ACIT, CHENNAI V. Smt. Vijaya Srinivasan, CHENNAI

ITA 1846/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0882 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Salary income; Question of law
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1846 & 1847/MDS/2012 & CROSS OBJECTION NOS. 176 & 177/MDS/2012 (IN ITA NOS.1846 &1847/MDS/2012) ( ASSESSMENT YEARS:2005-06 & 2008-09) ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-II, CHENNAI-34. VS. SMT. VIJAYA SRINIVASAN, FLAT NO.33, 34,RISHIKESH APARTMENTS 38, G.N.CHETTY ROAD, T.NAGAR, CHENNAI-17. PAN: ACEPV1779M (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : MR. SHAJI P.JACOB, ADDL. CIT RESPONDENT BY : MR. K.BALASUBRAMANIAN, ADVOCATE DATE OF HEARING : 3 RD JANUARY, 2013 DATE OF PRONOUNCEMENT : 21 ST JANUARY, 2013 O R D E R PER VIKAS AWASTHY, JM: THE PRESENT SET OF APPEALS I.E. ITA NO.1846/MDS/20 12 RELEVANT TO THE ASSESSMENT YEAR 2005-06 AND ITA NO.1847/MDS/2012 RELEVANT TO THE ASSESSMENT YEAR 20 08-09 HAVE BEEN FILED BY THE REVENUE IMPUGNING THE ORDER S OF THE CIT(A)-VI, CHENNAI DATED 9.7.2012 FOR THE RESPECTIV E ASSESSMENT YEARS. THE ASSESSEE HAS FILED CROSS OBJ ECTIONS IN THE AFOREMENTIONED APPEALS I.E. C.O.NOS. 176 & ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 2 177/MDS/2012 RELEVANT TO THE ASSESSMENT YEARS 2005- 06 AND 2008-09 RESPECTIVELY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS TRADING IN SHARES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 31.8.2005 DECLARING ITS TOTAL INCOME OF ` 29,27,964/-. THE ASSESSEE CLAIMED PROFIT ARISING ON SALE OF SHARES AS CAPITAL GAIN. THE ASSESSING OF FICER VIDE ASSESSMENT ORDER DATED 31.12.2010 PASSED UNDER SEC TION 143(3) READ WITH SECTION 263 OF THE INCOME TAX ACT, 1961, HELD THAT INCOME ARISING FROM SALE OF SHARES IS BUS INESS INCOME AND NOT LONG TERM/SHORT TERM CAPITAL GAINS. SIMILARLY, FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.07.2008 DECLARING TOTAL INCOME OF ` 58,50,180/-. FOR THIS ASSESSMENT YEAR AS WELL THE ASSESSEE CLAIMED PROFIT ARISING ON SALE OF SHARES AS LONG TE RM/SHORT TERM CAPITAL GAIN. HOWEVER, THE ASSESSING OFFICER V IDE ORDER DATED 31.12.2010 PASSED UNDER SECTION 143(3) OF THE ACT, DISCARDED THE PLEA OF THE ASSESSEE AND HELD INCOME ARISING OUT OF SALE OF SHARES AS BUSINESS INCOME. AGGRIEVED AGAINST THE RESPECTIVE ASSESSMENT ORDERS, THE ASSESSEE PREF ERRED ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 3 APPEALS BEFORE THE CIT(A). THE CIT(A) VIDE ORDER DA TED 9.7.2012 PARTLY ALLOWED THE APPEALS OF THE ASSESSEE FOR STATISTICAL PURPOSES, WHEREIN THE CIT(A) FOLLOWING THE ORDER OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF ACI T VS. KAVITA DEVI AGARWAL (DECIDED ON 23.9.2011) HAS H ELD AS UNDER:- 12. THEREFORE CONSIDERING THE FACTS OF THE APPELLANTS CASE WHEREIN THE APPELLANT HAS RETURNED PROFIT ON PURCHASE AND SALE OF SHARES AS CAPITAL GAIN, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE ITAT JAIPUR, I HOLD THAT IN THE CASE THE SHARES ARE HELD FOR MORE THAN 30 DAYS, THE PROFIT ARISING FROM SALE OF SUCH SHARES ARE TO BE CONSIDERED AS SHORT OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING AND IN CASES WHERE SHARES HAVE BEEN PURCHASED AND SOLD WITHIN 30 DAYS THEN THE PROFIT ARE TO BE CONSIDERED AS BUSINESS INCOME. THEREFORE, I DIRECT THE ASSESSING OFFICER TO OBTAIN COMPLETE DETAILS AND COMPUTE TAXABLE INCOME UNDER THE HEAD BUSINESS INCOME AND CAPITAL GAIN AS HELD ABOVE. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 4 AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE REV ENUE HAS PREFERRED THE PRESENT APPEALS. THE ASSESSEE HA S ALSO FILED CROSS OBJECTIONS FOR BOTH ASSESSMENT YEARS AS SAILING THE ORDER OF THE CIT(A) ON THE GROUND THAT THE CIT(A) H AS ERRED IN HOLDING THAT THE SHARES HELD LESS THAN 30 DAYS SHOU LD BE TREATED AS BUSINESS INCOME. THE ASSESSEE HAS ALSO IMPUGNED THE ORDER OF CIT(A) ON THE GROUND THAT THE PERIOD OF 30 DAYS FIXED BY CIT(A) IS AGAINST THE PROVISIONS O F THE INCOME TAX ACT. 3. THE COMMON ISSUE INVOLVED IN BOTH THE APPEALS IS : WHETHER THE GAIN ARISING FROM SALE OF SHARES IS CAP ITAL GAIN OR BUSINESS INCOME? SINCE BOTH THE APPEALS HAVE COMMON ISSUE THEY ARE TAKEN UP TOGETHER FOR ADJUDIC ATION. 4. THE LEARNED DR SUBMITTED THAT THE CIT(A) HAS ER RED IN COMING TO THE CONCLUSION THAT GAIN ARISING FROM SAL E OF SHARES HELD FOR MORE THAN 30 DAYS IS SHORT TERM CAPITAL GA IN AND THE PROFIT ARISING FROM SHARES WHICH HAVE BEEN PURCHASE D AND SOLD WITHIN A PERIOD OF THIRTY DAYS IS TO BE CONS IDERED AS BUSINESS INCOME. THE LEARNED DR SUBMITTED THAT AS P ER THE ACT THERE IS NO SUCH DISTINCTION FOR CONSIDERING SH ORT TERM ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 5 CAPITAL GAIN OR BUSINESS INCOME. SECTION 2(42A) OF THE ACT ONLY STIPULATES PERIOD OF TWELVE MONTHS FOR DETERM INING SHORT TERM CAPITAL GAIN. THE DR FURTHER SUBMITTED THAT A PERUSAL OF ASSESSMENT ORDER CLEARLY SHOWS THAT HUGE VOLUME OF TRANSACTIONS HAD TAKEN PLACE. THE ASSESSEE HAS BEEN DEALING REGULARLY IN SALE AND PURCHASE OF SHARES. THE NUMBE R OF TRANSACTION IS SO LARGE AND IT CAN BE CLEARLY ASCER TAINED THAT MOTIVE OF THE ASSESSEE IN PURCHASE AND SALE OF SHAR ES IS QUICK PROFITS AND NOT INVESTMENT. THE DR FURTHER CO NTENDED THAT THE AMOUNT OF DIVIDEND EARNED BY THE ASSESSEE IS LESS THAN 10% OF THE TOTAL INVESTMENT MADE IN SHARES. TH IS FURTHER BELIES THE CLAIM OF THE ASSESSEE TO TREAT THE GAIN ARISING OUT OF SALE OF SHARES AS CAPITAL GAIN. IN ORDER TO SUPPOR T HIS CONTENTIONS, THE DR RELIED ON THE ORDER OF THE HYDE RABAD BENCH OF THE TRIBUNAL IN ITA NO.748/HYD/2011 IN THE CASE OF M/S. SPECTRA SHARES & SCRIPTS PVT. LTD., VS. DCIT D ECIDED ON 5.8.2011. THE DR HAS ALSO RELIED ON THE JUDGEMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF P. V.S. RAJU VS. ACIT REPORTED AS 340 ITR 75 AND THE JUDGEM ENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F MATHESON ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 6 BOSANQUET ENTERPRISES LTD. VS. DCIT., REPORTED AS 3 16 ITR 375(MAD) . THE D.R. CONTENDED THAT THE HONBLE SUP REME COURT OF INDIA IN THE CASE OF RAJA BAHADUR VISHESHW ARA SINGH VS. CIT 41 ITR 685 (SC) HAS HELD THAT MAGNITUDE, FR EQUENCY AND RATIO OF SALES TO PURCHASE SHOWS THE TRUE NATUR E OF ACTIVITY OF THE ASSESSEE. 5. THE DR FURTHER CONTENDED THAT ALTHOUGH THE ASSES SEE HAS SHOWN THE HOLDING OF SHARES AS INVESTMENT IN IT S BOOKS OF ACCOUNTS BUT MERE BOOK ENTRIES DO NOT DETERMINE THE NATURE OF INVESTMENT. THE ENTRIES IN THE BALANCE SHEET DOE S NOT ABSOLVE THE ASSESSEE FROM THE LIABILITY. 6. ON THE OTHER HAND, SHRI K.BALASUBRAMANIAN APPEAR ING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE HAD EARNED DIVIDEND OF ` 29.34 LAKHS IN THE ASSESSMENT YEAR 2006-07. THEREFORE, THE ASSESSEE HAD EARNED A SIZEA BLE AMOUNT OF DIVIDEND. THIS CLEARLY SHOWS THAT THE ASS ESSEE HAD MADE INVESTMENT IN SHARES AND WAS NOT DEALING IN SH ARES. THE CIT(A) AND THE ASSESSING OFFICER HAVE WRONGLY C OME TO THE CONCLUSION THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES. THE A.R. SUBMITTED THAT IN PARA 7(III) OF THE ORDER, ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 7 THE CIT(A) HAS WRONGLY MENTIONED THAT THE APPELLAN T IS IN THE BUSINESS OF DEALING IN SHARES. THE AR CONTENDED THA T A PERUSAL OF THE CHART AT PAGE 10 TO 19 AND 29 TO 37 WOULD SHOW THE PERIOD OF HOLDING OF VARIOUS SHARES. THE A SSESSEE IS NOT MAKING PURCHASE OF SHARES IN ANY SYSTEMATIC MAN NER OR IS DEALING IN SHARES OF A PARTICULAR COMPANY. MOREOVER , IN THE PREVIOUS YEARS, THE ASSESSEE HAS BEEN FILING RETURN OF INCOME CLAIMING THE INCOME ARISING OUT OF SALE OF SHARES A S CAPITAL GAIN WHICH HAS NOT BEEN QUESTIONED OR DISPUTED BY T HE DEPARTMENT. THE A.R. SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY MENTIONED IN THE ASSESSMENT ORDER THE N ATURE OF BUSINESS AS TRADING IN SHARES. THE ASSESSEE HAS P LACED ON RECORD THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 AND 2008-09 TO SHOW THAT THE ASSESSEE HAS EARNED I NCOME FROM SALARY AND INCOME FROM HOUSE PROPERTY AS WELL . IN ORDER TO SUPPORT HIS CONTENTIONS, THE A.R. RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . GOPAL PUROHIT REPORTED AS 228 CTR (BOM) 582 AND THE JUDGE MENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. NIRAJ AMIDHAR SURTI REPORTED AS 238 CTR (GUJ) 294. ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 8 7. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALSO PER USED THE ORDERS OF THE LOWER AUTHORITIES AND JUDGEMENTS/ ORDERS REFERRED TO BY THE REPRESENTATIVES OF BOTH THE SIDE S. IN ORDER TO DETERMINE THE NATURE OF INVESTMENT IN SHARES WHETH ER IT IS FOR THE PURPOSE OF INVESTMENT OR FOR BUSINESS, WE HAVE TO SEE THE INTENTION OF THE ASSESSEE PURCHASING THE SHARES. IF THE OBJECT OF INVESTMENT IN SHARES IS TO EARN INCOME BY WAY OF DIVIDEND THEN SUCH INVESTMENT CAN BE CONSIDERED AS CAPITAL. ON THE OTHER HAND, IF THE INTENTION OF THE PERSON IS TO EA RN QUICK PROFITS BY TRANSACTING INTO SHARES WITHOUT HOLDING THEM FOR A VERY LONG PERIOD SUCH INVESTMENT IN SHARES RESULTS IN BUSINESS INCOME. A PERSON CAN BE INVESTOR AS WELL A S TRADER IN SHARES AT THE SAME TIME. WHETHER THE ASSESSEE IS AN INVESTOR OR A TRADER IN SHARES IS A QUESTION OF FAC T TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE . 8. THE LEARNED AR HAS REFERRED TO PAGE 4 TO 8 OF THE PAPER BOOK WHICH CONTAIN INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2005-06 AND THE COMPUTATION OF TOT AL INCOME ALONG WITH BALANCE SHEET FOR THE FINANCIAL Y EAR ENDING 31.3.2005. A PERUSAL OF THE COMPUTATION OF INCOME S HOWS THAT ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 9 APART FROM INCOME FROM CAPITAL GAIN FROM SALE OF SH ARES OTHER COMPONENTS ARE INCOME FROM SALARY, INCOME FROM HOUS E PROPERTY AND INCOME FROM OTHER SOURCES WHICH INCLUD E DIVIDEND INCOME. IN THE SAID BALANCE SHEET, THE A SSESSEE HAS SHOWN INVESTMENT IN SHARES TO THE TUNE OF 2.99 CRORES. AT PAGE 9 THE ASSESSEE HAS GIVEN SUMMARY OF SHORT TERM CAPITAL GAINS ARISING FROM TRADING IN SHARES FOR THE ASSESS MENT YEAR 2005-06 WHICH COMES TO ` 11,13,351.92. AT PAGE 10 TO 12, THE ASSESSEE HAS GIVEN LIST OF SHARES WHICH WERE HE LD FOR MORE THAN 30 DAYS BUT LESS THAN ONE YEAR. AT PAGE 1 3 TO 16, THE ASSESSEE HAS GIVEN LIST OF SHARES HELD FOR LESS THAN 30 DAYS AND AT PAGE 17 TO 19, THE ASSESSEE HAS GIVEN L IST OF SHARES WHICH WERE HELD FOR ZERO DAYS I.E. SHARES WE RE PURCHASED AND SOLD ON THE SAME DAY. SIMILAR DETAILS HAVE BEEN GIVEN BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 AT PAGES 20 TO 37 OF THE PAPER BOOK. A PERUSAL OF THE DETAILS REGARDING SALE AND PURCHASE OF SHARES SHOW THAT THE ASSESSEE HAS BEEN CLOSELY MONITORING PRICE OF SHARE S. IN CERTAIN CASES, SHARES OF BLUE CHIP COMPANIES HAVE B EEN PURCHASED BY THE ASSESSEE ON THE SAME DAY AT DIFF ERENT ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 10 RATES AT DIFFERENT TIMES. THE ASSESSEE HERSELF HAS ADMITTED THE FACT THAT SHE TRADED IN SHARES OF LISTED COMP ANIES AND IN SOME OF THE CASES THE SALE AND PURCHASE OF SHARES H AVE TAKEN PLACE ON THE SAME DAY. 9. THE ASSESSING OFFICER HAS GIVEN DETAILS OF TRAN SACTION OF SHARES IN PAGE 3 OF THE ASSESSMENT ORDER. THE AS SESSEE HAS BEEN DEALING WITH FOUR DIFFERENT SHARE BROKERS I.E. 1. APEEJAY SECURITIES, 2. CD EQUISEARCH 3. SHAREKHAN A ND 4. MACONOHIE & CO. THE ASSESSEE HAS BEEN KEEPING A CLO SE WATCH ON THE MARKET AND THE INTENTION OF THE ASSESS EE WAS NOT TO MAKE AN INVESTMENT. THERE WAS HUGE NUMBER OF TRANSACTIONS IN THE SALE AND PURCHASE OF SHARES AND THERE WERE CERTAIN SHARES WHICH WERE TRADED ON THE SAME D AY WITH THE HOLDING PERIOD OF ZERO DAYS. LOOKING INTO THE ASSESSEES CONDUCT, IT IS CLEAR THAT SHE HAD NO INTENTION TO K EEP THE SHARES TO EARN DIVIDEND OR CAPITAL APPRECIATION. A LL THESE FACTS CLEARLY SHOW THAT THE ASSESSEE HAS BEEN DEALI NG IN SHARES TO EARN QUICK PROFITS. 10. THE ASSESSEE MAY HAVE BEEN EARNING INCOME FROM SALARY BUT THIS DOES NOT DEFY THE FACT THAT THE SIZ EABLE INCOME ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 11 OF THE ASSESSEE IS FROM TRADING OF SHARES. THE SCAL E OF ACTIVITY IS SUBSTANTIAL. THE PERIOD OF HOLDING BEING VERY SH ORT SHOWS THE INTENTION OF THE ASSESSEE ON QUICK PROFITS. THE TRANSACTIONS WERE CONTINUOUS AND REGULAR IN A SYSTE MATIC MANNER. MOREOVER, THE DIVIDEND INCOME OF THE ASSESS EE VIS- -VIS HER INVESTMENT IN SHARES IS TOO MEAGER. THE A.R IN ORDER TO SUPPORT HIS CONTENTIONS HAS RELIED ON THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NE ERAJ AMIDHAR SURTI (SUPRA) AND THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUP RA). HOWEVER, THE RATIO OF AFORESAID JUDGEMENTS CANNOT B E APPLIED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE FACTS IN THE SAID JUDGEMENTS WERE ENTIRELY DIFFERENT FROM THE ONE IN THE INSTANT CASE. THE FINDINGS OF THE HONBLE BOMBA Y HIGH COURT IN GOPAL PUROHITS CASE IS ON THE FACTS AS NO SUBSTANTIAL QUESTION OF LAW WAS INVOLVED IN THE SAID CASE FOR T HE ADJUDICATION OF THE HONBLE HIGH COURT. 11. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF RAJA BAHADUR VISHESHWARA SINGH (SUPRA), HAS LAID DOWN TH E LAW TO ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 12 DETERMINE THE NATURE OF INVESTMENT IN SHARES. THE HONBLE APEX COURT HELD AS UNDER:- THE QUESTION REFERRED WAS WHETHER THERE WAS MAT ERIAL FOR THE ASSESSMENT OF THAT AMOUNT AS INCOME AR ISING FROM AN ADVENTURE IN THE NATURE OF TRADE. THE HIGH COUR T HELD THAT THAT WAS THE NATURE OF THE TRANSACTION. ON APPE AL THIS COURT HELD THAT BEFORE THE TRIBUNAL COULD COME TO THE CONCLUSION THAT IT WAS AN ADVENTURE IN THE 'NATURE OF TRADE, IT HAD TO TAKE INTO CONSIDERATION THE LEGAL REQUI REMENTS ASSOCIATED WITH THE CONCEPT OF THE TRADE OR BUSI NESS AND THAT SUCH A QUESTION WAS A MIXED QUESTION OF LAW A ND FACT. IT WAS ALSO HELD THAT WHERE A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT AND THEN SELLS IT AT A PROFIT IT IS A CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE BUT IF A PURCHASE IS MADE SOLEL Y AND EXCLUSIVELY WITH THE INTENTION TO RESELL IT AT PR OFIT AND THE PURCHASER NEVER HAD ANY INTENTION TO HOLD THE PROPE RTY FOR HIMSELF THERE WOULD BE A STRONG PRESUMPTION THAT THE TRANSACTION IS IN THE NATURE OF TRADE BUT THAT WAS ALSO A REBUTTABLE PRESUMPTION. THE PURCHASE IN THE ABSENC E OF ANY REBUTTING EVIDENCE WAS HELD TO FALL IN THE L ATTER CATEGORY, I.E., ADVENTURE IN THE NATURE OF TRADE. IN THE ORIENTAL INVESTMENT CASE (SUPRA) THE ASSESSEE WAS A N INVESTMENT COMPANY. IT HAD PURCHASED CERTAIN SHARES AND SOLD THEM AND QUA THOSE SHARES IT CLAIMED TO BE TRE ATED AS AN INVESTOR AND NOT A DEALER ON THE GROUND THAT NO QUE STION OF LAW AROSE OUT OF THE ORDER OF THE TRIBUNAL. IT WAS HELD THAT THE QUESTION WHETHER THE ASSESSEES BUSINESS AMOUNTED T O DEALING IN SHARES AND IN PROPERTIES OR WAS MERELY A N INVESTMENT WAS A MIXED QUESTION OF LAW AND FACT AND THE LEGAL EFFECT OF THE FACTS FOUND WAS A QUESTION OF LAW AN D THIS COURT ORDERED THE CASE TO BE STATED ON TWO QUESTIONS THAT IT FRAMED. ONE OF THE QUESTIONS WAS SIMILAR TO THE FIRST QUEST ION IN THE PRESENT CASE, BUT THE SECOND QUESTION WAS A WIDER ONE, I.E., WHETHER THE PROFITS AND LOSSES ARISING FROM THE SAL E OF SHARES ETC. COULD BE TAXED AS BUSINESS PROFITS. XXXXXX ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 13 IN JULY 1940, THE APPELLANT HAD BORROWED, THOUG H WITHOUT INTEREST, A LARGE SUM OF MONEY TO THE EXTENT OF A BOUT RS.10,00,000, NO DOUBT FROM HIS BROTHER. HE STAR TED A NEW ACCOUNT CALLING IT NO. 2 INVESTMENT ACCOUN T. FOR THE ASSESSMENT YEARS UNDER APPEAL SHARES PURCHASED AND SOLD WERE OF A LARGE MAGNITUDE RANGING FROM RS. 4. 68 LACS TO RS. 69 THOUSANDS IN WHAT IS CALLED THE FIRST ACCO UNT AND FROM RS.9,64,000 OR EVEN IF PORT TRUST DEBENTURES ARE EX CLUDED RS. 3,60,000 TO RS. 30,000. THE MAGNITUDE AND THE FREQUENCY AND THE RATIO OF SALES TO PURCHASES AND TOTAL HOLDINGS WAS EVIDENCE FROM WHICH THE INCOME-TAX AP PELLATE TRIBUNAL COULD COME TO THE CONCLUSION AS TO T HE TRUE NATURE OF THE ACTIVITIES OF THE APPELLANT. THE PRINCIPLE WHICH IS APPLICABLE TO THE PRESENT CA SE IS WHAT WE HAVE SAID ABOVE AND ON THE EVIDENCE WHICH WAS BEFORE THE TRIBUNAL, I.E., THE SUBSTANTIAL NATURE O F THE TRANSACTIONS, THE MANNER IN WHICH THE BOOKS HAD B EEN MAINTAINED, THE MAGNITUDE OF THE SHARES PURCHASED AND SOLD AND THE RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS, IF ON THIS MATERIAL THE TRIBUNAL CAME TO THE CONCLUSION THAT THERE WAS MATERIAL TO SUPPORT THE FINDING THAT THE APPELLANT WAS DEALING IN SHARES AS A BUS INESS, IT COULD NOT BE INTERFERED WITH BY THE HIGH COURT AND IN OUR OPINION IT RIGHTLY ANSWERED THE QUESTION AGAINST T HE APPELLANT IN THE AFFIRMATIVE. 12. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CAS E OF SPECTRA SHARES & SCRIPTS P.LTD., (SUPRA), HAS HELD AS UNDER:- 50. LOOKING INTO THE VOLUME, FREQUENCY, CONTINUITY AND REGULATORY OF THE TRANSACTIONS OF PURCHASE AND SALES IN SHARES, IT CAN BE INFERRED THAT THESE TRANSACTIONS MUST HAVE BEEN ENTERED INTO BY THE ASSESSEE WITH A PROFIT MOTIVE. THE ASSESSEE MIGHT HAVE INTENTION THEREBY TO CARRY ON BUSINESS. IT ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 14 CANNOT BE SAID THAT THESE TRANSACTIONS WERE ENTERED INTO ONLY FOR THE PURPOSE OF INVESTMENT AND THERE WAS NO MOTIVE OF THE ASSESSEE TO EARN PROFIT. THOUGH THE WORD BUSINESS HAS NOT BEEN DEFINED IN THE TAXING STATUTE AT IT POSTULATES THE EXISTENCE O F CERTAIN ELEMENTS IN THE ACTIVITY OF AN ASSESSEE WHI CH WOULD INVEST IT WITH THE CHARACTER OF BUSINESS. ACCORDING TO WELL ESTABLISHED INTERPRETATION OF WOR D BUSINESS AS FOUND IN TAXING STATUTES IT IS THE SE NSE OF AN OCCUPATION OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND LABOUR OF A PERSON NORMALLY WIT H THE OBJECT OF MAKING PROFIT. TO RECORD AN ACTIVITY AS BUSINESS THERE MUST BE OF COURSE OF DEALING EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE AND NOT FOR SUPPORT OR PLIER . 51. IN OUR OPINION, WHETHER OR NOT A PERSON CARRIED ON BUSINESS IN A PARTICULAR COMMODITY MUST DEPEND UPON VOLUME, FREQUENCY, CONTINUITY AND REGULARITY O F TRANSACTIONS OF PURCHASE AND SALE IN A CLASS OF GOODS AND THE TRANSACTION MUST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SUCH MOTIVE MUST PERVADE THE WHOLE SERIES OF TRANSACTION EFFECTED BY THE PERSON IN THE COURSE OF HIS ACTIVITY. TO INFER FROM A COURSE OF TRANSACTIONS THAT IS INTENDED THEREBY T O CARRY ON BUSINESS ORDINARILY THE CHARACTERISTICS OF VOLUME, FREQUENCY AND REGULARITY INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON T HE TRANSACTION MUST EXIST. LOOKING INTO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE IN SHARES BY THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE ENTERED INTO THIS ACTIVITY NOT WITH A PROFIT MOTIVE. THEREFORE, ONLY INFERENCE WHICH CAN BE DRAWN IS THAT THE INCOME ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 15 EARNED BY THE ASSESSEE OUT OF SALE AND PURCHASE OF THESE SHARES WAS AN INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. WE SEE NO JUSTIFICATION IN LENGTHY ARGUMENT OF THE ASSESSEES COUNSEL THAT THE PROFIT ARISING TO ASSESSEE ON SALE OF SHARES ACQUIRED BY IT WAS ASSESSABLE AS INCOME FROM CAPITAL GAIN. IN OUR CONSIDERED OPINION, AFT ER CONSIDERING THE CUMULATIVE EFFECT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT IS JUSTIFIED IN TREATING THE PROFIT ARISING OUT OF SALE OF SHARES ACQUIRED BY THE ASSESSEE AS INCOME FROM BUSINESS. 13. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JAY SHREE PRADIP SHAH VS. ACIT., REPORTED AS 137 TTJ 17 3 HAS LAID DOWN THE PRINCIPLES TO DECIDE THE ISSUE AS TO WHETHER THE PROFIT ARISING FROM PURCHASE AND SALE OF SHARES IS TO BE CONSIDERED AS BUSINESS OR CAPITAL GAIN. THE RELEVAN T EXTRACT OF THE ORDER IS REPRODUCED HEREIN BELOW:- (A) WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS IS MIXED QUESTION OF LAW AND FACT. [CIT VS. H. HOLCK LARSEN (1986) 5 CTR (SC) 53: (1986) 160 ITR 67(SC)]. (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVESTOR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR FORME D PART OF STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 16 KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM AS INVESTMENTS AND THOSE HELD AS STOCK-IN-TRADE. [CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD. 1972 CTR (SC) 239: (1971) 82 ITR 586(SC)]. (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE CONCLUSIVE. IF THE VOLUME, FREQUENCY AND REGULARITY WITH WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH PRO FIT MOTIVE, THEN IT WOULD BE A CASE OF BUSINESS PROFITS AND NOT CAPITAL GAIN, [CIT VS. MOTILAL HIRABHAI SP G. & WVG. CO. LTD. 1977 CTR (GUJ) 674: (1978) 113 ITR 173(GUJ), RAJA BAHADUR VISHESHWARA SINGH (DECD) & ORS. VS. CIT (1961) 41 ITR 685(SC)]. (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE THEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPITAL GAINS. CIT VS. P.K.N. CO. LTD. (1966) 60 ITR 65(SC). PURCHASE WITH AN INTENTION TO RESELL WOULD RENDER THE GAIN PROFIT ON SALE BUSINESS PROFI T DEPENDING ON THE CIRCUMSTANCES OF THE CASE LIKE NATURE AND QUANTITY OF ARTICLE PURCHASED, NATURE OF THE OPERATION INVOLVED. [SAROJ KUMAR MAZUMDAR VS. CIT (1959) 37 ITR 242(SC)]. (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST DEPEND UPON THE COLLECTIVE EFFEC T ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 17 OF ALL THE RELEVANT MATERIALS BROUGHT ON RECORD. [JANKI RAM BAHADUR RAM VS. CIT (1965) 57 ITR 21(SC)]. THE TRIBUNAL HAS LAID DOWN THE PRINCIPLES AFTER E XAMINING VARIOUS JUDGEMENTS OF THE HONBLE SUPREME COURT OF INDIA. AFTER PERUSING ABOVE ORDERS OF THE TRIBUNAL AND THE LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA AND APP LYING THE SAME TO THE FACTS OF THE PRESENT CASE, WE DO NO T AGREE WITH THE FINDINGS OF THE CIT(A) THAT THE PROFIT ARI SING FROM SHARES HELD FOR MORE THAN 30 DAYS IS TO BE CONSIDER ED AS SHORT OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING AND THAT WHERE SHARES HAVE BEEN PURCHASED AND SOLD IN LESS THAN 30 DAYS, THE PROFIT HAS TO BE CO NSIDERED AS BUSINESS INCOME. THE INCOME TAX ACT ONLY RECOGNIZE S THE PERIOD FOR DETERMINING SHORT TERM OR LONG TERM CAPI TAL GAIN. THE CRITERIA OF 30 DAYS FOR DETERMINING BUSINESS IN COME OR CAPITAL GAIN, IN OUR CONSIDERED OPINION, IS NEITHER RECOGNIZED NOR ACCEPTABLE UNDER THE PROVISIONS OF THE INCOME T AX ACT. THE INTENTION OF THE ASSESSEE IN PURCHASING THE SHA RES WAS CLEARLY TO EARN PROFITS FROM SALE AND NOT TO EARN D IVIDEND OR INVESTMENT. ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 18 14. THE A.R. HAD MADE A SUBMISSION THAT THE ASSESSI NG OFFICER AS WELL AS CIT(A) HAVE WRONGLY COME TO THE CONCLUSION THAT NATURE OF BUSINESS OF THE ASSESSEE IS TRADING IN SHARES. A PERUSAL OF THE DOCUMENTS ON RECORD SHO W THAT IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS NOT TAKEN A NY GROUND TO SPECIFICALLY ASSAIL THE FINDINGS OF THE A SSESSING OFFICER IN HOLDING THAT THE NATURE OF BUSINESS OF T HE ASSESSEE IS TRADING IN SHARES. THE A.R. HAS CONTENDED THAT THE CIT(A) IN PARA 7(III) OF THE ORDER, HAS GIVEN A WRONG FIND ING OF FACT. THE RELEVANT FINDING IS REPRODUCED HEREIN BELOW:- 7(III) THE APPELLANT IS DEALING IN SHARES. IN OTH ER WORDS, THE APPELLANT IS IN THE BUSINESS OF DEALING IN SHARES AS COULD BE SUBSTANTIATED BY THE FACT THAT HE HAS RETURNED BUSINESS INCOME FROM TRADING IN SHARES. ON A SPECIFIC QUERY, THE LEARNED A.R. HAS FAIRLY CO NCEDED THAT THE ASSESSEE HAS NOT FILED ANY PETITION FOR RECTIFI CATION OF THE SAID MISTAKE BEFORE THE CIT(A). ONCE THE ASSESSEE H AS NOT TAKEN ANY STEPS TO RECTIFY THE ALLEGED WRONG OBSERV ATION, IT IS DEEMED THAT THE SAME IS CORRECT. AT A SUBSEQUENT S TAGE, IT DOES NOT LIE IN THE MOUTH OF THE ASSESSEE TO STATE THAT WRONG ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 19 FINDING OF FACT HAS BEEN RECORDED BY THE CIT(A). FU RTHER IT IS AN ADMITTED FACT THAT IN THE AUDIT REPORT (IN FORM 3CD) THE NATURE OF BUSINESS STATED IS TRADING IN SHARES. E VEN THOUGH THE SHARES WERE SHOWN IN THE BALANCE SHEET AS INVES TMENTS AND NOT AS STOCK-IN-TRADE. 15. THEREFORE, IN VIEW OF OUR AFORESAID FINDINGS, W E ARE OF THE CONSIDERED OPINION THAT THE SHARES HELD BY THE ASSESSEE FOR LONGER PERIOD MAY BE TREATED AS INVESTMENT AND THE PROFIT ARISING THEREFROM BE TREATED AS LONG TERM CAPITAL G AIN. HOWEVER, THE MAGNITUDE, FREQUENCY AND VOLUME OF TRANSACTIONS GIVES FLAVOUR OF BUSINESS INCOME AND THE SAME IS CONSIDERED TO BE INCOME FROM BUSINESS. 16. THUS, BOTH THE APPEALS OF THE REVENUE ARE PARTL Y ALLOWED AND THE CROSS OBJECTIONS OF THE ASSESSEE AR E DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, THE 21 ST DAY OF JANUARY, 2013 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 21 ST JANUARY, 2013. SOMU ITA NO.1846 & 1847MDS/2012 & CO NOS.176 & 177/MDS/2012 20 COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.