ACIT CIR 21(3), MUMBAI V. V. BHARATHI, MUMBAI

ITA 1394/MUM/2010

• Counselvise Citation: 139419914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 27-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: MANISH SANGHAVI
• Keywords: Business income
• Section: 148

Judgement Text

1 ITA 1394 /M/2010 MS. V. BHARATHII IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI R.K. PA NDA, A.M. ITA NO. 1394/MUM/2010 ASSESSMENT YEAR 2006-07 ASST. COMMISIONER OF INCOME TAX CIR. 21(3), ROOM NO. 501, BLDG. 5 TH FLOOR, C-11, PRATYAKSH KAR BHAVAN, BKC, BANDRA (E), MUMBAI -51. VS. MS. V. BHARATHI, 706-B, BLUE HEAVEN, RAHEJA VIHAR, POWAI, NEAR CHANDIVALI STUDIO, ANDHERI EAST, MUMBAI.400 076. PAN ABTPV1430F APPELLANT RESPONDENT APPELLANT BY SMT. ASHIMA GUPTA RESPONDENT BY MR. MANISH SANGHAVI ORDER PER R.K. PANDA A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18.12.2009 OF CIT(A)- 32, MUMBAI RELATING TO A.Y. 2006-07. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND FILED HER RETURN OF INCOME ON 10 TH JULY, 2006 DECLARING NIL INCOME. THE ASSESSEE HAS NOT FILED CAPITAL ACCOUNT AND BALANCE SHEET. S HE HAD SHOWN SHORT TERM CAPITAL GAIN OF ` 22,45,030/- AND OFFERED TAX @ 10%. IN ABSENCE OF CAPITAL ACCOUNT AND BALANCE SHEET, THE SHORT TERM CAPITAL G AIN SHOULD BE TREATED AS BUSINESS INCOME. SINCE THE ASSESSEE HAD OFFERED LO WER TAX, THE A.O. REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 OF THE ACT . 2 ITA 1394 /M/2010 MS. V. BHARATHII 3. DURING THE COURSE OF REASSESSMENT PROCEEDING, TH E A.O. ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SHORT TERM CAP ITAL GAIN SHOULD NOT BE TREATED AS HER BUSINESS INCOME. THE ASSESSEE SUBMI TTED THAT SHE EARNED THE SHORT TERM CAPITAL GAIN ONLY FROM 7 SCRIPS NAMELY ( A) ION EXCHANGE, (B) KILBURN ENGINEERING, (C) KIRL FERROUS, (D) MAGNA ELEC., (E) MCNALLY, (F) SUVEN LIFE AND (G) UB ENGINEERING. IT WAS SUBMITTED THAT OUT OF THE 7 SCRIPTS, IN THE CASE OF KILBURN ENGINEERING AND KIRL FERROUS, THE ASSESSEE HAS INCURRED LOSS AND HENCE, THE SHORT TERM CAPITAL GAIN IS ONLY IN THE B ALANCE FIVE SCRIPS. 4. THE A.O. NOTED THAT THE ASSESSEE HAS HELD THE SH ARES FOR MINIMUM 3 MONTHS AND MAXIMUM OF 11 MONTHS. ACCORDING TO THE A.O., WHETHER THE ABOVE PARTICULAR GAIN FROM SALE OF SHARES IS A BUSINESS R ECEIPT OR CAPITAL GAIN DEPENDS ON WHETHER THE ASSESSEE WHO IS SELLING THE SHARES I S A TRADER OR AN INVESTOR IN SHARES AND THE INTENTION OF THE PERSON. HE NOTED T HAT IN THE INSTANT CASE, THE ASSESSEE IS INTERESTED IN MAKING A PROFIT BASED ON THE PRICE DIFFERENCE BETWEEN THE PURCHASE AND SALE PRICE. IN CASE SHE WAS AN INV ESTOR, SHE WOULD HAVE BEEN INTERESTED IN HOLDING THE SHARES FROM THE POINT OF VIEW OF DIVIDEND. FURTHER, THE ASSESSEE DOES NOT HAVE ANY OTHER SIGNIFICANT SO URCE OF INCOME. ACCORDING TO THE A.O., ALTHOUGH, THE MAGNITUDE OF THE TRANSAC TIONS IS NOT VERY LARGE AND THE SHARES HAVE BEEN HELD FOR MINIMUM OF 3 TO 11 MO NTHS AND ALTHOUGH THE FREQUENCY OF THE TRANSACTION CANNOT BE CONSIDERED A S A CRITERION FOR DECIDING WHETHER THE TRANSACTION IN SHARE WAS ONE ON INVESTM ENT ACCOUNT OR ON TRADING ACCOUNT, STILL THE ASSESSEE HAS TO BE TREATED AS A TRADER DERIVING INCOME FROM SHARE TRADING BUSINESS BASED ON HER INTENTION AND C IRCUMSTANCES. ACCORDING TO THE A.O. THE VOLUME OF THE TRANSACTION TRANSACTED B Y THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION AND THAT THE TRANSA CTIONS AS A WHOLE HAS TO BE TAKEN INTO CONSIDERATION. HE FURTHER NOTED THAT LA RGE QUANTITIES OF SHARES (MAXIMUM BEING 20000 (KIRL FERROUS) AND MINIMUM BEI NG 200 SHARES (KILBURN ENGINEERING) WERE SOLD ON EACH DATE. ALTHO UGH, THE ASSESSEE HAS INCURRED LOSSES IN THE ABOVE TWO TRANSACTIONS, THE INTENTION OF THE ASSESSEE 3 ITA 1394 /M/2010 MS. V. BHARATHII BECOMES EVEN MORE EVIDENT AS THIS PROVES THAT SHE I S A VIGILANT TRADER AND HAS APPETITE FOR RISK AND DECIDES TO DISPOSE OFF THE SH ARES AS SOON AS THE PRICES FALL. HE FURTHER NOTED THAT HER HUSBAND AND THE HUF ARE A LSO DEALING IN SHARES WHICH ALSO INDICATE THAT THEY ARE INTO SHARE TRADIN G BUSINESS ON A FULL TIME BASIS. HE NOTED THAT THE ASSESSEE HAS ALSO TAKEN L OANS WHICH WERE USED FOR BUSINESS PURPOSES. IN VIEW OF THE ABOVE, THE A.O. T REATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 5. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE SHA RES WERE PURCHASED WITH THE INTENTION TO HOLD AS INVESTMENT AND THE SAME WE RE SHOWN IN THE BALANCE SHEET AS INVESTMENT ONLY. IT WAS SUBMITTED THAT TH E REASONS FOR TREATING SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INC OME ARE SIMILAR TO THE REASONS RECORDED IN THE ASSESSMENT ORDER FOR THE A. Y. 2005-06. THE CIT(A) HAS ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . SINCE THE ASSESSEE IN THE INSTANT CASE HAS HELD THE SHARES FOR A LONGER PERIO D, THEREFORE, THE SAME SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN AS AGAINST BU SINESS INCOME TREATED BY THE A.O. 5.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE CIT(A) HELD THAT THE ASSESSEE IS MAINLY AN INVESTOR. WHILE DOING SO , HE NOTED THAT THE ASSESSEE HAS MADE INVESTMENTS IN UNLISTED SHARES WHICH WERE SHOWN IN THE BALANCE SHEET AS INVESTMENTS AND VALUED AT COST. THE ASSES SEE DID NOT HAVE ANY OFFICE AND/OR ADMINISTRATIVE SET UP, THERE ARE NO FIXED AS SETS, THE SOURCE OF ACQUISITION OF SHARES WAS OUT OF OWN FUNDS AND FAMI LY FUNDS, THE RATIO OF INVESTMENTS TO SALE AND PURCHASES IS VERY HIGH AND THE FACT THAT THERE WAS NOT A SINGLE INSTANCE WHERE THE ASSESSEE HAD SQUARED OF F THE TRANSACTION ON THE SAME DAY WITHOUT TAKING DELIVERY OF SHARES. HE FURT HER NOTED THAT THERE ARE NO TRANSACTIONS OF LESS THAN 30 DAYS. HE, ACCORDINGLY , DIRECTED THE A.O. TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES AS SHORT TERM CA PITAL GAINS/LOSS. 4 ITA 1394 /M/2010 MS. V. BHARATHII 6. AGGRIEVED BY SUCH ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS BOTH A N INVESTOR AS WELL AS TRADER IN SHARES AND SECURITIES. 2. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE BUSINESS INCOM E ON ACCOUNT OF TRADING IN SHARES AS SHORT TERM CAPITAL GAINS BY APPLYING THE SHARE HOLDING PERIOD FOR SHORT TERM CAPITAL GAIN AS MORE THAN 30 DAYS BUT LE SS THAN 1 YEAR. (II) THE LD. CIT(A) WHILE PROVIDING RELIEF TO THE A SSESSEE HAS TAKEN 30 DAYS AS HOLDING PERIOD OF SHARES TO DISTINGUISH BETWEEN TRA DING AND INVESTMENT. THE DEMARCATION OF 30 DAYS IS ARBITRARY AND NOT IN CONS ONANCE WITH THE CBDTS INSTRUCTION NO. 1827 DATED 31.08. 1989 SUPPLEMENTED WITH CBDT CIRCULAR NO. 4 OF 2007 DATED 15.06.2007. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 7. THE LD. D.R. RELIED ON THE ORDER OF A.O. REFERR ING TO THE ORDER OF THE TRIBUNAL IN THE CASE OF HUSBAND OF THE ASSESSEE MR. V. NAGESH, THE LD. D.R. SUBMITTED THAT THE TRIBUNAL VIDE ITS ORDER IN ITA N O. 5410/M/08 AND C.O. NO. 151/M/09 DATED 24 TH SEPTEMBER, 2009 FOR A.Y. 2005-06 HAS ALLOWED THE APPEAL FILED BY THE REVENUE. IN THAT CASE THE CIT(A ) HAS DIRECTED THE A.O. TO CONSIDER THE TRANSACTION AS INVESTMENT WHERE THE HO LDING PERIOD OF THE SHARES IS MORE THAN 30 DAYS. HE ACCORDINGLY SUBMITTED THAT THE FACTS OF THE CASE BEING SIMILAR TO THAT OF THE HUSBAND OF THE ASSESSEE, THE GAIN OR LOSS ON SALE OF SHARES SHOULD BE TREATED AS BUSINESS INCOME/LOSS. 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, SUBMITTED THAT THE FACTS OF THE CASE OF THE WIFE ARE DIFFERENT FROM TH E FACTS OF THE CASE OF HER HUSBAND. IN THE CASE OF HER HUSBAND, THE SHARES WE RE HELD FOR A FEW DAYS ONLY WHEREAS IN THE CASE OF THE ASSESSEE, THE SHARES WER E HELD FOR A LONGER PERIOD. MERELY BECAUSE THE HUSBAND IS TREATED AS A TRADER, IT CANNOT BE SAID THAT THE WIFE CANNOT BE AN INVESTOR. HE SUBMITTED THAT THE ASSESSEE CAN BE AN INVESTOR 5 ITA 1394 /M/2010 MS. V. BHARATHII WHEN THE OTHER PERSONS OF THE FAMILY ARE TAKING THE RISK OF TRADING IN SHARES. HE SUBMITTED THAT THE ASSESSEE HAD PAID SECURITY TR ANSACTIONS TAX AT HIGHER RATE BECAUSE OF DELIVERY BASED TRANSACTION. HE SUB MITTED THAT THE ASSESSEE HAS ONLY DEALT WITH 7 SCRIPS AND FROM THE CONDUCT OF TH E ASSESSEE, IT CAN BE SAFELY SAID THAT IT IS DEFINITELY FOR INVESTMENT. HE SUBM ITTED THAT IF THE ASSESSEE IS NOT TREATED AS AN INVESTOR AND THE GAIN SO AROSE IS NOT TREATED AS SHORT TERM CAPITAL GAIN, THEN, THE CONCEPT OF SHORT TERM CAPITAL GAIN SHALL BE LOST. HE SUBMITTED THAT IN THE PRECEDING YEAR ALSO, THE ASSESSEE DEALT WITH 5 SCRIPS AND THE GAIN ON SUCH SALE OF SHARES WAS TREATED BY THE A.O. AS BUSI NESS INCOME AND IN APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HOLDIN G THE SAME TO BE SHORT TERM CAPITAL GAIN. HE SUBMITTED THAT THE DEPARTMENT HAS NOT GONE ON APPEAL AGAINST THIS. REFERRING TO THE GROUNDS RAISED BY THE REVENU E, HE SUBMITTED THAT THE CIT(A) HAS GIVEN A FINDING THAT THERE WAS NO TRANSA CTION OF LESS THAN 30 DAYS HOLDING WHEREAS THE REVENUE IN ITS GROUNDS HAS CHAL LENGED THE ORDER OF THE CIT(A) IN GIVING RELIEF TO THE ASSESSEE BY TAKING 3 0 DAYS AS HOLDING PERIOD OF SHARES TO DISTINGUISH BETWEEN TRADING AND INVESTMEN T. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE REVENUE AR E DEVOID OF ANY MERIT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THE ISSUE TO BE DECIDED IN THE INSTANT CASE IS AS TO WH ETHER THE PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES IS ASSESSABLE UNDER THE HEAD SHORT TERM CAPITAL GAINS OR BUSINESS INCOME. THIS ISSUE IN OUR OPI NION IS A VEXED QUESTION DEPENDING ON FACTS AND CIRCUMSTANCES OF EACH CASE, BASED UPON THE PRINCIPLES SET OUT BY VARIOUS JUDICIAL PRECEDENTS. IN THE INST ANT CASE, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE DURING THE YEAR HAS E ARNED CAPITAL GAIN OF ` 22,45,030/- ON ACCOUNT OF TRANSACTIONS IN 5 SCRIPS ONLY SINCE THE ASSESSEE HAS INCURRED LOSS ON THE OTHER TWO SCRIPS. THERE IS ALS O NO DISPUTE TO THE FACT THAT THE HOLDING PERIOD OF THE ABOVE 5 SCRIPS VARY FROM MINIMUM 3 MONTHS TO 11 6 ITA 1394 /M/2010 MS. V. BHARATHII MONTHS. IT IS THE CASE OF THE REVENUE THAT THE ASS ESSEE BY INDULGING IN PURCHASE AND SALE OF SHARES HAS ACTED LIKE A TRADER IN SHARES AND THEREFORE THE INCOME ON ACCOUNT OF PURCHASE AND SALE OF SHARES HA S TO BE TREATED AS BUSINESS INCOME. ACCORDING TO THE ASSESSEE, SHE HAS MADE INVESTMENT IN UNLISTED SHARES WHICH WERE SHOWN IN THE BALANCE SHE ET AS INVESTMENT AND WERE VALUED AT COST, THERE WAS NO SYSTEMATIC BUYING AND SELLING OF SHARES IN AN ORGANIZED MANNER AND THERE WAS NO SQUARING OFF OF T HE TRANSACTION ON THE SAME DAY WITHOUT TAKING DELIVERY OF SHARES AS HOLDING PE RIOD IS COMPARATIVELY LONGER, THEREFORE, THE SAME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IF THE SAME IS NOT ACCEPTED AS SHORT TERM CAPITAL GAIN, THEN THE C ONCEPT OF SHORT TERM CAPITAL GAIN WILL BE LOSS. 9.1. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE L D. COUNSEL FOR THE ASSESSEE THAT IF THE CLAIM OF THE ASSESSEE UNDER THE FACTS A ND CIRCUMSTANCES OF THE CASE TREATING THE INCOME AS SHORT TERM CAPITAL GAIN IS NOT ACCEPTED THEN THE CONCEPT OF SHORT TERM CAPITAL GAIN SHALL BE LOST. THE LD. COUNSEL FOR THE ASSESSEE HAS PROVED BEFORE THE BENCH THAT NO BORROW ED FUNDS HAS BEEN UTILIZED FOR THE PURCHASE OF SHARES WHICH WERE SUBSEQUENTLY SOLD AND ON WHICH THE SAID GAIN HAS ARISEN. THE SHARES WERE SHOWN IN THE BALA NCE SHEET AS INVESTMENT AND VALUED AT COST. NOTHING HAS BEEN BROUGHT ON REC ORD TO SHOW THAT ANY TRANSACTION HAS BEEN SQUARED OFF ON THE SAME DAY WI THOUT TAKING DELIVERY. FURTHER, THE A.O. HAS ALSO GIVEN A FINDING THAT THE ASSESSEE HAS HELD SHARES FOR MINIMUM OF 3 MONTHS TO MAXIMUM OF 11 MONTHS. WE FU RTHER FIND THAT SIMILAR TREATMENT GIVEN BY THE A.O. TREATING THE SHORT TER M CAPITAL GAIN AS BUSINESS INCOME WAS REVERSED BY THE CIT(A) AND THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE FINDING OF CIT(A). THEREFORE, THE GAIN ON ACCOUNT OF SALE OF SHARES IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. 7 ITA 1394 /M/2010 MS. V. BHARATHII 9.2. SO FAR AS THE RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEES HUSBAND, WE FIND THE FACTS ARE DIFFERENT IN AS MUCH AS THE HOLDING PERIOD IN THE CASE OF THE HUSBAND WAS LESS THAN 10 DAYS AND HER HUSBAND BORROWED MONEY FOR CARRYING ON THE ACTIVITY OF SHAR E TRANSACTIONS. UNDER THOSE CIRCUMSTANCES, THE TRIBUNAL TREATED THE HUSBAND OF THE ASSESSEE AS A TRADER. HOWEVER, IN THE INSTANT CASE, THE SHARES HAVE BEEN HELD FOR A COMPARATIVELY LONGER PERIOD AND NO BORROWED FUNDS HAVE BEEN UTILI ZED FOR ACQUISITION OF SHARES WHICH WERE SOLD, THEREFORE, THAT DECISION CA N NOT APPLY TO THE FACTS OF THE PRESENT CASE. WE, THEREFORE, HOLD THAT THE INC OME ARISING ON ACCOUNT OF SALE OF SHARES HAS TO BE TREATED AS SHORT TERM CAP ITAL GAIN. 9.3. SO FAR AS THE GROUNDS RAISED BY THE REVENUE CH ALLENGING THE ORDER OF THE CIT(A) IN PROVIDING RELIEF TO THE ASSESSEE BY TAKIN G 30 DAYS AS HOLDING PERIOD OF SHARES TO DISTINGUISH BETWEEN TRADING AND INVESTMEN T, WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME IS DEVOID OF ANY MERIT. ADMITTEDLY, NONE OF THE SHARES IN THE INSTA NT CASE HAS BEEN HELD FOR LESS THAN 30 DAYS AS POINTED OUT BY THE A.O. IN THE ASSE SSMENT ORDER ITSELF. THEREFORE, THERE IS NO QUESTION OF GIVING RELIEF BY THE CIT(A) ON THIS COUNT. THEREFORE, GROUND NO. 2 BY THE REVENUE IS DEVOID OF ANY MERIT. IN THIS VIEW OF THE MATTER, THE GROUNDS RAISED BY THE REVENUE ARE D ISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 18.05.2011. SD/- SD/- (R.V. EASWAR) (R.K. PANDA) PRESIDENT ACCOUN TANT MEMBER MUMBAI, DATED 18 TH MAY, 2011. 8 ITA 1394 /M/2010 MS. V. BHARATHII RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -32, MUMBAI 4. THE CIT- CITY -21, MUMBAI 5. THE DR BENCH, F 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 9 ITA 1394 /M/2010 MS. V. BHARATHII DATE INITIALS 1 DRAFT DICTATED ON 10.5.2011, SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 11.5.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER