHOWN AS INV ESTMENT IN ANNUAL ACCOUNT ON YEAR TO YEAR BASIS AND DEPARTMENT HAS NEVER DISPUTED SUCH FACT HENCE PROFIT ARISING FROM SALE O F SUCH INVESTMENTS AN NEVER BE TREATED AS TRADING PROFIT/B USINESS PROFIT. APART FROM ABOVE, APPELLANT FURTHER STATES THAT A P ERUSAL OF THE BALANCE SHEET OF THE APPELLANT WOULD SHOW, ITS ENTI RE INVESTMENT PORTFOLIO CAME OUT OF ITS OWN FUNDS, THERE BEING NO BORROWINGS WHATSOEVER, FAR LESS, ANY BORROWINGS FOR MAKING INV EST IN SECURITIES. FOR THAT REASON, AS WILL BE SEEN FROM T HE PROFIT AND LOSS ACCOUNT, THE APPELLANT DID NOT INCUR ANY EXPEN DITURE IN THE FORM OF INTEREST ON BORROWINGS THE ABOVE CLEARLY DE MONSTRATED THAT THE APPELLANT WAS AN INVESTOR AND NOT A DEALER IN SHARES. 1.3 THE APPELLANT FURTHER SUBMITS FOLLOWING CHART S HOWING SHORT TERM AND LONG TERM CAPITAL GAIN SHOWN IN RETURN OF INCOME ALONG WITH NUMBER OF SCRIPS WHICH SUBSTANTIATES THE CLAIM OF HER THAT SHE HAS BEEN HOLDING THE SHARES FOR INVESTMENT AND NOT FOR TRADING PURPOSE AS ALLEGED BY ASSESSING OFFICER. PARTICULARS AMOUNT NO. OF SCRIPTS NUMBER OF TRANSACTIONS % OF GAIN SHORT TERM CAPITAL GAIN 19,13,201 36 41 24.14% LONG TERM CAPITAL GAIN TAXABLE (NON INDIAN COMPANY) CONSIDERED BY AO AS LONG TERM AS HELD BY MORE THAN 17 YEARS 42,87,501 1 1 ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 -4- NON TAXABLE U/S. 17,25,799 7 9 TOTAL 60,13,300 10 75.86% GRAND TOTAL 79,26,501 51 100% IT IS STATED THAT OUT OF TOTAL CAPITAL GAIN EARNED DURING THE YEAR, MORE THAN 75% GAIN ARE FROM LONG TERM CAPITAL GAIN WHICH PROVES THAT APPELLANT IS NOT CARRYING OUT ANY TRADI NG ACTIVITY AND APPELLANT IS HOLDING THE SHARES FOR SUBSTANTIAL PER IOD. THE AVERMENTS MADE BY THE LEARNED COUNSEL IN THE ST ATEMENT OF FACT HAVE NOT BEEN CONTROVERTED BY THE REVENUE. THE CIT(A) AF TER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ARGUME NTS OF BOTH THE SIDES HELD AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS ALONG WITH THE JUDICIAL PRONOUNCEMENTS AS WELL AS THE CIRCULAR ISSUED BY THE CBDT, SUPRA, AS RELIED UPON FROM THE DETAILS FURNISHED BY THE A.R. IT IS SEEN THAT THOUG H THERE ARE TRANSACTIONS OF PURCHASES AND SALES DURING THE YEAR , MAJORITY OF SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITA L GAIN HAS RESULTED FROM SALE OF UNITS OF MUTUAL FUNDS, WHICH CAN NOT BE TRADED IN THE MARKET . IT IS ALSO A FACT THAT THE APPELLAN T HAS IN FACT ACQUIRED MOST OF THE SHARES BY SUBSCRIBING TO THE P UBLIC ISSUES MADE BY THE ABOVE COMPANIES AND HENCE, THERE IS FOR CE IN THE APPELLANT'S ARGUMENT THAT THIS FACTOR IS A STRONG I NDICATOR OF ITS INTENTION TO MAKE INVESTMENT THEREIN AND THE A.O. W AS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT WAS TRADING IN SHARES , JUST BECAUSE IT CHOSE TO SELL THE SHARES AT APPROPRIATE TIME WITH A VIEW TO AUGMENT HER WEALTH. THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS.19,13,201/- IS, THEREFORE, LIABLE TO BE TAXED U/S. 111A @ 10% AND THE SAME SHOULD NOT BE TREATED AS BUSINESS INCO ME AND TAXED ACCORDINGLY. I ALSO AGREE WITH THE CONTENTION OF TH E A.R. THAT THE LONG TERM CAPITAL GAIN OF RS.17,25,799/- WAS EXEMPT AND HENCE THE SAME COULD NOT BE TREATED AS BUSINESS INCOME AND TA XED. BY FOLLOWING SEVERAL CASE LAWS AND THE CBDT'S CIRCULAR RELIED UPON BY THE A.R. OF THE APPELLANT. I AM OF THE VIEW THAT A CONCLUSION THAT THE APPELLANT WAS DEALING IN SHARES MERELY ON THE B ASIS OF NUMBER OF TRANSACTIONS MADE, COULD NOT BE ARRIVED AT. I FI ND THAT THE INTENTION OF THE APPELLANT WAS TO ONLY MAKE INVESTM ENT IN SHARES WITH A VIEW TO EARN DIVIDEND INCOME. THE A.O. IS, T HEREFORE, ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 -5- DIRECTED NOT TO TREAT BOTH SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN AS BUSINESS INCOME OF THE APPELLA NT. 3. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE LEARNED CIT(A) . IT IS NOT DISPUTE THAT OUT OF TOTAL CAPITAL GAIN OF RS.79,26,501/-, THE AO HIMSELF HAS ACCEPTED THE ASSESSEES CONTENTION WITH REGARD TO THE CAPITA L GAIN OF RS.42,87,501/- . ONLY IN RESPECT OF OTHER ITEMS, HE HELD IT TO BE BUSINESS INCOME. THE INVESTMENT WAS BY ASSESSEES OWN FUND AND NO BORROW ED MONEY WAS INVOLVED AND IN THE BOOKS OF ACCOUNTS OF THE ASSESS EE, YEAR AFTER YEAR, IT WAS SHOWN AS INVESTMENT AND NOT AS STOCK-IN-TRADE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A), THE SAME IS SUSTAINED AND THE REVENUES APPEAL IS D ISMISSED. 4. THE CO IS ONLY IN SUPPORT OF THE ORDER OF THE CI T(A). THE SAME BEING INFRUCTOUS, THE CO IS ACCORDINGLY, DISMISSED. 5. IN THE RESULT, THE REVENUES APPEAL AS WELL AS C O IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 10 TH JUNE, 2011 SD/- SD/- (D.K. TYAGI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 10-06-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD