ACIT, CHENNAI V. Shri S.Ashok, CHENNAI

ITA 1341/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58130 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 21-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Salary income; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER] I.T.A.NO.1341/MDS/2011 ASSESSMENT YEAR : 2006-07 THE ACIT COMPANY CIRCLE IV(3) CHENNAI VS SHRI S.ASHOK A-1, SRIVATSAM NO.58, THIRUMALAI PILLAI ROAD T. NAGAR, CHENNAI 600 017 [PAN AAEPA4238N] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : NONE DATE OF HEARING : 19-03-2012 DATE OF PRONOUNCEMENT : 23-3-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVE NUE AGAINST THE ORDER OF THE LD.CIT(A)-V, CHENNAI, DATED 4.5.2011, BY RAISI NG THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. =<: 2. THE LEARNED CIT(A) ERRED IN HOLDING THE INCOME EARNED BY THE ASSESSEE BY PURCHASE AND SALE OF NUMBER OF SHARES AND SELLING THEM AT SHORT PERIOD INTERVALS, AS SHORT TERM CAPITAL GAINS AS AGAINST T HE TREATMENT OF THE SAME BY THE A.O. AS BUSINESS INCOME. I.T.A.NO.1341/11 :- 2 -: 3.THE LEARNED CIT(A) FAILED TO CONSIDER THE FACT THAT THE ASSESSEE HIMSELF OFFERED THE INCOME FROM THE SALE OF SHARES BY A REVISED STATEMENT , PARTLY AS SHORT TERM CAPITAL GAINS AND PARTLY AS BUSINESS INCOME. 4. IT IS SUBMITTED THAT FOR THE SUBSEQUENT A.Y. 200 8- 09, THE RELEVANT INCOME HAS BEEN RETURNED BY THE ASSESSED AS BUSINESS INCOME. 5. HAVING REGARD TO THE DECISION OF THE SUPREME COURT IN THE CASE OF G. VENKATA SWAMI NAIDU & CO. VS. CIT(1959) 35 ITR 594 THE LEARNED CIT(A) OUGHT TO HAVE APPLIED THE PRINCIPLES LAID DOWN THEREIN AND UPHELD THE ACT I ON OF THE ASSESSING OFFICER. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 2. THE CRUX OF THE ISSUE INVOLVED IN ALL THE ABOVE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE LD.CIT(A) HAS ER RED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE FROM PURCHASE AN D SALE TRANSACTIONS OF SHARES WITHIN SHORT INTERVALS WAS S HORT TERM CAPITAL GAINS AS AGAINST BUSINESS INCOME HELD BY THE ASSESS ING OFFICER. 3. NOTICES FOR HEARING OF THE APPEAL ON 20.10.2011 AND 5.1.2012 WERE SENT BY REGISTERED POST WITH ACKNOWLEDGE DUE T O THE ASSESSEE AND SERVED ON THE ASSESSEE. WHEN THE CASE WAS CAL LED FOR HEARING ON THE ABOVE DATES, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. THEREFORE, NOTICE FOR HEARING OF THE APPEAL ON 19.3 .2012 WAS SENT THROUGH LD.DR. THE LD. DR, TODAY, DURING THE COURS E OF HEARING, HAS FILED A LETTER DATED 1.2.2012 OF THE ACIT, COMPANY CIRCLE IV(3)(I/C), I.T.A.NO.1341/11 :- 3 -: CHENNAI, WHEREIN IT HAS BEEN STATED THAT NOTICE OF HEARING WAS SERVED ON SHRI S.ASHOK, ON 31.1.2012 FOR WHICH ACKNOWLEDGE MENT OF THE RECEIPT OF NOTICE BY SHRI S.ASHOK HAS ALSO BEEN FIL ED. WHEN THE CASE WAS CALLED FOR HEARING TODAY, NONE WAS PRESENT ON B EHALF OF THE ASSESSEE. THEREFORE, THE BENCH PROCEEDED TO HEAR THE APPEAL EX- PARTE QUA THE RESPONDENT-ASSESSEE AND DISPOSE OF ON MERITS. 4. WE HAVE HEARD THE LD. DR, WHO RELIED ON THE ORDE R OF THE ASSESSING OFFICER. 5. THE BRIEF FACTS OF THE CASE ARE THAT IN THE INST ANT CASE THE ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 ON 27.7.2006 DECLARING TOTAL INCOME OF ` 48,05,572/-. THE INCOME INCLUDED SALARY OF ` 5,50,000/- RECEIVED BY THE ASSESSEE AS DIRECTOR FROM M/S MPL AUTOMOBILE AGENCY PRIVATE LTD, SHORT T ERM CAPITAL GAINS FROM LISTED SHARES OF ` 30,49,529/- AND OTHER PROFESSIONAL INCOMES FROM CONSULTANCY AS CHARTERED ACCOUNTANT AND INSURA NCE ADVISORY SERVICES. THE ASSESSEE, ON QUERY BY THE ASSESSING OFFICER, CONTENDED BEFORE THE ASSESSING OFFICER THAT THE GAINS FROM PU RCHASE AND SALE OF SHARES OF LISTED COMPANIES AMOUNTING TO ` 30,49,529/- WAS INCOME FROM SHORT TERM CAPITAL GAINS AND WAS NOT FROM TRAD ING IN SHARES BY THE ASSESSEE BECAUSE IT WAS NOT A ROUTINE ACTIVITY OF THE ASSESSEE AS HE WAS ENGAGED AS A DIRECTOR OF M/S MPL AUTOMOBILE AGENCY PRIVATE LTD LOOKING AFTER THE DAY-TO-DAY AFFAIRS OF THE COM PANY AND WAS ALSO I.T.A.NO.1341/11 :- 4 -: ENGAGED IN CONSULTANCY AS A CHARTERED ACCOUNTANT AN D INSURANCE ADVISORY SERVICES. THE ASSESSING OFFICER OPINED TH AT IT IS SEEN FROM THE DETAILS THAT THE ASSESSEE HAS PURCHASED AND SO LD IN ALL 443 INSTANCES OF PURCHASES AND SHARES WHICH HAVE BEEN E FFECTED WITHIN A PERIOD OF AS LOW AS 10 DAYS UPTO A PERIOD OF ONE YE AR AND THEREFORE, THE ACTIVITY IN PURCHASE AND SALE OF SHARES OF THE ASSESSEE WAS A TRADING ACTIVITY. ACCORDINGLY, HE ASSESSED THE GAI NS FROM SUCH TRANSACTIONS AS BUSINESS PROFITS AND GAINS OF THE ASSESSEE AFTER ALLOWING DEDUCTION FOR DEMAT CHARGES AND SECURITIES TRANSACTIONS TAX. 6. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL B EFORE THE LD.CIT(A). THE LD.CIT(A) VACATED THE DISALLOWANCE . 7. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIA LS AVAILABLE ON RECORD. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE PROFIT ON SALE OF SHARES OF ` 30,49,529/- DERIVED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS OR IS ASS ESSABLE UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE CLAIMED THE INCOME AS SHORT TERM CAPITAL GAINS IN HIS RETURN OF INCOME. THE AS SESSING OFFICER OBSERVED THAT THE NUMBER OF TRANSACTIONS ENTERED IN TO BY THE ASSESSEE DURING THE YEAR WAS 443 TRANSACTIONS AND T HEREFORE, HELD THAT THE INCOME WAS ASSESSABLE UNDER THE HEAD BUSINESS INCOME. ON THE OTHER HAND, THE LD.CIT(A) HELD THAT THE INCOME WAS WAS ASSESSABLE UNDER THE HEAD CAPITAL GAINS BY OBSERVING AS UNDE R: I.T.A.NO.1341/11 :- 5 -: 4. I HAVE CAREFULLY CONSIDERED THE FACTS AS WEL L AS THE ARGUMENTS OF THE LEARNED AUTHORISED REPRESENTATIVE. I HAVE ALSO GIVEN SERIOUS CONSIDERATION TO ALL THE PRECEDE NTS RELIED ON BY THE LEARNED AUTHORISED REPRESENTATIVE. THE MAIN THRUST OF THE ARGUMENT IS THAT THE APPELLANT HAS BEEN ONLY AN INVESTOR ALL ALONG AND THE TRANSACTIONS IN SUCH INVESTMENTS HAVE BEEN SHOWN UNDER CAPITAL GAINS IN ALL THE EARLIER YEARS, THE MAGNITUDE OF THE TRANSACTIONS ARE NOT VOLUMINOUS AN D EVEN IF THEY ARE, THE SAME CANNOT BE A GROUND FOR T REATING THE ACTIVITY AS BUSINESS IN THE PLACE OF INVESTMENT, TH E TRANSACTIONS ARE DELIVERY BASED TRANSACTION AND NO BORROWED FUNDS WERE USED FOR MAKING SUCH INVESTMENTS AND THE PLETHORA OF DECISIONS QUOTED SUPPORT HIS PLEA T HAT THE INCOME FROM THE LONG TERM CAPITAL GAINS/ SHORT TERM CAPITAL GAINS SHOULD BE TAXED UNDER THESE HEADS ONLY AND N OT TREATED AS BUSINESS INCOME. 5. THERE IS NO DISPUTE ABOUT THE FACT THE APPELLAN T IS INDEED DEALING IN INVESTMENT IN SHARES IN THE PAST FOR MA NY YEARS AND OFFERED THE SAME UNDER THE HEAD CAPITAL GAINS. IT IS ALSO TRUE THAT THE FINANCE ACT 2004 IMPOSED SECURITIES T RANSACTION TAX ON SALE AND PURCHASE OF SHARES WHETHER THE ASSE SSEE EARNS PROFIT OR NOT OR SUFFERS A LOSS AND SIMULTAN EOUSLY THE LEGISLATURE EXEMPTED LONG TERM CAPITAL GAINS U/S 10 (38) FROM THE LEVY OF TAX AND SUBJECTED TO TAX @ 10% ON SHORT TERM CAPITAL GAINS PROVIDED SECURITIES TRANSACTION TAX H AS BEEN PASSED ON SUCH TRANSACTIONS. IN THIS CONTEXT THE HO N'BLE ITAT IN THE CASE OF GOPAL PUROHIT VS. JCIT 122 TT J 87 HELD AS UNDER IN PARA 8.1:- 6. 'IN OUR VIEW, THE LEGISLATIVE CHANGE OF THIS N ATURE, WHEREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE AND MO DUS OPERANDI OF SUCH SHARE TRANSACTIONS, RESULTING INT O ANY ADVANTAGE CANNOT BE TAKEN AWAY BY THE REVENUE AUTHO RITIES IN THIS MANNER AND IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT, PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EX CEPTION TO THE PRINCIPLE RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX I S MANDATORY I.E. WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO INDIVIDUAL(S) ENTERIN G INTO THESE TRANSACTIONS. THUS, IN OUR VIEW, IN THE FACTS AND C IRCUMSTANCES OF THE CASE, ON THE BASIS OF PRINCIPLE OF CONSISTEN CY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE Q UASHED'. I.T.A.NO.1341/11 :- 6 -: 7. ANOTHER IMPORTANT ASPECT TO BE CONSIDERED HERE IS THAT THE APPELLANT IS NOT A SHARE BROKER NOR HE IS HAVING A REGISTRATION WITH ANY STOCK EXCHANGE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THERE WERE ANY DERIVATIVE TRANSACTIONS BY THE APPELLANT NOR IT IS THE CASE OF THE ASSESSING O FFICER THAT THERE WERE TRANSACTIONS WITHOUT ANY DELIVERY. THE I NTENTION OF THE APPELLANT CANNOT BE READ FROM HIS MIND BUT IT REFLECTS IN HIS CONDUCT, THE WAY HE TREATS THE TRANSACTIONS. T HE APPELLANT HAS NOT BORROWED ANY MONEY FOR INVESTING IN SHARES AND USED HIS OWN SURPLUS FUNDS AND THESE FACTS ARE BORNE OU T ON RECORD. YET ANOTHER ASPECT, AS RIGHTLY STRESSED BY THE LEARNED AUTHORISED REPRESENTATIVE IS THE FACT THAT THE APPE LLANT HAS RECEIVED SUBSTANTIAL DIVIDEND AND THAT IS ALSO DISC LOSED IN THE RETURN OF INCOME FILED. 8. FURTHER, IN THIS PARTICULAR CASE, IT IS SEEN T HAT THE APPELLANT IS A CHARTERED ACCOUNTANT, AND IS AN INFORMED INVE STOR AND THEREFORE THE GAINS EARNED BY HIM IN THE PURCHASE A ND SALE OF SHARES IN THE STOCK MARKET ARE TO BE TREATED AS SHO RT TERM CAPITAL GAINS AS THE ASSESSEE IS NOT DOING ANY SPEC ULATIVE ACTIVITY NOR INDULGING IN ANY SALES WITHOUT DELIVE RY, THE PARAMETER WHICH MAY TILT A PARTICULAR CASE TO HOLD IT AS TRADING. I FIND UNDER SIMILAR CIRCUMSTANCES IN THE CASE OF SHRI RAMESH BABU RAO VS. ACIT 17 MUMBAI DECIDED BY THE I TAT 'B' BENCH MUMBAI (ITA NO.3719/MUM/2009) ORDER DATE D 13 TH APRIL 2011, THE HON'BLE TRIBUNAL HAS COME TO THE C ONCLUSION THAT THE PROFIT ON SALE OF SHARES HAS TO BE ASSESSE D UNDER THE HEAD CAPITAL GAINS AND NOT UNDER BUSINESS. 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 TRA DE. FOR THE REASONS GIVEN ABOVE, I HOLD THAT THE ENTIRE INCOME FROM THE SALE AND PURCHASE OF SHARES IS TO BE ASSESSED UNDE R THE HEAD 'CAPITAL GAINS' AND AS RIGHTLY DECLARED BY THE APPELLANT AS SHORT TERM CAPITAL GAINS (STCG). I THEREFORE DIR ECT THE ASSESSING OFFICER TO ACCEPT THE CAPITAL GAIN DECLA RED BY THE APPELLANT FROM THE SALE OF SHARES AND DELETE THE A DDITION MADE TREATING THE SHORT TERM CAPITAL GAINS AS BUSIN ESS INCOME. 8. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT RES JUDICATA IS NOT APPLICABLE IN INCOME-TAX PROCEEDINGS AND THEREFORE, AS THE VOLUME OF TRANSACTIONS WAS OF A LARGE MAGNITUDE, I.T.A.NO.1341/11 :- 7 -: THE INCOME OUGHT TO HAVE BEEN ASSESSED UNDER THE HE AD BUSINESS INCOME. 9. WE FIND THAT THE ASSESSEE HAS DERIVED APART FRO M PROFIT ON SALE OF SHARES, INCOME FROM SALARY AS WELL AS INCOM E FROM PROFESSION OF CHARTERED ACCOUNTANCY. THUS, THE ASSESSEE IS N OT FULLY ENGAGED IN SHARE TRANSACTIONS ONLY. FURTHER, WE FIND THAT THO UGH THE PRINCIPLES OF RES JUDICATA IS NOT STRICTLY APPLICABLE IN A TAX PROCEEDING, BU T RULE OF CONSISTENCY IS OF IMPORTANCE AND SHOULD BE FOLLOWED UNLESS THERE IS SUFFICIENT REASON FOR NOT FOLLOWING THE SAME. IN T HE INSTANT CASE, IT IS NOT IN DISPUTE THAT SIMILAR PROFIT EARNED ON SALE O F SHARES HAS BEEN ACCEPTED BY THE DEPARTMENT AS ASSESSABLE UNDER THE HEAD CAPITAL GAINS IN THE PAST IN THE CASE OF THE ASSESSEE. T HEREFORE, THE RULE OF CONSISTENCY REQUIRES ACCEPTANCE OF THE SAME UNLESS THERE IS SUFFICIENT CAUSE FOR HOLDING OTHERWISE. IT IS AN ESTABLISHED POSITION OF LAW THAT THE INTENTION AT THE TIME OF THE PURCHASE WILL DETE RMINE THE CHARACTER OF THE TRANSACTIONS WHETHER IT WAS ACQUIRED FOR TRA DING PURPOSES OR FOR THE PURPOSES OF INVESTMENT. THE INTENTION IS TO BE GATHERED FROM THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE. NO SIN GLE FACTOR ALONE CAN DECIDE THE NATURE OF THE TRANSACTION OR THE INTENTI ON OF THE PURCHASER. THEREFORE, ONLY BECAUSE THE VOLUME OF TRANSACTION W AS LARGE, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS NOT J USTIFIED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE SHARES WER E ACQUIRED WITH THE I.T.A.NO.1341/11 :- 8 -: INTENTION OF INVESTMENT. WE FIND NO ERROR IN THE FINDING OF THE LD.CIT(A) THAT THE SHARES WERE PURCHASED BY THE AS SESSEE WITH HIS OWN SURPLUS FUNDS AND NO BORROWED FUNDS WERE UTILIZ ED COULD BE POINTED OUT BY THE REVENUE. FURTHER, NO ERROR IN THE FINDING OF THE LD.CIT(A) THAT IN NO TRANSACTIONS SHARES WERE SOLD WITHOUT ACTUAL DELIVERY COULD BE POINTED OUT BY THE REVENUE. IN R ESPECT OF PERIOD OF HOLDING OF SHARES, THE ASSESSING OFFICER HIMSELF OB SERVED THAT MINIMUM PERIOD OF HOLDING WAS 10 DAYS AND THE PERIO D OF HOLDING WAS ALSO UPTO ONE YEAR. THE REVENUE COULD NOT BRING AN Y MATERIAL BEFORE US TO SHOW THAT IN MAXIMUM NUMBER OF CASES HOLDING PERIOD WAS VERY LESS OR NORMAL. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE AS AVAILABLE BEFORE US, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). IT IS CONFIRMED. THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.3.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 23 RD MARCH, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR