PRIYANKA DOCTOR, MUMBAI V. A.C.I.T. RG. 16(2), MUMBAI

ITA 1454/MUM/2012

• Counselvise Citation: 145419914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: DHARMESH SHAH
• Keywords: Business income; Capital receipt
• Section: 15; 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H MUMBAI .. , ! ' ' ' ' #.'.$%.' & , ! BEFORE SHRI R.C.SHARMA, AM & DR.STM PAVALAN, JM ./ ITA NO.1454/MUM/2012 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2008-09) DR. PRIYANKA DOCTOR, 62, CHITRAKOOT, ALTAMOUNT ROAD, MUMBAI-400 021 VS. ACIT RG.16(2), MUMBAI !( ./ )* ./ PAN/GIR NO. : ABWPD 3427 H ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) &./ 0 00 0 1 1 1 1 /ASSESSEE BY : MR. DHARMESH SHAH )! 0 00 0 1 1 1 1 /REVENUE BY : MR. M.L.PERUMAL & 0 /% / DATE OF HEARING : 10 TH MARCH, 2014 23' 0 /% / DATE OF PRONOUNCEMENT : 22 ND APRIL, 2014 / O R D E R PER R.C.SHARMA (A.M.) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), DATED 14-12-2011 FOR THE ASSESSMENT YEAR 20 08-09, IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2 . THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO TRE ATMENT OF CAPITAL GAINS ON SALE OF SHARES AS BUSINESS INCOME. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUS ED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A DOCTOR AND FULLY O CCUPIED IN PRACTICING HER PROFESSION. WITH A VIEW TO EARN APPRECIATION ON SURPLUS FUNDS ASSESSEE HAD OVER THE YEARS INVESTED IN SHARES AND SECURITIES. SHE HAD INVESTED HER OWN FUNDS IN SUCH SECURITIES AND N O LOANS OR FINANCIAL ASSISTANCE WAS TAKEN ON INTEREST. DURING THE YEAR U NDER CONSIDERATION ITA NO.1454/11 2 THE ASSESSEE HAS EARNED IN ADDITION TO INCOME FROM PROFESSION AS A DOCTOR, SHORT TERM CAPITAL GAINS OF RS.1,67,46,642/ -, LONG TERM CAPITAL GAINS OF RS.1,13,21,766/-. THUS, OUT OF TOTAL CAPIT AL GAINS EARNED, 40% OF THE CAPITAL GAINS WAS ATTRIBUTABLE TO SHARES HEL D FOR LONG TERM IE. MORE THAN 12 MONTHS. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO ACCEPTED ASSESSEES CLAIM FOR LONG TERM CAPITAL GAINS AND ASSESSED THE SAME AS SUCH, HOWEVER, HE DECLINED TO ACCEPT SHORT TERM CAPITAL GAINS AND TREATED THE SAME AS BUSINESS INCO ME BY STATING THAT ASSESSEE WAS HAVING SYSTEMATIC AND REGULAR SHARE TR ANSACTING ACTIVITY, CONTINUITY OF SHARE TRANSACTIONS WAS HUGE AND PERIO D OF HOLDING OF SHARES WAS SHORT. IN REPLY TO AOS QUERY TO TREAT T HE CAPITAL GAINS AS BUSINESS PROFIT, THE REPLY OF THE ASSESSEE WAS AS U NDER :- 'THE ASSESSEE IS A DOCTOR AND IS FULLY OCCUPIED IN PRACTICING HER PROFESSION. THE ASSESSEE DOES NOT HAVE ANY EMPLOYEE AND THE ENTIRE PROFESSION IS MAINLY HANDLED BY THE ASSESSEE . AS A RESULT OF HER FULL TIME OCCUPATION WITH HER PROFESSION, THE A SSESSEE IS HARDLY LEFT WITH ANY TIME TO MONITOR THE MOVEMENT IN THE S HARE MARKET. THE DEPLOYMENT OF FUNDS IN THE SHARES IS, THEREFORE, ON LY WITH THE OBJECTIVE OF INVESTMENTS AND NOT TRADING IN SHARES. THE INVESTMENT IN SHARES IS NOT THE MAIN ACTIVITY AND THE ASSESSEE DOES NOT DEVOTE MUCH TIME TO THIS ACTIVITY. TIME DEVOTED TO THIS AC TIVITY CAN BE EVIDENCED ON THE BASIS OF THE FREQUENCY OF TRANSACT IONS. THE ACTIVITY OF INVESTMENT IN SHARES CARRIED OUT BY THE ASSESSEE IS AN INDEPENDENT ACTIVITY AND HAS NO CO-RELATION WITH HER CORE BUSINESS ACTIVITY CARRIED OUT IN HER PROFESSION. THE ASSESSEE DOES NOT HAVE SEPARATE INFRASTRUCTURE, MEN, MACHINE, ETC. FOR ACTIVITY OF INVESTMENT IN SHARES. THE ACTIVITY IN SHARES IS ONLY INCIDENTAL AND NOT PRINCIPAL ACTIVIT Y OR OCCUPATION OF THE ASSESSEE. THE ASSESSEE'S LIVELIHOOD IS NOT DEPE NDENT ON INCOME FROM INVESTMENTS IN SHARES. THE INVESTMENTS ARE MADE FOR LONG TERM APPRECIATION AND TO EARN DIVIDEND INCOME. THE INTENTION IS DULY SUPPORTED BY THE FACT THAT THE ASSESSEE HAS TREATED THE PURCHASE OF SHARES AS 'INV ESTMENTS' IN BOOKS AND NOT AS 'STOCK-IN-TRADE '. ITA NO.1454/11 3 THE ASSESSEE HAS HER OWN CAPITAL ORRS.50,775,287/- TO INVEST IN THE SECURITIES. IT INDICATES THAT THE ASSESSEE HAS RESTRICTED HER INVESTMENT ACTIVITY TO THE EXTENT OF HER OWN FUNDS, WHEREAS THE TRADER WOULD BORROW MONEY IN ORDER TO MAXIMIZE PROF ITS THE ASSESSEE IS HOLDING THE SHARES FOR A LONG PERIO D AND DOES NOT INDULGE IN ANY DAY TRADING. ASSESSEE HAS TAKEN DELI VERY OF SHARES IN ALL CASES. THE AVERAGE HOLDING PERIOD IS 92 DAYS . EVEN IN RESPECT OF SHARES HELD FOR LESS THAN 30 DAY S, THEY HAD TO BE SOLD OFF IN ORDER TO REAP BENEFITS OF APPRECIATION OR TO. AVERT FURTHER EROSION IN VALUE. THIS CLEARLY DEMONSTRATES THAT TH E ASSESSEE IS AN INVESTOR AND NOT A TRADER IN SHARES. THEREFORE, THE INCOME ARISING OUT OF THIS ACTIVITY SHOULD BE CHARGED TO TAX AS CA PITAL GAINS AND NOT AS INCOME FROM BUSINESS OR PROFESSION. AS MENTIONED ABOVE, ASSESSEE'S MAIN INTENTION WHILE INVESTING IS TO HOLD THE SAME FOR LONG TERM APPRECIATION AND / OR E ARNING DIVIDEND INCOME AND ACCORDINGLY PROFIT EARNED ON SUCH SCRIPS IS CAPITAL GAINS. THE MADRAS HIGH COURT IN THE CASE OF CIT VS. N.S.S. INVESTMENTS (P) LTD. [277 ITR 149J HAS : HELD THAT PROFIT FROM SALE OF SHARES ACQUIRED BY ASSESSEE FOR EARNING DIVIDEND AND NOT HELD AS STOCK-IN TRADE IS TO BE TREATED AS CAPITAL-GAINS AND NOT BUSINESS INCOME. BEING A PRUDENT INVESTOR, THE ASSESSEE PURCHASED SH ARES WHEN PRICES WERE FALLING AND SOLD SHARES WHEN THE SCRIP ACHIEVED ITS TARGET OR HE HAD ANTICIPATED FURTHER EROSION IN VAL UE. THE SUPREME COURT IN CIT V HOLCK LARSEN (160 ITR 67 ) HAS HELD THAT WHERE THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE TO NURSE INVESTMENT AND TO AVOID EROSION OF CAPITAL, S URPLUS ARISING FROM SALE OF SHARES IS TO BE TREATED AS CAPITAL REC EIPT. FURTHER, THE ASSESSEE HAS ONLY TRANSACTED ON ABOUT 150 ODD DAYS OUT OF APPROXIMATE 250 ODD DAYS ON WHICH TRADING AC TUALLY TAKES PLACE. WHEREAS, A TRADER WOULD BE NORMALLY BE DEALI NG IN ALL TRADING DAYS. MAGNITUDE OF INVESTMENT IN SHARES SHOULD NOT DECIDE THE NATURE OF THE TRANSACTION. IT IS THE INTENTION WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION. MUMBAI TRIBUNAL IN THE C ASE OF JANAK S RANGWALLA V ACIT [11 SOT 627J HAS HELD THAT- 'INVESTMENT IN SHARES ALTHOUGH BEING ON A LARGE MAG NITUDE; IT SHALL NOT DECIDE THE NATURE OF TRANSACTION. THERE IS NO B ASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES. WHEN HIS INTENT ION WAS TO HOLD THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK- IN-TRADE. ' IN THE CASE OF CIT VS. GOPAL PUROHIT (BOMBAY HIGH C OURT), IT WAS HELD THAT 'SHARES ACTIVITY TREATED AS INVESTMENT IN EARLIER YEARS CANNOT BE TREATED AS BUSINESS IN SUBSEQUENT YEARS I F FACTS ARE THE SAME' ITA NO.1454/11 4 ALL SECURITIES INVESTED BY THE ASSESSEE ARE LISTED ON THE RECOGNIZED STOCK EXCHANGE. THE ASSESSEE HAS CLASSIFIED THE SECURITIES WHICH AC QUIRED WITH THE INTENTION TO HOLD FOR LONG TERM APPRECIATION AS INV ESTMENTS AND NOT AS STOCK IN TRADE IN HER BOOKS OF ACCOUNTS, BALANCE SHEET. IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELO PMENT COMPANY (P) LTD. 82ITR 586 (SC), THE SUPREME COURT HAS OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. ALL THE TRANSACTIONS UNDER REFERENCE ENTERED INTO B Y THE ASSESSEE HAVE BEEN SETTLED BY ACTUAL DELIVERY OF SHARES AND THE MONEY IS ACTUALLY PAID AND RECEIVED IN EACH AND EVERY CASE; WHEREAS IN CASE OF A TRADER, ORDINARILY, THE TRANSACTIONS ARE SETTL ED WITHOUT ACTUAL DELIVERY. THE PURCHASE & SALE TRANSACTIONS ARE SETT LED ONLY BY WAY OF RECEIPT/PAYMENT OF NET DIFFERENCE. THIS IS NOT T HE CASE WITH THE ASSESSEE AS IS OBVIOUS FROM THE STATEMENT OF SHORT TERM CAPITAL GAIN. THE ASSESSEE ACQUIRES SHARES WITH INTENTION TO HAVE LONG TERM APPRECIATION AND TO EARN DIVIDEND INCOME AND ACCORD INGLY CHARACTERIZED THEM AS INVESTMENT IN HER BOOKS OF AC COUNTS. THE ASSESSEE HAS ALWAYS MADE INVESTMENTS IN SHARES OF Q UOTED, REPUTED COMPANIES BASED ON SOUND RECORDS. THE ASSES SEE HAS EARNED RS.145,407/- AS DIVIDEND INCOME FOR THE YEAR . THE CBDT HAS CLARIFIED THAT EVEN IF A TAX PAYER IS A TRADER FOR SOME STOCKS, HE CAN BE INVESTOR IN OTHER STOCKS. HOWEVER, THE AO DID NOT CONVINCE WITH THE ASSESSEE S CONTENTION AND TREATED THE SHORT TERM CAPITAL GAINS AS BUSINESS IN COME. THE PRECISE OBSERVATION OF THE AO WAS AS UNDER :- IN THE PAST, THERE WERE SEVERAL OCCASIONS WHEREIN THE HON'BLE JUDICIARY WAS POSED WITH A QUESTION AS TO WHETHER S OME PARTICULAR TRANSACTION OR TRANSACTIONS ARE AN ACT OF INVESTMEN T, OR WHETHER THEY CONSTITUTED THE BUSINESS OF THE ASSESSEE. DEPE NDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE BEFORE IT, THE HON'BLE JUDICIARY HAD DECIDED THE ISSUES. HOWEVER, THERE IS A BROAD AGREEMENT ON WHAT CONSTITUTES A BUSINESS ACTIVITY. ITA NO.1454/11 5 FOLLOWING CITATIONS GIVE AN IDEA OF WHAT CONSTITUTE S A BUSINESS ACTIVITY. (1) LAXMINARAYAN RAMGOPAL VS GOVT .OF HYDERABAD [25 ITR 449 (SC)] - 'BUSINESS CONNOTES ACTIVITIES IN WHICH A PERSON IS ENGAGED WITH A SET PURPOSE AND THE FREQUENCY OF THE REPETITION OF THE ACTIVITY. IN TRADE AS WELL AS BUSINESS THERE IS A CONTINUITY OF OPERATIONS.' (2) CIT VS MOTILAL HIRABHAI SPINNING & WEAVING CO. LTD. [113 ITR 173 (GUJ)] - 'WHETHER A PERSON IS CARRYING ON BUSINESS IN A PART ICULAR COMMODITY WILL DEPEND UPON THE VOLUME, FREQUENCY, C ONTINUITY AND REGULARITY OF THE TRANSACTIONS AND ON WHETHER ORDIN ARILY SPEAKING A PROFIT MOTIVE PERVADES THE WHOLE OF THE TRANSACTION S AND ON WHETHER THE ASSESSEE'S ACTIVITY COULD BE SAID TO BE A SORT OF ORGANIZED ACTIVITY.' (3) BHARAT DEVELOPMENT PVT. LTD. VS CIT [4 TAXMAN 5 8 (DEL)] - 'TO REGARD AN ACTIVITY AS BUSINESS, THERE MUST BE A COURSE OF DEALINGS CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE.' ; FROM THE PERUSAL OF ALL THE ABOVE JUDICIAL PRONOUNC EMENTS, A BUSINESS ACTIVITY MAY BE FAIRLY DISTINGUISHED FROM AN INVESTMENT ACTIVITY AS FOLLOWS: 'A BUSINESS ACTIVITY IS SEPARATE FROM AN INVESTMENT ACTIVITY IN THE SENSE THAT BUSINESS IS A SYSTEMATIC AND REGULAR COU RSE OF ACTIVITY WITH A PURPOSE AND CHARACTERIZED BY THE FREQUENCY A ND REPETITION OF THE ACTIVITY. IT CARRIES A PROFIT MOTIVE AND THERE IS A CONTINUITY OF SUCH ACTIVITY OVER A PERIOD OF TIME, MAY BE RUNNING INTO FEW YEARS. THE METHOD IN WHICH THE TRANSACTIONS ARE TAKEN UP, HINT AT PROFIT MAXIMIZATION'. THE TRANSACTION MAY REFLECT A CHARAC TER OF INVESTMENT BUT THE CIRCUMSTANTIAL EVIDENCES AND THE RELEVANT FACTORS SHOULD BRING OUT THE INTENTION OF THE ASSES SEE THAT IT WAS ACQUIRED FOR AN INVESTMENT. IF HE FAILS TO DO SO, T HE SAME BECOMES A BUSINESS ACTIVITY. FURTHER, IT ALSO SHOULD BE POS SIBLE TO DECIPHER FROM THE BOOKS OF THE ASSESSEE THE DISTINCTION BETW EEN THE SHARES TRANSACTED AS BUSINESS AND THOSE WHICH ARE TRANSACT ED FOR INVESTMENT. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACT ION OF THE AO AND ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS CONTENDED BY THE LEARNED AR THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE ORDER OF T RIBUNAL IN THE CASE OF ASSESSEES BROTHER DR. RAHUL IN ITA NO.827/MUM/2 012, VIDE ORDER DATED 12-6-2013. LEARNED AR FURTHER DEMONSTRATED TH AT FINDING OF THE ITA NO.1454/11 6 AO AS WELL AS CIT(A) IN THE CASE OF DR. RAHUL (SUPR A) WAS PARI MATERIAL TO THE FINDINGS OF THE AO & CIT(A) IN ASSESSEES CA SE, WHICH HAS BEEN CONSIDERED BY TRIBUNAL AND DECIDED IN FAVOUR OF ASS ESSEE. THE PRECISE OBSERVATION AND CONCLUSION OF THE TRIBUNAL ARE AS U NDER :- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EV IDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. THE DISPUTE IS R EGARDING THE NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES B Y THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHAS E OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CON FLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A DOCTOR AND IS WHOLE TIME ENGAGED IN HIS PROFESSION. WHETHER A PARTICULAR HOLDING OF SH ARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION T O PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAIN TAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. THESE OB SERVATIONS BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P) LTD. 82 ITR 586 SQUA RELY APPLY ON THE FACTS OF THE PRESENT CASE. IT IS NOT IN DISPUT E THAT ALL THE TRANSACTIONS UNDER REFERENCE ENTERED INTO BY THE AS SESSEE HAVE BEEN SETTLED BY ACTUAL DELIVERY OF SHARES AND THE M ONEY IS ACTUALLY PAID AND RECEIVED IN EACH AND EVERY CASE; WHEREAS I N CASE OF A TRADER, ORDINARILY, THE TRANSACTIONS ARE SETTLED WI THOUT ACTUAL DELIVERY. THE PURCHASE AND SALE TRANSACTIONS ARE SETTLED ONLY BY WAY OF RECEIPT/PAYMENT OF NET DIFFERENCE. THIS IS NOT THE CASE OF THE ASSESSEE AS NO SUCH FINDINGS HAVE BEEN GIVEN BY THE AO. 8.1. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAINS DURING THE YEAR AT RS. 38,88,313/- WHICH HAS BEEN ACCEPTED BY THE AO. IF THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE IS ENGA GED IN TRADING ACTIVITIES IN THE SHARES THEN IT SHOULD NOT MAKE AN Y DIFFERENCE IF THE SHARES ARE HELD MORE THAN 12 MONTHS AND LESS THAN 1 2 MONTHS. BUT HERE IS A CASE WHERE THE AO HAS ACCEPTED THAT THE A SSESSEE IS AN INVESTOR SO FAR AS LONG TERM CAPITAL GAINS ARE CONC ERNED. THE ALLEGATION THAT THE ASSESSEE HAS DONE REPETITIVE TR ANSACTIONS CANNOT IPSO-FACTO MAKE THE ASSESSEE A TRADER. IT IS AN AC CEPTED FACT AND PRACTICE THAT IN ORDER TO REDUCE THE RISK OF LOSS O F CAPITAL OR INCOME, THE INVESTOR MAY TRY DIVERSIFY THE INVESTMENT. THE REFORE, THERE MAY BE A CASE OF RESHUFFLING PORTFOLIO BY SELLING OF SO ME SCRIPS AND BUYING OF SOME SCRIPS TO MITIGATE THE SCOPE OF LAW OF CAPITAL OR INCOME. THEREFORE, THE RESHUFFLING IN A SHORT PER IOD IS NOT NECESSARILY TO BE TAKEN AS AN ACTIVITY OF TRADING W HEN THE INTENTION WAS TO REDUCE THE RISK OF LOSS OF CAPITAL. A PERUS AL OF THE STATEMENT OF ACCOUNTS SHOW THAT THE ASSESSEE HAS NO BANK BORR OWINGS, THE ITA NO.1454/11 7 ONLY BORROWINGS ARE FROM FAMILY MEMBERS AND THE INC OME AND EXPENDITURE ACCOUNT OF THE ASSESSEE DOES NOT REFLEC T ANY CLAIM OF INTEREST PAYMENT WHICH MEANS THAT THE ASSESSEE HAS MADE INVESTMENTS NOT OUT OF BORROWED CAPITAL. 8.2. CONSIDERING THE PROFESSION OF THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE WAS FULLY DEVOTED TO THE STOCK MA RKET TRANSACTION. CONSIDERING THE NATURE OF PROFESSION AND THE FACTS IN TOTALITY, IN OUR CONSIDERED VIEW, THE LOWER AUTHORITIES HAVE ERRED I N TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. WE AC CORDINGLY DIRECT THE AO TO TREAT THE STCG AS DECLARED BY THE ASSESSEE. ON THAT NOTE, WE REVERSE THE FINDINGS OF THE LD. CIT(A ). GROUND NO. 1 & 2 ARE ACCORDINGLY ALLOWED. 5 . LEARNED AR FURTHER ARGUED THAT ASSESSEE IS FULLY BUSY IN HER PROFESSION OF DOCTOR. SHE IS A WINNER OF ORBIS GOLD MEDAL AS CO-AUTHOR. SHE IS ALSO AN EDITOR AND REVIEWER FOR SEVERAL JOUR NALS INCLUDING BRITISH MEDICAL JOURNAL AND MCGILL JOURNAL OF MEDICINE. FUR THER ASSESSEE HAS GOT ADDITIONAL QUALIFICATION OF FELLOWSHIPS IN RETI NA AND OCULAR IMMUNOLOGY. LEARNED AR HIGHLIGHTED THE ADDITIONAL Q UALIFICATION OF THE ASSESSEE AS AN AUTHOR OF TWO BOOK CHAPTERS, 9 ARTIC LES IN INTERNATIONAL JOURNALS AND 19 PRESENTATIONS IN VARIOUS CONFERENCE S. THE ASSESSEE WAS GOLD MEDALIST AT MS OPHTHALMOLOGY UNIVERSITY EX AM (2007) AND ALSO WINNER OF 2 ALL INDIA QUIZZES. SHE WAS RECIPIE NT OF PRESTIGIOUS GRANT OF INTERNATIONAL COLLEGE OF OPHTHALMOLOGY FOR THREE MONTHS IN PARIS, FRANCE. SHE WAS ALSO RECIPIENT OF ASSOCIATIO N OF RESEARCH IN VISION & OPHTHALMOLOGY. SHE WAS ALSO RECIPIENT OF E DUCATIONAL GRANT FOR INTERNATIONAL OCULAR INFLAMMATION SOCIETY CONFE RENCE, 2011. LEARNED AR FURTHER HIGHLIGHTED THE ADDITIONAL QUALI FICATION AND ACHIEVEMENT OF ASSESSEE, WHICH ARE AS UNDER :- ITA NO.1454/11 8 1. MS (OPHTHAL.MOLOGY) GOLD MEDALIST AT UNIVERSIT Y EXAMINATION 2. RECIPIENT OF PRESTIGIOUS GRANT OF THE INTERNATI ONAL COLLEGE OF OPHTHALMOLOGY FOR 3 MONTHS IN PARIS, FRANCE 3. RECIPIENT OF 'ASIA ARVO (ASSOCIATION FOR RESEAR CH IN VISION & OPHTHALMOLOGY) TRAVEL GRANT 4. RECIPIENT OF EDUCATIONAL GRANT FOR 1015 (INTERN ATIONAL OCULAR INFLAMMATION SOCIETY) CONFERENCE 2011 5. AMONGST THE YOUNGEST IN INDIAN HISTORY TO PRESE NT A PAPER AT AIOS(ALL INDIA OPHTHALMOLOGY SOCIETY) CONFERENCE 6. AMONGST THE YOUNGEST IN LRIDIAN HISTORV TO PRES ENT A PAPER AT ESCRS (EUROPEAN SOCIETY) CONFERENCE 7. AMONGST THE YOUNGEST IN INDIAN HISTORY TO PRESE NT A PAPER AT BOA (BOMBAY OPHTHALMOLOGY SOCIETY) CONFERENCE 8. FIRST INDIAN OPHTHALMOLOGIST BELOW 30 YEARS TO HAVE 2 REGISTERED PATENTS 9. CO-AUTHOR - YOUNGEST INDIAN TO WIN ORBIS MEDAL AT EUROPEAN CONFERENCE (ESCRS) 10. WINNER OF SEVERAL ALL INDIA OPHTHALMOOGY OUIZZ ES AT SEVERAL CONFERENCES 11. DOUBLE SPECIALIZATION -: FELLOWSHIPS IN VITREO RETINAL SURGERY AS WELL AS OCULAR IMMUNOLOGY 5.1 OUR ATTENTION WAS INVITED TO THE FACT THAT THE AO HAS ACCEPTED ASSESSEES CONTENTION OF CAPITAL GAINS WITH RESPECT TO SHARES HELD FOR MORE THAN 12 MONTHS. ATTENTION WAS ALSO INVITED TO SCRUTINY ASSESSMENT ORDER FOR IMMEDIATELY SUBSEQUENT YEAR I. E. A.Y.2009-10, WHEREIN ASSESSEES CLAIM OF SHORT TERM CAPITAL GAIN S/LOSS WAS ACCEPTED BY THE AO IN SCRUTINY ORDER DATED 19.12.2011. 5.2 BY HIGHLIGHTING THE CHART PREPARED FOR HOLDING OF SHARES AS INVESTMENT, LEARNED AR CONTENDED THAT ASSESSEE WAS HOLDING SHARES FOR A LONG PERIOD AND DOES NOT INVOLVE IN DAY-TO-DA Y TRADING. SHE HAD ITA NO.1454/11 9 TAKEN DELIVERY OF ALL THE SHARES AND ALSO GIVEN DEL IVERY OF SHARES SOLD. THE AVERAGE HOLDING PERIOD OF SECURITIES IS AT 92 D AYS. EVEN IN RESPECT OF SHARES HELD FOR LESS THAN 30 DAYS, THEY HAD TO BE SOLD OFF IN ORDER TO REAP BENEFITS OF APPRECIATION OR TO AVERT FURTHER E ROSION IN VALUE. AS PER LEARNED AR, SINCE THE ASSESSEES MAIN INTENTION WAS INVESTING AND HOLDING SHARES FOR LONG TERM APPRECIATION AND TO EA RN THE DIVIDEND INCOME THEREON, THE PROFIT EARNED ON SUCH SCRIPS IS LIABLE TO BE ASSESSED AS CAPITAL GAINS. RELIANCE WAS PLACED ON T HE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NS.S.INVESTMENT (P) LTD., 277 ITR 149 , WHEREIN IT WAS HELD THAT PROFIT FROM SALE OF SHARES ACQUIRED BY ASSESSEE FOR EARNING DIVIDEND AN D NOT HELD AS STOCK-IN-TRADE IS TO BE TREATED AS CAPITAL GAINS AN D NOT BUSINESS INCOME. RELIANCE WAS ALSO PLACED IN THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT VS. HOLCK LARSEN, 160 ITR 67 , WHEREIN IT WAS HELD THAT WHERE THE TRANSACTIONS OF PURCHASE AND SA LE OF SHARES WERE TO NURSE INVESTMENT AND TO AVOID EROSION OF CAPITAL , SURPLUS ARISING FROM SALE OF SHARES IS TO BE TREATED AS CAPITAL RECEIPT. 5.3 OUR ATTENTION WAS ALSO DRAWN TO THE TOTAL NUMBER O F TRANSACTIONS ENTERED DURING THE YEAR WHICH WAS 258. IT WAS SUBMI TTED THAT THIS FREQUENCY ARISES ON ACCOUNT OF LARGE INVESTMENT BY ASSESSEE WHICH NECESSITATES SOME BUYING AND SELLING IN ORDER TO RE AP BENEFITS OF APPRECIATION OR TO AVERT THE EROSION IN VALUE. RELI ANCE WAS ALSO PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA VS. ACIT, 11 SOT 627 AND THE DECISION IN THE CASE OF ITA NO.1454/11 10 GOPAL PUROHIT , WHICH WAS FURTHER AFFIRMED BY THE HONBLE BOMBAY HIGH COURT AND SLP FILED AGAINST WHICH WAS ALSO DIS MISSED BY THE HONBLE SUPREME COURT. OUR ATTENTION WAS ALSO INVIT ED TO THE FACT THAT ASSESSEE HAS NOT CLAIMED ANY EXPENSES TOWARDS DMAT CHARGES, MANAGEMENT FEES, SECURITY TRANSACTION TAX UNDER SEC TION 88E OR ANY OTHER ADMINISTRATIVE EXPENSES WHILE COMPUTING CAPIT AL GAINS. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY ( P) LTD. 82 ITR 586(SC) , WHEREIN THE HONBLE SUPREME COURT HAS HELD AS UNDER :- WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE E VIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 5.4 OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT AL L THE TRANSACTIONS UNDER REFERENCE ENTERED INTO BY THE ASSESSEE HAVE B EEN SETTLED BY ACTUAL DELIVERY OF SHARES AND THE MONEY IS ACTUALLY PAID AND RECEIVED IN EACH AND EVERY CASE, WHEREAS IN CASE OF A TRADER, O RDINARILY , THE TRANSACTIONS ARE SETTLED WITHOUT ACTUAL DELIVERY. R ELIANCE WAS ALSO PLACED ON THE CBDT CIRCULAR NO.4 OF 2007 PERMITTING THE ASSESSEE TO HAVE SEPARATE PORTFOLIO FOR INVESTMENT AND ALSO POR TFOLIO FOR STOCK-IN- TRADE. ITA NO.1454/11 11 5.5 LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISIO NS :- I) JANAK S RANGWALLA V.CIT [11 SOT 627] WHEREIN IT WAS HELD THAT 'INVESTMENT IN SHARES ALTHOUGH BEING ON A LARGE MAGNITUDE; IT SHALL NOT DECIDE THE NATURE OF TRANSA CTION. THERE IS NO BASIS FOR TREATING' THE APPELLANT AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD THE SHARES I N INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK- IN- TRADE.' II) ASSTT. COMMISSIONER OF INCOME-TAX, NAISHADH V. VACHHARAJANI WHEREIN IT WAS HELD THAT 'THE MERE MAGNITUDE OF TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FRO M CAPITAL GAINS IN THE PAST SEVERAL YEARS.' III) NAGINDAS P. SHETH (HUF)'S CASE (ITA 18361MUM/2010) WHEREIN HON'BLE TRIBUNAL WHILE DECIDING UPON THE MAGNITUDE OF TRANSACTIONS HELD THAT, 'MERELY BECAUS E ASSESSEE TRANSACTED IN 158 SHARES THAT SHOULD NOT B E TAKEN AS A SOLE CRITERION TO COME TO THE CONCLUSION THAT ASSESSEE IS A TRADER IN SHARES. 5.6 IN VIEW OF ALL THESE FACTS, HE CONTENDED THAT THE AO WAS NOT JUSTIFIED IN TREATING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME, WHEN HE HIMSELF HAS ACCEPTED THE LONG TERM CAPITAL GAINS EARNED BY THE ASSESSEE WITH RESPECT TO THE SIMILAR SHARES HEL D BY HER. 6 . ON CONTRARY, LEARNED DR CONTENDED THAT THERE WAS HIGH FREQUENCY IN TRANSACTION, VOLUME OF SHARES WERE ALS O MORE. HE SUBMITTED THAT EACH CASE IS TO BE DECIDED ON ITS OW N FACTS AND ITA NO.1454/11 12 CIRCUMSTANCES, ACCORDINGLY, EVEN THOUGH BROTHER OF THE ASSESSEE WAS ALSO A DOCTOR, HAVING SIMILAR SOURCE OF INCOME AS C APITAL GAINS, WHICH WAS DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR, T HE CASE OF ASSESSEE CANNOT BE SAID TO BE COVERED BY THE DECISI ON OF THE TRIBUNAL IN ASSESSEES BROTHERS CASE. 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO DELIBERATE D ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THE IR RESPECTIVE ORDERS AS WELL AS JUDICIAL PRONOUNCEMENTS CITED BY THE LEA RNED AR AND LEARNED DR DURING THE COURSE OF HEARING BEFORE US I N THE CONTEXT OF FACTUAL MATRIX OF THE INSTANT CASE. WE HAD ALSO GON E THROUGH THE ORDER PASSED BY CO-ORDINATE BENCH IN CASE OF BROTHER OF A SSESSEE DOCTOR D.R. RAHUL, DATED 12.6.2013. FROM THE RECORD, WE F OUND THAT ASSESSEE IS A DOCTOR AND FULL TIME INVOLVED IN PRAC TICING IN PER MEDICAL PROFESSION. WITH A VIEW TO EARN APPRECIATION OF SUR PLUS FUNDS, SHE HAD INVESTED HER CAPITAL IN SHARES AND SECURITIES. NO B ORROWED FUNDS WERE TAKEN. DURING THE YEAR ASSESSEE HAD EARNED SHORT TE RM CAPITAL GAINS OF RS.1,67,46,642/- AND LONG TERM CAPITAL GAINS OF RS. 1,13,21,766/-. HOWEVER, THE AO HAS ACCEPTED ASSESSEES CLAIM OF LO NG TERM CAPITAL GAINS. IN RESPECT OF VERY SAME NATURE OF SHARES, WH ERE HOLDING PERIOD WAS LESS THAN ONE YEAR, THE AO HAD DECLINED ASSESSE ES CLAIM OF SHORT TERM CAPITAL GAIN AND TREATED THE SAME AS BUSINESS INCOME. WE FOUND THAT ASSESSEE HAS FULFILLED THE ALL THE CRITERIA ME NTIONED IN CBDT CIRCULAR NO.4 OF 2007 FOR TREATMENT OF PROFIT FROM SHARES HELD AS ITA NO.1454/11 13 INVESTMENT AS CAPITAL GAINS. SINCE THE ASSESSEE WAS A MEDICAL PROFESSIONAL AND AS PER PROVISIONS UNDER SECTION44A A READ WITH RULE 6F, SHE WAS REQUIRED TO MAINTAIN BOOKS OF ACCOUNTS, ENTRIES FOR INVESTMENT IN SHARES AND SALE OF SHARES WERE ALSO R ECORDED IN THE VERY SAME BOOKS OF ACCOUNTS. THE FACT THAT THE ASSESSEE HAS MAINTAINED DETAILS OF INVESTMENT IN A SYSTEMATIC MANNER WILL N OT CHANGE THE NATURE OF HOLDING OF SHARES & SECURITIES. THE AO VIDE PARA 4(A) ON PAGE 5 OF THE ASSESSMENT ORDER HAS STATED THAT MAINTENANCE OF BILLS, ETC. ALONGWITH DEMAT ACCOUNT AND CORRESPONDING BANK ACCO UNT INDICATES THAT THE APPELLANT IS CARRYING ON SYSTEMATIC ACTIVI TY IN SHARE TRANSACTIONS, IN THIS REGARD IT IS PERTINENT TO NOT E THAT AS PER SECURITIES EXCHANGE BOARD OF INDIA (SEBI) GUIDELINES, INVESTME NT IN SHARES AND SECURITIES IS REQUIRED TO BE HELD IN DEMATERIALIZED (D-MAT) FORM ONLY AND NOT IN PHYSICAL FORM. MAINTENANCE OF BILLS AND OTHER DOCUMENTS HAS NO RELEVANCE WITH THE NATURE OF TRANSACTION; SUCH D OCUMENTS WILL, IN ANY CASE, HAVE TO BE MAINTAINED WHETHER THE TRANSACTION IS IN THE NATURE OF LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL GAIN OR BUSINESS INCOME. THIS CANNOT LEAD TO THE CONCLUSION THAT THE INVESTMENT A CTIVITY OF THE ASSESSEE IS A BUSINESS. IT IS CLEAR FROM THE RECORD THAT THE ASSESSEE HAS EARNED INCOME FROM PROFESSION OF DOCTOR WHICH I S HER PRINCIPAL ACTIVITY. THUS, THE ACTIVITY OF INVESTMENT IN SHARE S CARRIED OUT BY THE ASSESSEE IS ONLY INCIDENTAL. THE INVESTMENT OBJECTI VE OF ASSESSEE IS TO GENERATE CAPITAL APPRECIATION WITH THE HELP OF EXPE RT ADVICE FROM THE REPUTED BROKERS WITHOUT HAVING TO SPEND HER TIME ON THE ACTIVITY. ITA NO.1454/11 14 CONTINUITY OR PERMANENCE IN INVESTMENTS MADE ITSELF INDICATES THAT THE ASSESSEE'S INTENTION IS TO STAY INVESTED FOR A LONG ER PERIOD FOR EARNING CAPITAL APPRECIATION AND DIVIDEND. BEING A PRUDENT INVESTOR, THE ASSESSEE PURCHASED SHARES WHEN PRICES WERE FALLING AND SOLD SHARES WHEN THE SCRIP ACHIEVED ITS TARGET -OR IT HAD ANTIC IPATED FURTHER EROSION IN VALUE. THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE TO NURSE INVESTMENT AND TO AVOID EROSION OF CAPITAL, S URPLUS ARISING FROM SALE OF SHARES IS TO BE TREATED AS CAPITAL RECEIPT. ALTHOUGH, OVERALL THERE IS A GAIN, THE ASSESSEE HAS SUFFERED LOSS IN FEW TR ANSACTIONS. ONLY BECAUSE THE ASSESSEE HAS NOT SUFFERED NET LOSS IN T HE TRANSACTIONS IN SHARES IS NO GROUND TO HOLD THAT THE DEALING IN SHA RES BY THE ASSESSEE IS A BUSINESS. THUS, THE AOS VIEW THAT SINCE THE A SSESSEE HAS NOT SUFFERED ANY LOSSES IN TRANSACTION OF SHARES, THE S AME IS ASSESSABLE UNDER THE HEAD BUSINESS INCOME IS NOT SUSTAINABLE. ONLY BECAUSE ASSESSEE HAS EARNED NET GAIN, THE AOS CONTENTION T HAT THE SAME IS ASSESSABLE AS BUSINESS INCOME IS STRANGE. THERE I S NO DISPUTE TO THE WELL SETTLED PRINCIPLE THAT SO MANY FACTORS ARE REQ UIRED TO BE SEEN FOR JUDGING AS TO WHETHER ASSESSEE IS HOLDING SHARES AS INVESTOR OR TRADING IN SHARES AS BUSINESS. FACT THAT ASSESSEE WAS ACQU IRING AND DISPERSING INVESTMENT WAS SHARES AS ACCEPTED BY THE DEPARTMENT IN NOT ONLY DURING THE YEAR UNDER CONSIDERATION BY ACC EPTING THE LONG TERM CAPITAL GAINS EARNED BY ASSESSEE BUT ALSO IN THE IM MEDIATELY SUCCEEDING YEAR WHEREIN SCRUTINY ASSESSMENT ORDER W AS FRAMED ITA NO.1454/11 15 U/S.143(3), AND ASSESSEES CLAIM OF SHORT TERM CAPI TAL GAINS/LOSS WAS ACCEPTED. 7.1 THE FREQUENCY AND REPETITION OF THE PURCHASE AND S ALE TRANSACTIONS PLAY IMPORTANT ROLE, BUT THE SAME IS N OT CONCLUSIVE AND OTHER FACTORS LIKE MAIN BUSINESS/PROFESSION OF ASSE SSEE, INTENTION WHILE PURCHASING SHARES, HOLDING THE SAME AS INVESTMENT E TC. ARE REQUIRED TO BE SEEN FOR REACHING TO THE CONCLUSION REGARDING AS SESSEE BEING INVESTOR OR TRADER IN SHARES. IN THE CASE OF BHARAT KUVERJI KENIA VS. ADD.CIT, 130 TTJ 86 (MUM) , THE MUMBAI BENCH OF THE TRIBUNAL OBSERVED THAT, THERE IS NO JUSTIFICATION FOR TREATING THE ACTIVITY OF PURCHASE AND SALE OF SHARES AS 'BUSINESS' MERELY ON THE REASON OF THE' VOLUME OF TRANSACTIONS. AS PER WELL SETTLED PRINCIP LES OF LAW, THE FREQUENCY OF TRANSACTIONS CANNOT BE PER SE DECISIVE .. 7.2 IN THE CASE OF MR. NEHAL V. SHAH VS, ACIT (ITA. NO.2733/MUM/2009) , THE MUMBAI BENCH OF THE TRIBUNAL HELD 'THAT A SINGLE TRANSACTION WOULD BE SPLIT BY THE COMPUTERS TRADING OF THE STOCK EXCHANGES INTO MANY SMALLER TRANSACTIONS, BUT, THAT DOES NOT MEAN THAT ASSESSEE HAS CARRIED SO MANY TRANSACTIONS. IN THE CASE OF HITESH SATISHCHANDRA DOSHI VS. J'CL'I' (ITA NO. 64971MUM/2 009), THE TRIBUNAL HELD THAT THE FREQUENCY OF PURCHASE AND SALE OF SHA RES, TRANSACTIONS THROUGH THE ELECTRONIC SYSTEM OF STOCK EXCHANGE SPL IT A SINGLE ORDER INTO NUMEROUS TRANSACTIONS. THIS GIVES AN UNREALIST IC FIGURE OF THE NUMBER OF TRANSACTIONS. ITA NO.1454/11 16 7.3 FROM THE RECORD WE FOUND THAT ASSESSEE HAS DISCLOS ED SHARES AS INVESTMENT IN THE BALANCE SHEET, THERE IS NO CLAIM OF ANY EXPENSES WHILE COMPUTING CAPITAL GAINS WHICH DEMONSTRATES TH E INTENTION OF THE ASSESSEE TO TREAT THE SHARES AND SECURITIES AS INVE STMENT AND NOT AS STOCK-IN-TRADE. NO BORROWED INTEREST BEARING FUNDS WAS INVESTED IN SHARES. CBDT IN ITS INSTRUCTION NO 1827 DATED 31.08 .1989 HAS LAID DOWN CERTAIN CRITERIA TO DETERMINE WHETHER AN ACTIV ITY OF PURCHASE & SALE OF SHARES/SECURITIES IS IN THE NATURE OF TRADI NG ACTIVITY OR INVESTMENT ACTIVITY. ONE OF THE CRITERIA LAID DOWN IS THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AS A TRADIN G ASSET OR INVESTMENT; TREATMENT GIVEN IN THE BOOKS IS INDICAT IVE OF ASSESSEE'S INTENTION WHETHER TO HOLD THE SHARES WITH A VIEW TO EARN DIVIDEND & LONG TERM APPRECIATION OR WITH A VIEW TO CARRYING ON AS BUSINESS. EVEN VARIOUS COURTS AND TRIBUNALS HAVE APPROVED THAT TRE ATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AS A VITAL FAC TOR TO DECIDE WHETHER THE ASSESSEE IS A TRADER OR AN INVESTOR. WE ALSO FO UND THAT THE ASSESSEE HAS REGULARLY TREATED SHARES AS INVESTMENT IN THE EARLIER YEAR AND HAS OFFERED GAIN ON SALE OF SHARES UNDER THE HE AD CAPITAL GAIN. THE PARTICULARS OF CAPITAL GAIN OFFERED FOR TAX IN THE PAST YEAR IS AS UNDER :- ASST. YEAR LTCG STCG 2005-06 6,90,997 3,33,806 2006 - 07 53,11,277 12,22,646 2007-08 42,82,020 2,89,936 ITA NO.1454/11 17 EVEN THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT STRICTLY APPLY TO INCOME TAX PROCEEDINGS, IT IS WELL SETTLED LAW THAT THE PRINCIPLES OF CONSISTENCY SHOULD NOT BE IGNORED. RELIANCE IS PLAC ED ON THE DECISION IN THE CASE OF CIT VS. GOPAL PUROHIT {(20LO) 228 CT R 582 (BOM)]. IN THIS CASE AN ISSUE CAME UP FOR CONSIDERATION AS TO WHETHER THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES IS ASSE SSABLE AS BUSINESS PROFITS OR AS CAPITAL GAINS. THE HON'BLE JURISDICTI ONAL HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL THAT THE RESULTANT GAI N IS ASSESSABLE AS CAPITAL GAINS INSTEAD OF BUSINESS INCOME, INTER ALI A, IN VIEW OF THE FOLLOWING I) THE DELIVERY BASED TRANSACTIONS HAVE BEEN SHOWN AS INVESTMENTS IN THE BOOKS; II) THE SHARES SHOWN AS INVESTMENTS WERE VALUED AT COST; III) NATURE OF ACTIVITIES, MODUS OPERANDI OF SHARE TRANSACTIONS, MANNER OF KEEPING RECORDS AND PRESENT ATION OF SHARES AS INVESTMENTS IS SAME IN ALL THE YEARS A ND HENCE APPARENTLY THERE APPEARS NO REASON AS TO WHY THE CL AIMS MADE BY THE APPELLANT SHOULD NOT BE ACCEPTED; THE HON'BLE COURT ALSO ACCEPTED TRIBUNAL'S OBSERVAT IONS THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EA CH YEAR IS SEPARATE IN ITSELF. HOWEVER, THERE OUGHT TO BE UNIFORMITY IN TR EATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. SPECIAL L EAVE PETITION FILED BY THE DEPARTMENT AGAINST THIS ORDER OF HONBLE BOMBAY HIGH COURT HAS BEEN DISMISSED BY THE SUPREME COURT VIDE ORDER DATE D 15TH NOVEMBER, 2010. 7.4 IN CASE OF DCIT VS. SMK SHARES & STOCK BROKING (ITA NO. 799/MUM/2009) THE HON'BLE MUMBAI TRIBUNAL HELD THAT 'THE FACT TH AT THE ITA NO.1454/11 18 AO ACCEPTED THE APPELLANT'S CLAIM IN EARLIER YEARS THAT IT WAS AN INVESTOR IS MATERIAL BECAUSE THOUGH THE PRINCIPLES OF RES JUDICATA DO NOT STRICTLY APPLY TO INCOME TAX PROCEEDINGS IT IS WELL SETTLED LAW THAT THE PRINCIPLES OF CONSISTENCY SHOULD NOT BE IGNORED. UN IFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTAN CES IS ONE OF THE FUNDAMENTALS OF THE JUDICIAL PRINCIPLES WHICH CANNO T BE BRUSHED ASIDE WITHOUT PROPER REASON. 7.5 IN THIS CASE, THE AO HAS HIMSELF RELIED ON THE DEC ISION OF HON'BLE SUPREME COURT IN ANIL JAIN VS CIT (294 ITR 435) WHE RE THE MATTER WAS RESTORED TO ITAT ON THE GROUND THAT THE 'ASSESSEE H AVING FURNISHED THE DETAILS OF PURCHASE AND SALE OF SECURITIES/SHARES E FFECTED BY HIM IN SUBSEQUENT YEARS TO SHOW THAT THERE WAS CONTINUITY OF SUCH TRANSACTIONS AND THAT THE PROFITS DERIVED BY HIM IN SUBSEQUENT YEARS HAVE BEEN ACCEPTED AS BUSINESS INCOME AND THE TRIBU NAL HAVING IGNORED THE SAME, THE JUDGMENTS OF THE HIGH COURT A ND THE TRIBUNAL ARE SET ASIDE' AND THE MATTER IS REMITTED TO THE TR IBUNAL FOR CONSIDERATION OF THE MATTER AFRESH AS TO WHETHER TH E TRANSACTION IN QUESTION WAS A BUSINESS TRANSACTION. IN THIS DECISI ON THE SUPREME COURT RESTORED THE MATTER BACK TO TRIBUNAL SINCE TH E HIGH COURT AND THE TRIBUNAL IGNORED THE DECISION MADE IN THE SUBSEQUEN T YEARS IN CASE OF THE ASSESSEE. THUS THE SUPREME COURT ITSELF CONSIDE RED THAT THERE SHOULD BE CONSISTENCY IN THE TREATMENT GIVEN BY THE REVENUE IN CASE OF SIMILAR TRANSACTIONS. ITA NO.1454/11 19 7.6 RECENTLY THE TRIBUNAL IN SHRI RAMESH BABU RAO'S VS. ACIT (ITA 3719/MUM/2009) HAS HELD THAT 'ASSESSEE IS AN INFORMED INVESTOR AND THEREFORE, THE GAINS EARNED BY THE ASSESSEE IN THE PURCHASE AND SALE OF SHARES IN THE STOCK MARKET ARE TO BE TREATE D AS SHORT TERM CAPITAL GAINS/LONG TERM CAPITAL GAINS, AS THE CASE MAY BE, AS THE ASSESSEE IS NOT DOING ANY SPECULATIVE ACTIVITY NOR INDULGING IN ANY SALES WITHOUT DELIVERY, THE PARAMETER WHICH MAY TIL T A PARTICULAR CASE TO HOLD IT AS TRADING. ' IN FACT, THE BOMBAY HIGH COUR T IN CIT VS. GOPAL PUROHIT (228 CTR 582) HAS UPHELD THE OBSERVATIONS OF THE MUMBAI TRIBUNAL THAT AN ASSESSEE CAN HAVE TWO PORTFOLIOS I .E. ONE TRADING AND THE OTHER AN INVESTMENT. IT WAS HELD THAT, 'IT IS I MPORTANT TO NOTICE THAT THE ASSESSEE HAS ENTERED INTO TWO DIFFERENT TYPES O F TRANSACTIONS WHERE BOTH ACTIVITIES ARE ENTIRELY DIFFERENT IN NATURE JO BBING (WITHOUT DELIVERY), WHICH PUTS ASSESSEE'S CASE ON A MORE STRONG FOOTING . HENCE, THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT-TERM CAPITAL GAIN OR LONG-TERM CAPITAL GAIN D EPENDING UPON THE PERIOD OF HOLDING'. 7.7 IN VIEW OF THE ABOVE DISCUSSION, RESPECTFULLY FOLLO WING THE DECISION OF THE TRIBUNAL IN CASE OF ASSESSEES BRO THER, WHEREIN FACTS AND CIRCUMSTANCES ARE SAME, WE DO NOT FIND ANY MERI T IN THE ACTION OF THE LOWER AUTHORITIES FOR TREATING THE SHORT TERM C APITAL GAIN AS BUSINESS INCOME, WHEN THE AO HIMSELF HAS ACCEPTED ASSESSEES INVESTMENT IN SHARES WHICH RESULTED IN LONG TERM CAPITAL GAIN AS IT IS. ITA NO.1454/11 20 8 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. . /4 &./ 0 !5/ 0 )/ 67 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND APRIL, 2014. 0 23' 8 9 &4 22 ND APRIL, 2014 3 0 : SD/- SD/- ( # . ' . $% . ' & ) (DR.S.T.M.PAVALAN) ( . . ) (R.C.SHARMA) ! ! ! ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; 9 & DATED 22/04/2014 ,. . /PKM , & . / PS 0 00 0 ,/; ,/; ,/; ,/; <;'/ <;'/ <;'/ <;'/ / COPY OF THE ORDER FORWARDED TO : & & & & / BY ORDER, = == = / 6 6 6 6 ) ) ) ) ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. > ( ) / THE CIT(A), MUMBAI. 4. > / CIT 5. ;?: ,/& , , / DR, ITAT, MUMBAI 6. :# @ / GUARD FILE. -;/ ,/ //TRUE COPY//