ACIT 14(3), MUMBAI V. TRIPURAPRASAD N. PANDYA, MUMBAI

ITA 1336/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8378 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: D BHASKARA RAO
• Keywords: Business income; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, E, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) ACIT 14(3) 6 TH FL, EARNEST HOUSE, NARIMAN POINT MUMBAI .APPELLANT VS TRIPURAPRASAD N PANDYA PANDYA HOUSE, 10 HAMALWADI DHOBI TALAV MUMBAI-400002 PAN:AACPP3026H .RESPONDENT ASSESSEE BY : SHRI D BHASKARA RAO REVENUE BY : SHRI SUMEET KUMA R O R D E R PER VIJAY PAL RAO THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 24.11.2009 FOR THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL, HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATI ON AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, THE CIT(A) IS JUSTIFIED HOLDING THAT THE IN COME DERIVED BY THE ASSESSEE FROM SHARE TRANSACTIONS IS A SHORT TERM CAPITAL GAIN OR BUSINESS GAIN AS ASSESSED BY THE AO. ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 2 3. THE ASSESSEE FILED ITS RETURN OF INCOME ON 1.7.2 006 DECLARING TOTAL INCOME OF RS.24,31,963/- AND HAS S HOWN IN THE STATEMENT OF CAPITAL GAIN AS SHORT TERM CAPITAL GAI N OF RS.25,92,222/- AND SHORT TERM CAPITAL LOSS OF RS.1 ,65,535/- ACCORDINGLY, THE NET SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AS RS.24,26,687/-. THE AO NOTED THAT THE ASSESSEE INCLUDED THE SPECULATION PROFIT OF RS.32,297/- AN D SPECULATION LOSS OF RS.9,560/- ON CERTAIN SCRIPTS IN THE SHORT TERM CAPITAL GAIN /LOSSES. THIS SPECULATION PROFIT AND LOSS IS PERTAINING TO THE TRANSACTIONS WHICH ARE IN THE SPECULATING NATU RE EITHER INTERA DAY OR WITHIN A DAY. THE AO ASKED THE ASSE SSEE TO EXPLAIN AS TO WHY THE SHORT TERM CAPITAL GAIN SHOU LD NOT BE TREATED AS BUSINESS INCOME CONSIDERING THE FREQUENC Y OF TRANSACTION OF PURCHASE AND SALE OF THE SHARES AS W ELL AS SHORT PERIODS BETWEEN THE SALE AND PURCHASE OF THE SHARES. THE ASSESSEE REPLIED VIDE LETTER DATED 25.11.2008 AND SUBMITTED THE ASSESSEE IS ONLY, THE INVESTOR AND IN VESTING IN THE SHARES FOR SEVERAL YEARS SHOWING THE SHARES AS INVESTMENT AND THERE HAS BEEN NO CHANGE IN MODUS OPERANDY OF T HE ASSESSEE IN CARRYING OUT THE INVESTMENT ACTIVITIES . SINCE BEGINNING, THE ASSESSEE HAS NOT TAKEN ANY LOAN BUT THE INVESTMENT IN SECURITIES IS OUT OF HIS OWN FUNDS. THE ASSESSEE HAS ALSO POINTED OUT THAT IN THE EARLIER YEARS THE ASSESSEES ACTIVITY OF INVESTMENT AND SHOWING THE CAPITAL GAI N ON SALE OF ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 3 SHARES WAS ACCEPTED BY THE DEPARTMENT AND SINCE TH ERE IS NO CHANGE IN THE ACTIVITY OF THE ASSESSEE THE SAME CAN NOT BE TREATED AS BUSINESS INCOME FOR THIS YEAR. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND WAS OF T HE VIEW THAT IN THE EARLIER YEARS WHEN THE SHORT TERM CAPI TAL GAIN AND BUSINESS INCOME WERE TAXED AT THE SAME FLAT RATE, THEREFORE, THE CONTENTION OF THE ASSESSEE DOES NOT CARRY MUCH WEIGHT AND ACCORDINGLY THE AO TREATED THE INCOME FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME OF THE ASSESS EE.. 4. ON APPEAL, THE CIT(A) HAS HELD THAT IN THE MAJO RITY OF THE TRANSACTIONS THE ASSESSEE HELD THE SECURITIES A ND SHARES FOR MORE THAN 60 DAYS AND ONLY RS.3,54,725/- WORTH SHARES SOLD WERE HELD FOR LESS THAN 30 DAYS. THE CIT(A) WA S OF THE VIEW THAT THE INCOME CANNOT BE ASSESSED UNDER A DIFFERENT HEAD OF INCOME MERELY BECAUSE THE TAXABILITY OF THE SAME UNDER A DIFFERENT HEAD RESULT IN INCREASE IN REVENU E BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CAS E OF GOPAL PUROHIT 20 DTR 99 (22 TTJ MUM 87). 5. BEFORE US, THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT THE SPECULATION TRANSACTIO NS IN AS MANY AS 31 TRANSACTIONS AS DETAILS ARE GIVEN AT PA GE 2 OF THE ASSESSMENT ORDER. IN THE CASE OF INCOME TAX, PRINCI PLE OF ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 4 RESJUDICATA IS NOT APPLICABLE AND THE TRANSACTION H AS TO BE CONSIDERED INDEPENDENTLY BY TREATING EACH ASSESS MENT YEAR AS A SEPARATE UNIT. THE INTENTION OF THE PARTY HAS TO BE SEEN FOR DETERMINING THE NATURE OF THE TRANSACTIONS. HE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT T HE NUMBER OF TRANSACTIONS AND THE FREQUENCY OF THE TRANSACTIO NS IS VERY HIGH, THEREFORE, IT IS CLEAR THAT INTENTION OF THE ASSESSEE WAS TO EARN THE PROFIT FROM THE PURCHASE AND SALE OF THE S HARES AND NOT THE INTENTION OF HOLDING THE SECURITIES FOR INV ESTMENT PURPOSES. HE HAS FURTHER CONTENDED THAT THE TRANSA CTIONS CARRIED OUT BY THE ASSESSEE ARE ON REGULAR BASIS AN D FREQUENTLY. THE QUANTITY OF THE PURCHASE AND SALE ARE JUDGED WHICH SHOWS THE MOTIVE OF THE ASSESSEE WAS TO EARN THE PROFIT IN THE SHORTEST POSSIBLE PERIOD. THERE IS NO INTEN TION TO MAKE INVESTMENT AND EARN THE DIVIDEND FROM THE SHARE PUR CHASED AND SALE OF IT ON APPRECIATION OF PRICE. SINCE MOS T OF THE SHARE ARE PURCHASED IN SECONDARY MARKET AND NOT F ROM PRIMARY MARKET WITH THE INTENTION TO KEEP THE INVE STMENT BUT THE ASSESSEE HAS SOLD-OUT MOST OF THE SHARES IN SHO RT TIME. THEREFORE FROM THE PATTERN OF THE ACTIVITY OF THE PURCHASE AN SALE, IT IS CLEAR THAT THE ASSESSEE WAS PURCHASING AND SELLING SCRIPTS WITH AN INTENTION TO EARN PROFIT IN THE SH ORTEST POSSIBLE TIME. HE HAS RELIED UPON THE ORDER OF THE AO. ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 5 6. ON THE OTHER HAND, THE LEARNED AR HAS CONTENDED THAT THE ASSESSEE HAS BEEN INVESTING IN SHARES FOR THE P AST SEVERAL YEARS, SHOWING THE SAID SHARES AS INVESTMENT AND H AS DECLARED CAPITAL GAINS ON SALE OF SHARES AS AND WHE N THE SHARES HAVE BEEN SOLD AND THE GAIN HAS BEEN ASSESSE D TO TAX UNDER THE HEAD CAPITAL GAINS. THE NATURE OF ACTIV ITY IN THE EARLIER YEARS AND IN THE YEAR UNDER CONSIDERATION IS THE SAME. THERE HAS BEEN NO CHANGE IN MODUS OPERANDI NOR IN T HE MANNER OF CARRYING ON INVESTMENT ACTIVITY. HE HAS FURTHER CONTENDED THAT MERE CHANGE IN LAW IN RELATION TO C HANGE IN THE RATE OF TAX IN RESPECT OF SHORT TERM CAPITAL G AINS FROM NORMAL RATE OF TAX TO SPECIAL RATE OF TAX WOULD NO T ALTER THE HEAD OF INCOME UNDER WHICH THE GAINS OUGHT TO BE A SSESSED. THE INCOME CANNOT BE ASSESSED UNDER A DIFFERENT HEA D OF INCOME MERELY BECAUSE THE TAXABILITY OF THE SAME U NDER A DIFFERENT HEAD RESULT IN INCREASE IN REVENUE 7 THE LEARNED AR ALSO SUBMITTED THAT THE ASSESSEE W AS HOLDING THE SHARES AS INVESTMENT AND IT IS THE IN TENTION OF THE ASSESSEE WHICH WAS TO BE SEEN TO DETERMINE THE NAT URE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE NUMBER OF TRANSACTIONS IN THE INVESTMENT IN SHARES ARE MANY BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTIONS. THERE WAS NO BASIS FOR TREATING THE INVESTMENT ACTIVITY OF TH E ASSESSEE AS ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 6 TRADING IN SHARES, WHEN HIS INTENTION WAS TO HOLD S HARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT A STOCK IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHA NGE THE NATURE OF TRANSACTIONS. THEREFORE, IT IS SUBMITTED THAT INCOME FROM SALE OF SHARES REFLECTED IN INVESTMENT ACCOUNT IS LIABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT BUSINESS INCOME 8. THE LEARNED AR FURTHER SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAS MADE INVESTMENTS IN SECURITIES OUT OF ITS OWN FUNDS AND INVESTMENT IN SECURITIES WAS MADE WIT H INTENTION OF CAPITAL APPRECIATION AND EARNING DIVID END INCOME. HE HAS RELIED UPON THE DECISION OF HON. HIGH COURT IN THE CASE OF CIT V/S GOPAL PUROHIT REPORTED IN 228 CTR BOM 58 AND THE ORDER OF THIS TRIBUNAL IN THE CASE OF SHAR E STOCK BROKING PRIVATE LIMITED IN ITA NO.799/MUM/2009 ORD ER DATED 24.11.2010(AY 2005-06). 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS CARRIED OUT AS MANY AS 253 TRANSACTIONS OF PURCHASE AND E QUAL NUMBER OF SALE DURING THE PERIOD RELEVANT FOR AY U NDER CONSIDERATION. THE ASSESSEE HAS ALSO INDULGED IN T HE SPECULATIVE TRANSACTIONS IN AS MANY AS 31 SUCH TRA NSACTIONS ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 7 AS RECORDED BY THE AO. IT IS PERTINENT TO NOTE T HAT NONE OF THE SCRIPT HAS BEEN RETAINED BY THE ASSESSEE UP T O ONE YEAR AND ALL THE SECURITIES WHICH WERE PURCHASED BY THE ASSESSEE DURING THE YEAR WERE SOLD WITHIN THE YEAR. THE NU MBER OF TRANSACTIONS WERE SOLD WITHIN THE PERIOD OF 10 DAY S AND THE HOLDING PERIOD OF AROUND 100 OF THE TRANSACTIONS I S LESS THAN 30 DAYS. TAKING LOAN OR UTILIZED IS OWN FUND IS NO T THE SOLE CRITERIA FOR DETERMINING THE NATURE OF TRANSACTION S AS INVESTMENT OR TRADING ACTIVITIES. THIS IS NOT A CASE WHERE THE ASSESSEE IS MAINTAINING MORE ONE PORTFOLIO IN THE BOOKS OF ACCOUNT WHERE SOME SHARES ARE KEPT FOR INVESTMENT AND OTHERS FOR TRADING BY DEALING UNDER SEPARATE ACCOU NT. THE ASSESSEE IS NOT MAINTAINING THE BOOKS OF ACCOUNT BU T DOING THE PURCHASE AND SALE ACTIVITIES IN LARGE NUMBER OF THE SECURITIES AND WITH A HIGH FREQUENCY. THE PRINCIPLE OF RESJUDICATA IS NOT STRICTLY APPLIED IN THE MATTER OF INCOME TAX. THERE IS NO STRAIGHT JACKET FORMULAE TO DETERMINE T HE NATURE OF TRANSACTION IN THE CASE OF PURCHASE AND SALE OF SC RIPTS. EACH CASE HAS TO BE DECIDED ON THE BASIS OF PECULIAR FAC TS AND CIRCUMSTANCES OF THE SAID CASE. THEREFORE, THE DEC ISION IN THESE MATTERS CANNOT BE TAKEN AS RATIO LAID DOWN AN D CAN ONLY BE TAKEN A GUIDELINES FOR DECIDING THE ISSUE . IN THE TOTALITY OF THE CIRCUMSTANCES WHEN THE ASSESSEE IS DOING THE HUGE NUMBER OF TRANSACTIONS AND NONE OF THE SECURI TY WAS ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 8 RETAINED EVEN FOR ONE YEAR THEN IT IS IMPOSSIBLE TO ACCEPT THE CONTENTION OF HE ASSESSEE THAT THE INTENTION OF THE ASSESSEE WAS ONLY TO INVEST IN THE SECURITIES. IN ORDER TO DETERMINE WHETHER THE SECURITIES WERE PURCHASED FOR INVES TMENT OR FOR BUSINESS PURPOSES TO GET THE INCOME IN THE SHORTEST POSSIBLE PERIOD IT HAS TO BE SEEN FROM THE FREQUENCY AND N UMBER OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS CARRIED OU T THE TRANSACTIONS ON REGULAR BASIS AND MOST OF THE TIME ON DAILY BASIS WHICH CLEARLY GOES TO SHOW THAT THE ASSESSEE WAS ACTIVELY INVOLVED IN THE PURCHASE AND SALE OF THE S HARES AND THERE CANNOT BE OTHER MOTIVE THAN TO EARN THE PROF IT IN THE SHORTEST POSSIBLE PERIOD. MOREOVER, IN THE SOME OF THE CASES THE ASSESSEE HAS CARRIED OUT THE SPECULATIVE TRAN SACTIONS AND THE HOLDING PERIOD FOR GOOD NUMBER OF TRANSACT IONS, IS ONLY FOR FEW DAYS THAT IS LESS THAN 10 DAYS. THUS, FROM THE FACTS IT IS CLEAR THAT THE ASSESSEE HAD NO INTENTI ON TO HOLD THE SHARES FOR LONGER PERIOD FOR APPRECIATION OF THE IN VESTMENT AND EARNING THE INCOME OF DIVIDEND INCOME BUT THE MOTIV E OF THE ASSESSEE IS QUITE APPARENT FROM THE FREQUENCY AND THE VOLUME OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. A CCORDINGLY, THE CASE RELIED UPON BY THE ASSESSEE ARE NOT RELEVA NT AND APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE. HENCE ITA NO. 1336/MUM/2010 (ASSESSMENT YEARS 2006-07) 9 WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE T HAT OF THE AO. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 18TH FEB, 2011 SD SD (J.SUDHAKAR REDDY) (V IJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 18 TH DAY OF FEB 2011 SRL:11211 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI