RAJESH S. SANGHVI, MUMBAI V. ACIT 13(3), MUMBAI

ITA 1609/MUM/2011

• Counselvise Citation: 160919914 RSA 2011
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIEK A PERAMPURNA
• Assessee Lawyers: DEEPAK N KAN ABAR
• Keywords: Capital asset; Business income; Rule of consistency; Transactions in derivatives
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI SANJAY GARG, J M ITA NO. 1609 / MUM/20 1 1 ( ASSESSMENT YEAR : 200 7 - 0 8 ) SHRI RAJESH S. SANGHVI, 26 LATIF HOUSE, S.T.MARG, MASJID, MUMBAI - 400 009 VS. ACIT - 13(3), MUMBAI PAN/GIR NO. : A A DPS 3889 C ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 2012 / MUM/20 11 ( ASSESSMENT YEAR :2007 - 08 ) ACIT - 13(3), MUMBAI VS. SHRI RAJESH S. SANGHVI, 26 LATIF HOUSE, S.T.MARG, MASJID, MUMBAI - 400 009 PAN/GIR NO. : AA DPS 3889 C ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI VIEK A. PERAMPURNA /ASSESSEE BY : SHRI DEEPAK N. KANABAR DATE OF HEARING : 16 TH SEPT , 201 4 DATE O F PRONOUNCEMENT : 24 TH SEPT , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE ORDER OF CIT(A ) , DATED 30 - 12 - 2010 FOR THE ASSESSMENT YEAR 200 7 - 0 8 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF TH E I.T. ACT . ITA NO S . 2012&1609 /1 1 2 2 . THE ASSESSEE IN ITS APPEAL I.E. ITA NO. 1609/MUM/2011 HAS RAISED THE ONLY GRIEVANCE WITH REGARD TO TREATMENT OF CAPITAL GAIN OF RS. 9,39,223/ - AS BUSINESS INCOME. 3 . THE REVENUE IN ITS APPEAL I.E. ITA NO. 201 2/MUM/2011, IS ALSO AGGRIEVED BY THE ACTION OF THE CIT(A) FOR TREATING THE PROFIT ON SALE OF SHARES HELD FOR MORE THAN 60 DAYS AS CAPITAL GAINS AND FOR ACCEPTING LONG TERM CAPITAL GAINS OF RS. 7,54,337/ - . 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERU SED. FACTS IN BRIEF ARE THAT THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAINS OF RS. 16,25,734/ - AND LONG TERM CAPITAL GAINS OF RS. 7,54,337/ - . ON PERUSAL OF DETAILS OF SHORT TERM CAPITAL GAINS FILED BY ASSESSEE, THE AO NOTED THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS CARRIED OUT 143 TRANSACTIONS OF PURCHASE AND SALE OF SHARES ON WHICH NET SHORT TERM CAPITAL GAINS OF RS. 16,25,734/ - AND LONG TERM CAPITAL GAINS OF RS. 7,54,337/ - WAS DECLARED. THE AO OBSERVED THAT ASSESSEE HAS PURCHASED SHARES WITH I NTENTION TO RESALE AT A PROFIT. HE FURTHER OBSERVED THAT MAJOR PROFIT WAS DERIVED THROUGH SHARE TRANSACTIONS WHERE PURCHASE AND SALES TAKEN PLACE WITHIN A PERIOD OF THREE MONTHS. ACCORDINGLY, THE AO CONCLUDED THAT ASSESSEE WAS ENGAGED IN BUSINESS OF PURCHA SE AND SALE OF SHARES. THUS , BOTH LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS SO DECLARED WAS TREATED AS BUSINESS INCOME. 5. BY THE IMPUGNED ORDER, THE CIT(A) HELD THAT PROFIT EARNED BY THE ASSESSEE BY SELLING SHARES HELD FOR MORE THAN 60 DAYS WER E LIABLE TO CAPITAL GAIN S . HE ALSO AGREED WITH THE ASSESSEE S TREATMENT OF LONG TERM CAPITAL GAINS OFFERED BY HIM. HOWEVER, IN RESPECT OF SHARES SOLD AFTER ITA NO S . 2012&1609 /1 1 3 HOLDING FOR LESS THAN 60 DAYS, THE CIT(A) HELD THE SAME AS BUSINESS INCOME AFTER HAVING THE FOLLOWIN G OBSERVATIONS : - 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND IT IS SEEN THAT AS REGARDS SHORT TERM CAPITAL GAIN - APPELLANT HAS DONE EXTENSIVE TRADING IN SHARES AND THE DETAILS OF TRANSACTIONS UPTO 60 DAYS CLEARLY SHOWS THAT THE APPELLANT HAS FOLLOWED THE SWINGS/TRENDS AND FLUCTUATIONS OF THE STOCK MARKET AND ENTERED INTO THE TRANSACTIONS TO MAKE A QUICK GAIN WHICH A TRADER DOES AND THERE IS NO PRIDE OF HOLDING AS AN INVESTOR, THE VOLUME, FREQUENCY, PERIOD OF HOLDING CLEARLY SHOW ALL THE TRANSACTIONS ENTERED INTO UPTO THE PERIOD OF 60 DAYS AMOUNTING TO RS. 9,39,223/ - ARE A BUSINESS ACTIVITY TO BE ASSESSED AS BUSINESS INCOME AND THE BALANCE OF TRANSACTIONS BEYOND THE PERIOD OF 60 DAYS ARE TO BE TREATED AS AN INVESTMENT AND SHORT TERM CAPITAL GAIN ONLY. THE LOGIC AND REASONING OF THE DECISIONS OF HONBLE ITAT, MUMBAI IN THE CASES OF : - I) ACIT, CIR - 21(3) VS. NAGESH HONBLE ITAT F BENCH, ITA NO. 5410/MUM/2008 A.Y.2005 - 06; II) SMT. SADHANA NABERA VS. ACIT, RG. - 25(3), HONBLE ITAT I BE NCH ITA NO.2586/MUM/2009 A.Y. 2005 - 06; III) JAYSHREE PRADEEP SHAH VS. ACIT CENT. 25(2) HONBLE ITAT MUMBAI J BENCH, ITA NO.3608/MUM/2007 A.Y. 2004 - 05 DTD. 24/2/2010. ARE BEING FOLLOWED IN REACHING THE ABOVE CONCLUSION. AS REGARDS THE LONG TERM CAPITAL G AIN OF RS.7,54,337/ - THE AO IS DIRECTED TO TREAT THE SAME AS AN INVESTMENT AND TAX IT AS A LONG TERM CAPITAL GAIN AS SHOWN BY THE APPELLANT HIMSELF, SINCE HERE THE PERIOD OF HOLDING AND THE FREQUENCY CLEARLY SHOW HIM TO BE AN INVESTOR ONLY. 6. AGAINS T THE ABOVE ORDER OF CIT(A), BOTH THE ASSESSEE AND REVENUE ARE IN APPEALS BEFORE US. 7. LEARNED AR CONTENDED THAT ASSESSEE WAS CONSISTENTLY HOLDING AND TREATING THE SHARES AS INVESTOR AND THE SAME WAS ALSO ACCEPTED BY THE DEPARTMENT WHILE FRAMING ASSESSMEN T UNDER SCRUTINY FOR EARLI E R ASSESSMENT YEAR S 2003 - 04 & 2005 - 06 . OUR ATTENTION WAS ALSO INVITED TO THE ASSESSMENT YEAR UNDER SCRUTINY SO PLACED ON RECORD. LEARNED AR FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 2006 - 07 WHEN THE CAPITAL GAIN SO DECLARED WA S TREATED BY AO AS BUSINESS INCOME, THE CIT(A) HELD THAT PROFIT ON SALE OF SHARES WAS CAPITAL GAIN AND THE TRIBUNAL VIDE ITS ITA NO S . 2012&1609 /1 1 4 ORDER DATED 18 - 4 - 2012 HELD THAT ASSESSEE WAS AN INVESTOR AND NOT A PERSON DEALING SHARES, THEREFORE, PROFIT ON SALE OF SHARES WERE LIABLE TO BE TAXED AS SHORT TERM CAPITAL GAIN RATHER THAN BUSINESS PROFIT. 8. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN TREATING PART OF INVESTMENT IN SHARES HELD FOR MORE THAN 60 DAYS AS CAPITAL GAIN S RATHER THAN BUSINESS INCOME . 9. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ASSESSEE HAS BEEN CONSISTENTLY TREATED AS INVESTOR BY THE DEPARTMENT ITSELF WHILE FRAMING SCRUTINY ASSESSMENT U/S. 143(3) FOR A.Y. 2003 - 04 & 2005 - 06. THE CAPITAL GAIN SO OFFERED WAS ACCEPTED BY THE DEPARTMENT. THE TRIBUNAL HAS ALSO DECIDED THE EXACTLY SIMILAR ISSUE IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006 - 07 IN FAVOUR OF THE ASSESSEE AFTER HAVING THE FOLLOWING OBSERVATIONS : - 6. WE HAVE 'HEARD BOTH THE PARTIES AND PERUSED THE AVAILABLE RECORDS. WHILE DECIDING THE ISSUE OF. INCOME FROM BUSINESS OF SHARE TRADING INCOME FROM OTHER SOURCES NO ARITHMETICAL FORM ULA CAN BE APPLIED. THAT WAS THE PRECISE REASON FOR THE CBDT TO ISSUE CIRCULAR ON 15 - 06 - 2007 (CIRCULAR 4 OF 2007) IN THIS REGARD. IT HAS TO BE DECIDED CONSIDERING VARIOUS SURROUNDING CIRCUMSTANCES. IF TOTALITY OF THE TRANSACTION IS LOOKED INTO, IT BECOME S CLEAR THAT ASSE SSEE WAS AN INVESTOR NOT A PERSON DEALING IN SHARES. COMPARISON OF BALANCE SH EET O F A: Y. 2005 - 06 AND 2006 - 07 SHOW THAT CAPITAL OF ASSESSEE WAS RS. 2.73 CRORES AND RS. 2.92 CRORES RESPECTIVELY, WHEREAS INVESTMENT IN SHARE IS RS. 67.2 LAKHS AN D 77.62 LAKHS RESPECTIVELY. EVEN IN THE BALANCE SHEET OF A.Y.2003 - 04 INVESTMENT IN SHARE FINDS PLACE. AO HAS HELD IN THE ASSESSMENT ORDERS OF A.Y.2004 - 05 & 205 - 06 THAT ASSESSEE HAD INCOME FROM OTHER SOURCES UNDER THE HEAD SHORT TERM CAPITAL GAINS. VOLUME O F THE TRANSACTION ON ITS OWN IS NOT A DECIDING FACTOR TREATING AS INVESTOR AS A DEALER IN SHARES. AO HAS NOWHERE GIVEN DETAILS OF BORROWED MONEY INVESTED IN SHARE TRANSACTIONS NOR HAS HE FOUND EVIDENCE OF USE OF INFRASTRUCTURE FOR SALE AND PURCHASE OF SHAR ES. CONSIDERING THE NUMBER OF TRANSACTIONS ( ABOUT 105 ) CARRIED OUT IN A YEAR, IT ITA NO S . 2012&1609 /1 1 5 CANNOT BE SAID THAT THE ACTIVITY WAS OF SHARE TRADING BUSINESS. PRINCIPLES DISCUSSED IN THE MATTERS OF GOPAL PUROHIT 22 8 C TR 582 (BOMBAY) MITESH SATISHCHANDRA DOSHI (140 TTV M UM) AND NEHAL VS. SHAH (ITA 2733/MUM/2009) ALSO SUPPORT THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE. WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DOES NOT NEED ANY INTERFERENCE. 10. SIMILARLY, IN THE CASE OF DCIT VS. E - CAP PARTNERS, REPO RTED IN (2014) 45 TAXMANN.COM342(MUMBAI) WITH REGARD TO TREATMENT OF CAPITAL GAINS VIS - - VIS BUSINESS INCOME, THE BENCH HAS HELD AS UNDER : - 8. WE HAVE DELIBERATED UPON VARIOUS CASE LAWS CITED BY THE LD. AUTHORIZED REPRESENTATIVE AND LD. CIT DR AND IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. WE HAD ALSO DELIBERATED ON THE CASE LAWS REFERRED TO BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. THE QUESTION AS TO WHETHER THE ASSESSEE HAS EARNED CAPITAL GAIN OR BUSINESS PROFITS ON THE SHARES SOLD BY HIM DEPE ND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. SUCH DECISION IS TO BE ARRIVED AT BY TAKING INTO ACCOUNT THE INTENTION OF THE ASSESSEE WHILE PURCHASING THE SHARES, AS TO WHETHER THE SAME WAS ACQUIRED FOR HOLDING AS INVESTMENT OR FOR DOING BUSINESS THEREIN. THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS ALSO ONE OF THE DECISIVE FACTORS TO FIND OUT WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRADE. IF THE SHARES ARE BOUGHT WITH THE INTENTION OF EARNING CAPITAL GAINS THEREON AND ALSO DIVIDEND INCOME BY KEEPING THE SAME AS INVESTMENT, THE GAIN ARISING THERE FROM IS REQUIRED TO BE TREATED AS CAPITAL GAINS. ON THE OTHER HAND, IF THE SHARES ARE PURCHASED WITH THE INTENTION TO EARN PROFIT THEREON AND THE SAME IS TREATED AS STOCK IN TRADE I N THE BOOKS OF ACCOUNT, THE PROFIT ARISING OUT OF SALE OF SUCH SHARES ARE LIABLE TO BE TREATED AS BUSINESS INCOME. VOLUME AND FREQUENCY OF TRANSACTION IS ALSO ONE OF THE GUIDING FACTORS TO FIND OUT WHETHER THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHAS E AND SALE OF SHARES OR MAKING INVESTMENT TO HAVE CAPITAL GAINS THEREON. IN THE INSTANT CASES BEFORE US, WE FOUND THAT THE ASSESSEE HAS INVESTED IN SHARES OF INDIAN COMPANIES SINCE LAST 5 6 YEARS, WHICH IS CLEAR FROM THE STATEMENT OF SHAREHOLDING OF THE ASSESSEE. THUS, THE FACT OF THE ASSESSEE INVESTING IN SHARES FOR THE LAST SEVERAL YEARS IS NOT IN DISPUTE. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS TREATED THE EQUITY SHARES OF INDIAN COMPANIES AS INVESTMENT I.E. CAPITAL ASSET ALL ALONG. THE ASSESSEE HAS ALSO VALUED THE SHARES AT COST THUS GIVEN A PARTICULAR TREATMENT TO THE SHARES HELD AS INVESTMENT, THEREFORE, WITHOUT BRINING ON RECORD CONTRARY MATERIAL, THE AO CANNOT CHANGE THE INTENTION AND MANNER OF INVESTMENT BEING MADE BY THE ASSES SEE. HAD THE ASSESSEE VALUED THE SHARES AT COST OR MARKET PRICE WHICHEVER IS LOWER, THE GAIN ARISING OUT OF SALE OF SHARES COULD EASILY BE TREATED AS BUSINESS INCOME. ASSESSEE HAD NOT VALUED THE SHARES AS STOCK BUT VALUED THE SAME AS INVESTMENT. THUS, WHAT WAS A CAPITAL ASSET WILL REMAIN A CAPITAL ASSET UNLESS A PERSON HOLDING THE ASSET HIMSELF CHANGES THE NATURE BY A SPECIFIC ACTION LIKE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. IN THE INSTANT CASES BEFORE US, THE ASSESSEE HAS NOT ITA NO S . 2012&1609 /1 1 6 TREATED THE INVEST MENT IN EQUITY SHARES OF INDIAN COMPANIES AS STOCK IN TRADE. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAM KUMAR AGARWAL & BROTHERS, 205 ITR 251, THE AO WAS NOT JUSTIFIED IN TREATING THE CAPITAL GAIN EARNED FROM SALE OF THESE SHARES, AS BUSINESS PROFITS, WHICH WERE ENTERED BY THE ASSESSEE AS INVESTMENT IN BOOKS OF ACCOUNT. THERE IS ALSO NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT RES JUDICATA DO NOT STRICTLY APPLY TO THE INCOME TAX PROCEEDINGS, BUT AT THE VERY SAME TIME, IT I S WELL SETTLED THAT PRINCIPLE OF CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES IS THE FUNDAMENTAL OF JUDICIAL PRINCIPLE, WHICH CANNOT BE BRUSHED ASIDE WITHOUT PROPER REASONING. IN THIS REGARD, RELIANCE CAN BE PLACED ON THE DECISION IN CASE OF S.M.K. S HARES AND STOCK BROKING PRIVATE LIMITED, I.T.A. NO. 799/MUM/09 ORDER DATED 24.11.2010. IN THIS PROPOSITION, THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GOPAL PUROHIT, 228 CTR 582, IS VERY MUCH RELEVANT AND IMPORTANT. 9. MERELY BECAUSE THE ASSESSE E LIQUIDATES ITS INVESTMENT WITHIN A SHORT SPAN OF TIME, WHICH HAD GIVEN BETTER OVERALL EARNING TO THE ASSESSEE, WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD NO INTENTION TO KEEP ON THE FUNDS AS INVESTOR IN EQUITY SHARES, BUT WAS ACTUALLY INTENDE D TO TRADE IN SHARES. 10. HERE, IT IS PERTINENT TO MENTION THE INTENTION OF GOVERNMENT FOR INTRODUCING THE SECURITY TRANSACTION TAX AND EXEMPT THE LONG TERM CAPITAL GAIN EARNED FROM SALE OF SHARES AND LEVYING 10 % TAX ON SHORT TERM CAPITAL GAIN AND EARNE D ON SALE OF SHARES. IT IS NOTED THAT UNDER THE OLD PROVISIONS OF THE INCOME - TAX ACT, PROFITS OR GAINS ARISING TO AN INVESTOR FROM THE TRANSFER OF SECURITIES WERE CHARGED TO TAX EITHER AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAID SECURITIES; SHORT TERM CAPITAL GAINS ARISING FROM TRANSFER OF SECURITIES WERE TAXED AT THE APPLICABLE RATES (NORMAL RATE) AND LONG - TERM CAPITAL GAINS WERE TAXED @ 20%, AFTER ADJUSTING FOR INFLATION BY INDEXING THE COST OF ACQ UISITION. FOR LISTED SECURITIES, THE TAXPAYER HAD AN OPTION TO PAY TAX ON LONG - TERM CAPITAL GAINS @ 10% BUT WITHOUT INDEXATION. FOR FOREIGN INSTITUTIONAL INVESTORS (FIIS), THE LONG - TERM CAPITAL GAINS AND SHORT - TERM CAPITAL GAINS WERE TAXED AT THE RATE OF 1 0% (WITHOUT INDEXATION) AND 30% RESPECTIVELY. IN CASE OF A TRADER IN SECURITIES, HOWEVER, THE GAINS WERE TAXED AS ANY OTHER NORMAL BUSINESS INCOME. THUS TAX LIABILITY ON THE INCOME FROM PURCHASE & SALE OF SHARES AS REGARDS TO THE STCG & BUSINESS INCOME WAS AT PAR. HOWEVER, THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS CAPITAL GAIN OR BUSINESS INCOME HAS IN - FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT - 2004 BY INSERTION OF PROVISIONS OF SECTION 111A AND 10(38) AS REGARDS TO LEVY OF TRANSACTION TAX AND EXEMPTION / CONCESSION ON CAPITAL GAIN ARISING FROM SECURITIES ENTERED IN A RECOGNIZED STOCK EXCHANGE. WITH A VIEW TO SIMPLIFY THE TAX REGIME ON SECURITIES TRANSACTIONS, A TAX AT THE RATE OF 0.015 PER CENT. (SEE: CHANGE IN RATES ON SEC URITIES TRANSACTIONS, BY FINANCE ACTS, AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE PLACE IN A RECOGNIZED STOCK EXCHANGE IN INDIA. THIS TAX IS COLLECTED BY THE STOCK EXCHANGE FROM THE PURCHASER OF SUCH SECURITIES AND PAID TO ITA NO S . 2012&1609 /1 1 7 THE EXCHEQUER. THE PROVISIONS RELATING TO THE SECURITIES TRANSACTIONS TAX ARE CONTAINED IN CHAPTER VII OF THE FINANCE (NO.2) BILL, 2004, AND CAME INTO EFFECT FROM 01.10.2004. FURTHER, CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 OF THE INCOME - TAX ACT, SO AS TO PROVIDE EXEMPTION FROM LONG - TERM CAPITAL GAINS ARISING OUT OF SECURITIES SOLD ON THE STOCK EXCHANGE. A NEW SECTION 111A HAS ALSO BEEN INSERTED AND SECTION L15AD IS AMENDED, SO AS TO PROVIDE THAT SHORT - TERM CAPITAL GAINS ARIS ING FROM SALE OF SUCH SECURITIES TO AN INVESTOR INCLUDING FIIS SHALL BE CHARGED AT THE RATE OF TEN PER CENT. THESE AMENDMENTS APPLY TO ASSESSMENT YEAR 2005 - 2006 AND SUBSEQUENT YEARS. THROUGH FINANCE ACT, 2008, SECTIONS 111A AND 115AD HAVE FURTHER BEEN AMEN DED WHEREBY THE RATE OF TAX ON SUCH SHORT - TERM CAPITAL GAIN HAS BEEN RAISED TO FIFTEEN PERCENT. THUS, W.E.F. 01.10.2004; ON THE SHARE TRANSACTIONS SUBJECTED TO STT; CONCESSIONAL TAX RATE OF 10% (WHICH HAS BEEN INCREASED TO 15% FROM AY 2009 - 10) ARE APPLICAB LE IN RESPECT OF STCG WHEREAS NO TAX IS CHARGEABLE IN RESPECT OF LTCG. IT IS ALSO NOTED THAT THE CBDT VIDE ITS CIRCULAR NO.4/2007, DATED 15.06.2007 HAS ALSO RECOGNIZED POSSIBILITY OF TWO PORTFOLIOS, I.E. ONE 'INVESTMENT PORTFOLIO' COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE OTHER 'TRADING PORTFOLIO' COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. IN VIEW OF THESE FACTS, PROFIT AROSE ON SHARES IN RESPECT OF DELIVERY BASED TRANSACTION ARE LIABLE TO BE TAX ED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 11. IF THE CONCLUSION DRAWN IN THE IMPUGNED ORDER, OBSERVATIONS MADE FROM THE ASSESSMENT ORDER, ASSERTIONS MADE BY RESPECTIVE COUNSEL AND THE MATERIAL AVAILABLE ON RECORD ARE KEPT IN JUXTAPOSITION AND ANALYZE D, WE FIND THAT THE ASSESSEE HAD BEEN CONSISTENTLY INVESTING IN SHARES AND INCOME ARISING FROM DELIVERY BASED TRANSACTION OF SALE AND PURCHASE OF SHARES HAD BEEN SHOWN AS CAPITAL GAINS I.E. LTCG AND STCG DEPENDING UPON PERIOD OF HOLDING. ANALYSIS OF BALANC E SHEET OF ASSESSEE REFLECTS OF HOLDING OF SHARES AS INVESTMENT. IN THE CASE OF GOPAL PUROHIT, 228 CTR 528 (BOM), SLP WAS FILED BY THE DEPARTMENT AGAINST THE DECISION OF BOMBAY HIGH COURT AND THE SAME WAS DISMISSED BY HON'BLE APEX COURT VIDE ORDER DATED 15 .11.2010. IN THE SPEECH BY HON'BLE FINANCE MINISTER REGARDING DIRECT TAX CASES (UNION BUDGET 2004 - 05), ESPECIALLY CLAUSE 111, THE INTENTION OF GOVERNMENT FOR INTRODUCING THE SECURITY TRANSACTION TAX AND EXEMPTING THE LONG TERM CAPITAL GAIN OR FROM SALE O F SHARE AND LEVYING 10% TAX ON SHORT TERM CAPITAL GAIN OR FROM SALE OF SHARES ALSO SUPPORTS THE CASE OF ASSESSEE. THE IDEA BEHIND INTRODUCTION OF SECURITY TRANSACTION TAX IS TO END THE LITIGATION ON THE ISSUE, WHETHER THE PROFIT EARNED FROM DELIVERY BASED SALE OF SHARES IS CAPITAL GAINS FOR BUSINESS PROFIT. 12. EVEN THE HON'BLE APEX COURT IN THE CASE OF K.P. VERGHESE VS TO, 131 ITR 597 (SC) OBSERVED AS UNDER: - THE TASK OF INTERPRETATION OF A STATUTORY ENACTMENT IS NOT MECHANICAL TASK. IT IS MORE THAN A M ERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORD POSSESSES THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT ITA NO S . 2012&1609 /1 1 8 BEST AN IMPE RFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND, AS POINTED OUT BY LORD DENNING, IT WOULD BE IDLE TO EXPECT EVERY STATUTORY PROVISIONS TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. WE CAN DO BETTER THAN REPEAT THE FAMOUS WORDS OF JUD GE LEARNED HAND WHEN HE SAID. THE ABOVE OBSERVATIONS OF HON'BLE JUDGES OF THE APEX COURT WAS REITERATED BY HON'BLE APEX COURT IN THE CASE OF KERALA STATE INDUSTRIAL CORPORATION, 259 ITR 51 (SC) HOLDING AS UNDER: - THAT THE FINANCE MINISTERS SPEECH CAN BE RELIED UPON TO THROW LIGHT ON THE OBJECT AND PURPOSE OF THE PARTICULAR PROVISIONS INTRODUCTION BY THE FINANCE BILL HAS BEEN RECOGNIZED BY THIS COURT IN K.P. VERGHESE VS ITO 1981), 131 ITR 597 (SC), AT 609. AGAIN IN THE CASE OF R & B FALCON (A) PVT. L TD VS CIT (2008) 301 ITR 309 (SC), IT WAS HELD THAT (PAGE 323): - RULES OF EXECUTIVE CONSTRUCTION IN A SITUATION OF THIS NATURE MAY ALSO BE APPLIED. WHERE A REPRESENTATION IS MADE BY THE MAKERS OF LEGISLATION AT THE TIME OF INTRODUCTION OF BILL OR CONSTRUC TION THEREUPON IS PUT BY THE EXECUTIVE UPON ITS COMING INTO FORCE, THE CARRIES GREAT WEIGHT. THE HON'BLE DELHI HIGH COURT IN ARJ SECURITY PRINTERS, 264 ITR 276 AND NEO POLLYPACK PVT LTD. 245 ITR 492 (DEL.) HELD THAT EVEN WHEN THE DOCTRINE OF RES JUDICAT A DOES NOT APPLY TO INCOME TAX PROCEEDINGS, WHERE A ISSUE HAS BEEN DECIDED CONSISTENTLY IN EARLIER ASSESSMENT YEARS IN PARTICULAR MANNER, THE SAME VIEW SHOULD PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN FACTS, MEANING THEREBY, THERE MU ST BE MATERIAL CHANGE IN THE FACTS. THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS OM PRAKASH SURI (SUPRA) HELD AS UNDER: - 3. WE HAVE CONSIDERED THE SUBMISSIONS PUT FORTH BY THE LEARNED SENIOR DR AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECOR D. BRIEF FACTS ARE THAT IN THE PAST THE ASSESSEE WAS ENGAGED IN ROAD BUILDING CONTRACTOR AND WAS DERIVING INCOME FROM CONTRACT RECEIPTS AS WELL AS FROM SALE OF GITTI AND DURING THE IMPUGNED YEAR, VENTURED INTO INVESTMENT IN SHARE MARKET. THE INCOME ARISIN G FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES (WITHOUT PHYSICAL DELIVERY) REFLECTED AS SPECULATIVE BUSINESS WHEREAS THE INCOME ON DELIVERY BASED TRANSACTIONS OF SALE AND PURCHASE OF SHARES, INCOME WAS SHOWN FROM CAPITAL GAINS. THE LEARNED AO CONSIDER ED THE INCOME WHICH WAS BASED ON PURCHASE AND SALE OF SHARES AS BUSINESS INCOME ON THE GROUNDS AS NARRATED IN THE ASSESSMENT ORDER AS WELL AS AT PAGES 3 AND 4 OF THE APPELLATE ORDER. BROADLY, THE LEARNED AO WAS OF THE VIEW THAT THE INTENTION OF THE ASSESSE E SINCE BEGINNING WAS SALE OF SHARES AS TRADING ACTIVITIES, AS EVIDENT FROM AUDITED PROFIT AND LOSS ACCOUNT BY NOT SHOWING THE SAME AS SHORT TERM CAPITAL GAIN AND ALSO IN FORM 3CD THE ASSESSEE HAS MENTIONED THE NATURE OF ITA NO S . 2012&1609 /1 1 9 BUSINESS AS TRADING/DEALING IN SHAR ES/SECURITIES AND MUTUAL FUNDS. THE FREQUENCY OF TRANSACTIONS WAS ALSO CONSIDERED, CONSEQUENTLY HE TREATED THE AMOUNT OF RS.49,81,915/ - AS BUSINESS INCOME FROM SHARE TRADING. HOWEVER , BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE BASIS OF ADD ITIONS WAS EXPLAINED AS EVIDENT FROM PARA 3.1.1 ONWARDS. THE CRUX OF CLAIM OF THE ASSESSEE IS THAT IN THE AUDITED ACCOUNTS, THE SALE OF SHARES AMOUNTING TO RS. 9.43 CRORES IN WHICH DELIVERY HAD BEEN TAKEN, STT WAS PAID AND THE SHARES WERE SOLD AFTER HOLDIN G FOR A FEW DAYS/FEW WEEKS. THE MUTUAL FUNDS OF RS. 2.91 LACS WERE SOLD AND WERE TREATED AS INCOME FROM SHORT TERM CAPITAL GAINS. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE ALSO FILED A DETAILED NOTE ON THE PURCHASE PROCESS FOR DE LIVERY BASE SHARES, DETAILS OF DIVIDEND RECEIVED ON THE BASIS OF RELEVANT STATEMENTS BY PLACING RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JM SHARES & STOCK BROKERS V. JCIT DATED JANUARY, 2009. BRIEFLY, THE CLAIM OF THE ASS ESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS THAT THE DELIVERY BASED TRANSACTIONS WERE MADE WITH AN INVESTMENT MOTIVE AND AS SUCH THE INCOME THEREFROM WAS IN THE NATURE OF SHORT TERM CAPITAL GAINS WHEREAS THE INCOME AROSE FROM F&O TRAN SACTIONS AND DAILY TRADING IN SHARES WERE WITH THE BUSINESS MOTIVE WHICH WERE SHOWED AS BUSINESS INCOME ONLY WHICH WAS MAINLY THROUGH STOCK BROKER, ARIHANT CAPITAL MARKETS LIMITED, REGISTERED WITH NSC, NSE AND BSE. IT IS ALSO SEEN THAT IN THE IMPUGNED ORDE R THE BOARD CIRCULAR NO. 4/2007 DATED 15.6.2007 WHEREIN IT WAS EMPHASIZED THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORT FOLIOS I.E. AN INVESTMENT PORT FOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET AND TRADING PORT FOLIO COM PRISING STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSET, WAS CONSIDERED. THE BOARD FURTHER CLARIFIES THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL PROPOSITION NEEDS TO BE CONSIDERED. THE ASSESSEE HAS MAINTAINED ONLY ONE PORT FOLIO AND CL AIMED THAT TO BE AN INVESTMENT FOLIO. UNDISPUTEDLY, THE PERIOD OF HOLDING IS LESS THAN ONE YEAR, CONSEQUENTLY, THERE IS NO INFIRMITY IN HOLDING THAT THESE TRANSACTIONS WOULD BE TREATED AS SHORT TERM CAPITAL GAIN ON WHICH THE APPLICABLE TAX IS @ 10% ONLY. I N VIEW OF THIS UNCONTROVERTED FACT, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4TH AUGUST, 2010. 13. THE AFORESAID DECISION WAS AFFIRMED BY THE HON'BLE MADHYA PRADESH HIGH COURT REPORTED IN (2012) 19 ITJ 326 M.P. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHANTILAL M JAIN VS ACIT VIDE ORDER DATED 27 - 04 - 2011 (ITA NO. 269/MUM/2010) HELD THAT DESPITE LARGE VOLUME OF SHARES TRANSACTIONS, THE ASSESSING OFFICER CANNOT IGNORE THE RULE OF CONSI STENCY TO TREAT THE GAINS ON SALE OF SHARES AS STCG. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF INVESTMENT IN SHARES AND SECURITIES OFFERED RS.1.54 CRORES AS SHORT TERM CAPITAL GAIN AND RS. 2.91 CRORES FROM LONG TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN WAS ACCEPTED WHEREAS SHORT TERM ITA NO S . 2012&1609 /1 1 10 CAPITAL GAIN WAS HELD TO BE BUSINESS PROFIT. SINCE IN EARLIER ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS CONSISTENTLY ACCEPTED AS SHORT TERM CAPITAL GAIN, IT WAS HELD THAT THE RULE OF CONSISTE NCY AS PROPOUNDED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA), IT IS FAIRLY APPLICABLE AND THE INCOME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IDENTICALLY IN THE CASE OF NAGINDAS P SETH (ITA NO.961/MUM/2010) IT WAS HELD THAT DESP ITE LARGE NUMBER OF TRANSACTIONS IN SHARES, THE PROFIT CAN BE ASSESSED AS CAPITAL GAINS UNDER THE FACTS OF THE CASE. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THESE DECISIONS MORE SPECIFICALLY WHEN THE ASSESSEE WAS HOLD THE SHARES IN HIS BOOKS AS IN VESTOR, AS WELL AS TOCK - IN - TRADE SEPARATELY. THE DECISION IN THE CASE OF JANAK S RANAWALA, 11 SOT 627 (MUM.) FURTHER SUPPORTS THE CASE OF THE ASSESSEE. LIKEWISE, THE DECISION FROM HON'BLE MADRAS HIGH COURT IN CIT VS N.S.S. INVESTMENT PVT LTD. 227 ITR 149 ( MAD), CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY, 82 ITR 526 (SC) SUPPORTS THE CASE OF THE ASSESSEE. IN THE PRESENT APPEAL, WE NOTE THAT THE ASSESSEE MADE INVESTMENT IN SHARES WITH INTENTION TO EARN DIVIDEND INCOME ON APPRECIATION OF PRICE OF SHARES . THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS. 11 . RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE STAND TAKEN BY THE DEPARTMENT IN ASSESSEES OWN CASE IN EARLIER YEAR, WE DO NOT FIND ANY MERI T IN THE ORDER OF CIT(A) FOR BIFURCATING THE INVESTMENT SO MADE BY THE ASSESSEE AND THEREBY TREATING THE SHARES HELD FOR MORE THAN 60 DAYS AS SHORT TERM CAPITAL GAINS AND ON SALE OF SHARES HELD FOR LESS THAN 60 DAYS AS BUSINESS INCOME. 12 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 /0 9 / 201 4 . 24 / 09 / 2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 24 /0 9 /2014 /PKM , PS ITA NO S . 2012&1609 /1 1 11 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( 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//