HIMANI KHANDELWAL, MUMBAI V. ACIT (OSD) 2 CITY 2, MUMBAI

ITA 184/MUM/2012

• Counselvise Citation: 18419914 RSA 2012
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 27-05-2015
• Assessment Year: misc
• Appeal Filed On: 09-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: SUINDER MEHRA
• Keywords: Business income; Transactions in derivatives

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO. 184 /MUM/2012 ( / ASSESSMENT YEAR : 2005-06 SMT. HIMANI KHANDELWAL, RELIANCE BUILDING, 2 ND FLOOR, 269, DR. D.N. ROAD, FORT, MUMBAI 400 001. / VS. A.C.I.T. (OSD) CITY 2, AAYAKAR BHAVAN, MARINE LINES, MUMBAI. ./ PAN : AAUPK6048C ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI SUINDER MEHRA R E SPONDENT BY : SHRI JEETENDRA KUMAR, DR / DATE OF HEARING : 27-05-2015 / DATE OF PRONOUNCEMENT : 31-8-2015 [ () / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) -5, MUMBAI DAT ED 11-11-2011. 2. THE SOLE ISSUE TAKEN BY THE ASSESSEE IS AGAINST THE TREATMENT OF INCOME EARNED FROM SALE OF SHARES AS BUSINESS INCOME BY TH E LOWER AUTHORITIES AS AGAINST CAPITAL GAINS DECLARED BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME UNDER THE HEAD CAPITAL GAIN, INCOME FROM SPE CULATION AND SALARY. DURING THE YEAR, ASSESSEE HAS EARNED SHORT-TERM CAP ITAL GAIN OF ITA 184/M/12 2 R.64,41,786/-. THE ASSESSING OFFICER TAXED THIS INC OME AS BUSINESS INCOME BY HOLDING THAT THE ASSESSEE IS A TRADER IN THE SH ARES AND NOT THE INVESTOR. THE ASSESSEE CARRIED OVER THE MATTER BEFORE THE LD. CIT(A) BUT UNSUCCESSFULLY. MAIN REASONS GIVEN BY THE LOWER AUTHORITIES ARE THA T THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN AND WAS TRADING IN F&O SEGM ENT. THE A.O. FURTHER HELD THAT THE ASSESSEE HAD BORROWED MONEY FROM HER HUSBAND IN PERSONAL ACCOUNT AND BUSINESS ACCOUNT AND HAD HELD SIX SCRIP S OF SHARES FOR A VERY SHORT TIME, I.E., LESS THAN 30 DAYS. 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE HAD MAINTAINED SEPARATE BALANCE SHEET AND PROFIT AN D LOSS ACCOUNT IN RESPECT OF TRADING OF SHARES AND INCOME FROM CAPITAL GAINS. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS OBTAINED DELIVERY OF ALL THE SHARES PURCHASED DURING THE YEAR AND THAT THERE WERE NO TRANSACTIONS WHICH WERE SHOWN AS SHORT TERM CAPITAL GAINS WHERE THE TRANSACTIONS HAVE SETTLED O THERWISE THAN BY ACTUAL DELIVERY OF THE SHARES. HE THEREFORE HAS SUBMITTED THAT THE MAIN INTENTION OF THE ASSESSEE WAS TO HOLD THE SHARES FOR THE PURPOSE S OF EARNING DIVIDEND AND CAPITAL GAIN ONLY AND NOT TO TRADE IN THEM. HE HAS FURTHER RELIED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CA SE OF GOPAL PUROHIT (336 ITR 287) WHEREIN DELIVERY BASED TRANSACTIONS ARE HE LD TO BE SHORT-TERM CAPITAL GAINS. HE HAS SUBMITTED THAT THE TRANSACTION WITH LESS THAN 30 DAYS HOLDING WAS JUST 18.03% OF SHORT TERM CAPITAL GAIN SHOWN BY ASSESSEE. THE LD. A.R. OF THE ASSESSEE HAS FURTHER SUBMITTED THAT BALANCE OF MOTILAL OSWAL ACCOUNT WHICH WAS HARPED UP ON BY THE A.O. AND THE LD. CIT( A) IS, IN FACT, SHOWN IN THE BUSINESS BALANCE SHEET OF THE ASSESSEE AND EXPE NDITURE PERTAINING THERETO AND INCOME THEREON IS SHOWN UNDER THE HEAD BUSINESS INCOME. HE, THEREFORE, HAS SUBMITTED THAT THE ASSESSEE IS AN INVESTOR IN S HARES AND NOT AS TRADER AND INCOME FROM SHORT TERM CAPITAL GAIN IS NOT TAXA BLE AS BUSINESS INCOME. ITA 184/M/12 3 5. THE LD. DR HAS SUBMITTED THAT AO AND LD. CIT (A) HAS DEALT WITH THIS ISSUE HOLDING THAT THE ASSESSEE HAS BORROWED MONEY FROM HER HUSBAND AND DEALT WITH SOME SHARES FOR A VERY SHORT TIME. IT HA S ALSO BEEN SUBMITTED THAT ON MANY OCCASIONS, THE PURCHASE BILLS ARE ADJUSTED FROM SALE PROCEEDS OF OTHER SHARES MEANING THAT THE PROFITS FROM NON-D ELIVERY BASED TRANSACTIONS ARE ADJUSTED AGAINST AMOUNT PAYABLE FOR DELIVERY BASED TRANSACTIONS. HE HAS FURTHER SUBMITTED THAT MERELY CLASSIFYING THE SHARE S, AS INVESTMENTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT LEAD TO CON CLUSION THAT ASSESSEE IS AN INVESTOR IN THE SHARES AND NOT A TRADER. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AS WELL AS THE ORDERS OF LOWER AUTHORITIES. THE ASSESSEE HAS EARNE D SHORT-TERM CAPITAL GAIN OF RS 64,41,786/-. SHE HAS RECEIVED DIVIDEND INCOME OF RS 1,68,592/- DURING THE YEAR ON INVESTMENTS. IN THE BALANCE SHEET SUBMI TTED BY THE ASSESSEE, THERE ARE TWO DISTINCTLY DIFFERENT PORTFOLIOS MAINT AINED BY THE ASSESSEE SUCH AS INVESTMENTS IN SHARES AND SECOND IS INVESTMENTS IN SHARE BUSINESS. THE ASSESSEE HAS ALSO PREPARED SEPARATE BALANCE SHEET F OR THE SHARE BUSINESS WHEREIN THE SEPARATE STOCK OF SHARES FOR TRADING IS SHOWN. THEREFORE ASSESSEE IS MAINTAINING TO PORTFOLIOS; ONE FOR INVESTMENTS A ND ANOTHER FOR TRADING. THE HONBLE DELHI HIGH COURT IN CASE OF CIT V CNB FINW IZ LTD 369 ITR 228 HAS HELD THAT THE ASSESSEE CAN HAVE TWO SEPARATE PORTFO LIOS AND THE INCOME FROM INVESTMENT ACCOUNT IN SUCH A CASE IS TO BE TAKEN AS CAPITAL CLAIMS. FURTHER, THE UNPAID LIABILITIES ARE PAYABLE TO M/S MOTILAL O SWAL SECURITIES LIMITED IS SHOWN AS LIABILITY IN SHARE BUSINESS A/C AND NOT AG AINST INVESTMENTS AND IT IS NOT OUT OF BORROWINGS. THE LOAN BORROWED FROM HER H USBAND BY THE ASSESSEE IS ALSO PARTLY FOR THE PURPOSES OF SHARE BUSINESS A ND PARTLY IN IN PERSONAL BALANCE SHEET FROM WHERE THE INVESTMENTS IN IMMOVAB LE PROPERTY ARE ALSO MADE. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HA S BORROWED MONEY FOR SHARES SHOWN IN INVESTMENT PORTFOLIO. THE SHORT-TER M CAPITAL GAIN SHOWN BY THE ASSESSEE ARE DELIVERY BASED TRANSACTIONS AND ON THE SAME ASSESSEE HAS ITA 184/M/12 4 PAID SECURITIES TRANSACTIONS TAX, WHICH FACT IS NOT CONTROVERTED BY REVENUE. THEREFORE RESPECTFULLY FOLLOWING THE DECISIONS OF H ONOURABLE BOMBAY HIGH COURT IN CASE OF CIT VS. GOPAL PUROHIT (SUPRA), THE DELIVERY BASED AND TRANSACTION ON STT PAID CANNOT BE HELD TO BE BUSINE SS INCOME WHEN THE ASSESSEE IN HER BOOKS OF ACCOUNTS HAS SHOWN THOSE S HARES AS INVESTMENTS. RELIANCE PLACED BY THE LD. DR ON THE DECISION OF TH E COORDINATE BENCH IN THE CASE OF ACIT VS. HITESH S BHAGAT, (ITA NO. 6586/M UM/2010) IS NOT CORRECT AS IN THAT CASE THE ISSUE WAS WHETHER IT CAN BE SAI D THAT SHARES WHICH ARE HELD FOR LESS THAN 30 DAYS CAN BE CONSIDERED AS SHO RT TERM CAPITAL GAIN AND IN THAT CASE, IT HAS BEEN HELD THAT THERE IS NO SUCH P ROVISION IN THE ACT OF HOLDINGS FOR LESS THAN 30 DAYS OR MORE THAN 30 DAYS TO QUALIFY OR DISQUALIFY AS SHORT TERM CAPITAL GAIN. IT HAS BEEN HELD THAT HOLD ING PERIOD IS ONE OF THE CRITERIA FOR DECIDING THE ISSUE. THEREFORE LOOKING AT THE OVERALL FACTS OF THE CASE AND, IN PARTICULAR, IN DELIVERY BASED TRANSACTIONS ON WHICH STT IS CHARGED WHERE ASSESSEE HAS CLASSIFIED THE SAME, AS INVESTME NTS PORTFOLIO, WHICH IS DISTINCT FROM TRADING PORTFOLIO, WE HOLD THAT ASSES SEE IS AN INVESTOR IN SHARES AND NOT A TRADER IN SHARES. THEREFORE, THE INCOME E ARNED BY THE ASSESSEE OF RS. 64,41,786/- ON SALE OF SHARES IS ORDERED TO BE ASSESSED AS SHORT-TERM CAPITAL GAIN. WE, ACCORDINGLY, REVERSE THE ORDERS O F LOWER AUTHORITIES ON THIS ISSUE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2015. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 31 ST AUGUST, 2015 [ .*../ R.K. R.K. R.K. R.K. , SR. PS ITA 184/M/12 5 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + () / THE CIT(A)- 5, MUMBAI 4. + / CIT- 2 MUMBAI 5. ./0 **12 , 12 , 4 5 / DR, ITAT, MUMBAI H BENCH 6. 067 8 / GUARD FILE. ' / BY ORDER, . * //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , 4 5 / ITAT, MUMBAI