DCIT, V. M/s Kapoor Investments Pvt. Ltd.,

ITA 1859/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0410 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 31-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Assessee Lawyers: H N KHINCHA
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.1859/BANG/2013 ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. M/S. KAPUR INVESTMENTS PVT. LTD., NO.12, BRIGADE ROAD, BANGALORE 560 001. PAN: AABCK 6488L APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) RESPONDENT BY : SHRI H.N. KHINCHA, CA DATE OF HEARING : 13.04.2016 DATE OF PRONOUNCEMENT : O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL, REVENUE HAS TAKEN THE FOLLOWING G ROUNDS:- 1. THE ORDER OF THE LEARNED CIT (A) IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE THE INCOME FROM TRANSACTIONS IN DEALING IN SHARES AS IN COME FROM CAPITAL GAINS BY RELYING ON HIS OWN ORDER FOR THE A .Y 2006-07 & 2008-09 WITHOUT APPRECIATING THAT THE DECISION OF T HE CIT(A) FOR ITA NO.1859/BANG/2013 PAGE 2 OF 8 THE A.Y 2006-07 & 2008-09 HAS NOT BEEN ACCEPTED AND AN APPEAL TO THE ITAT HAS BEEN PREFERRED. 3. THE CIT (APPEALS) ERRED IN ALLOWING THE APPEAL WITHOUT APPRECIATING THE HIGH VOLUME OF TRANSACTION IN SHAR ES, AND THAT THE ASSESSEE COMPANY ITSELF HAS TREATED LOSS ON DERIVAT IVES AND MUTUAL FUNDS AS 'BUSINESS LOSS' IN THE EARLIER YEAR S IN RESPECT OF WHICH RELIANCE IS PLACED BY THE CIT(A). 4. THE CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE PRINCIPLES OF RES-JUDICATE DO NOT APPLY IN INCOME TAX PROCEEDINGS FOR HIM TO LAY ON HIS OWN ORDERS FOR THE A.Y'S TO 2 006-07 & 2008-09. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RE STORED. 6. THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. FACTS APROPOS ARE THAT ASSESSEE HAD DURING THE RELEVANT PREVIOUS YEAR COMPUTED CAPITAL GAINS ARISING OUT OF SALE OF CERTAIN EQUITY SHARES AND MUTUAL FUND UNITS AS UNDER:- SHORT TERM CAPITAL LOSS (MUTUAL FUNDS) RS. (-) 2,38,334 LONG TERM CAPITAL LOSS (MUTUAL FUNDS) RS. (-)1,50,010 SHORT TERM CAPITAL GAINS ON SHARES RS. 11,43,347 LONG TERM CAPITAL GAINS ON SHARES RS. 22,24,785 TOTAL RS. 29,83,788 3. SINCE VOLUME OF TRANSACTION OF SHARES WERE FOUND TO BE SUBSTANTIAL, ASSESSING OFFICER PROPOSED TO TREAT THE INCOME ARIS ING FROM SUCH TRANSACTIONS AS BUSINESS INCOME AGAINST CAPITAL GAI NS DECLARED BY ASSESSEE. REPLY OF ASSESSEE WAS THAT TRANSACTIONS IN SHARES WERE MADE ITA NO.1859/BANG/2013 PAGE 3 OF 8 AS AN INVESTMENT THROUGH PORTFOLIO MANAGEMENT SERVI CES BY PARKING THE FUNDS WITH KOTAK SECURITIES FOR WHICH MANAGEMENT FE ES WERE PAID. AS PER ASSESSEE, IT WAS ONLY MAKING A PERIODIC REVIEW OF I NVESTMENT PORTFOLIO. HOWEVER, AO WAS NOT IMPRESSED. ACCORDING TO HIM, T HERE WAS SUBSTANTIAL INCREASE IN SHARE TRANSACTIONS AND NUMBER OF COMPAN IES IN WHICH INVESTMENTS WERE MADE CAME TO ABOUT 29. AS PER AO, THE METHOD OF CATEGORIZATION OF INVESTMENTS BY ASSESSEE IN ITS BO OKS OF ACCOUNT WAS IRRELEVANT. FURTHER, AS PER AO, ASSESSEE HAD INVES TED BORROWED FUNDS FOR INVESTMENT IN SHARES. HE HELD THE SUM OF RS.29,83, 788 AS INCOME UNDER THE HEAD BUSINESS AND NOT AS INCOME FROM CAPITAL GA INS. 4. AGGRIEVED, ASSESSEE MOVED AN APPEAL BEFORE THE C IT(APPEALS). ASSESSEE RELIED ON ITS OWN CASE FOR THE AYS 2006-07 & 2008-09. LD. CIT(APPEALS) FOUND THAT FOR AYS 2006-07 & 2008-09, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HE HELD THAT FOR THE IM PUGNED ASSESSMENT YEAR ALSO, BUSINESS INCOME ARISING OUT OF SALE OF MUTUAL FUNDS AND SHARES COULD NOT BE TREATED AS INCOME FROM BUSINESS, BUT ONLY UN DER THE HEAD LONG TERM CAPITAL GAINS. 5. NOW, BEFORE US, LD. DR FAIRLY ADMITTED THAT THE MATTER HAD TRAVELLED UPTO TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 20 06-07 AND 2008-09 AND THE ISSUE STOOD DECIDED IN FAVOUR OF ASSESSEE. ITA NO.1859/BANG/2013 PAGE 4 OF 8 6. LD. AR PLACED A COPY OF THE ORDER OF TRIBUNAL IN ITA NO.1188 & 1189/BANG/2012 DATED 29.11.2013 IN SUPPORT OF THE O RDER OF LD. CIT(APPEALS), AS ALSO THE JUDGMENT OF JURISDICTIONA L HIGH COURT ON FURTHER APPEALS FILED BY THE REVENUE. 7. WE HAVE PERUSED THE RECORD AND HEARD THE RIVAL C ONTENTIONS. WE FIND THAT THE ISSUE OF TREATMENT OF SURPLUS ARISING ON SALE OF SHARES AND MUTUAL FUNDS HAD COME UP BEFORE THIS TRIBUNAL IN TH E APPEAL OF REVENUE FOR AYS 2006-07 & 2008-09. THIS TRIBUNAL IN ITS DE CISION DATED 29.11.2013 HELD AS UNDER:- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS, PERUSED THE RELEVANT MATERIALS ON CASE RECORDS AND ALSO THE CASE LAWS ON WHICH THE LEARNED AR HAD PLACED STRONG RELIANCE. AS A MATTER OF FACT, THE ISSUE HAS SINCE BEEN DELIBERATED EXHAUSTI VELY BY THE CIT (A) AND CAME TO THE RIGHT CONCLUSION THAT THE ASSES SEE HAD INVESTED IN SHARES WITH AN INTENTION OF HOLDING THEM AS INVE STMENTS AND THE SURPLUS ON ACCOUNT OF SALE OF THESE SHARES HAVE TO BE TREATED AS SHORT-TERM OR LONG TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING. THE ABOVE FINDING OF THE CIT (A) IS IN CON FORMITY WITH THE GUIDELINES ISSUED BY THE BOARD VIDE ITS CIRCULAR NO .4 OF 2007 DATED 15.6.2007. LIKEWISE, FOR THE AY 2008-09, THE CIT (A ) TOOK A STAND THAT THE INCOME FROM CAPITAL GAINS, SHORT-TERM OR L ONG-TERM CAPITAL BASED ON THE PERIOD OF HOLDING OF SUCH ASSETS CANNO T BE TREATED AS BUSINESS INCOME. THE REVENUE HAS NOT BROUGHT ANY DOCUMENTARY EVIDENCE OR PROOF TO CONTRADICT THE CONCLUSION ARRI VED AT BY THE CIT(A). PHOTOCOPY OF THE AGREEMENTS ENTERED BY THE ASSESSEE COMPANY WITH THE PORTFOLIO MANAGER (M/S. KOTAK SECU RITIES LTD) HAS BEEN PLACED ON RECORD. ON PERUSAL OF THE SAME, IT IS EVIDENT THAT THE PORTFOLIO MANAGER IS TRADING IN SHARES/SCRIPTS/ MUTUAL FUNDS AND THE ASSESSEE COMPANY DOES HAVE ANY SAY. IN THE INST ANT CASE ASSESSEE COMPANY HAD INVESTED ITS FUNDS WITH THE PO RTFOLIO MANAGEMENT SCHEME FOR MAXIMIZATION OF WEALTH. THE A SSESSEE COMPANY CANNOT BE SAID TO BE SYSTEMATICALLY DEALING IN SHARE TO TERM THE ACTIVITIES OF THE ASSESSEE AS IN NATURE OF BUSINESS. ITA NO.1859/BANG/2013 PAGE 5 OF 8 6.1 THE LEARNED AR HAS PLACED RELIANCE ON NUMBER OF JUDICIAL VIEWS IN SUPPORT OF THE ASSESSEES CONTENTIONS. TO ILLUSTRATE FURTHER, THE VIEWS OF JUDICIARIES ARE ANALYZED AS U NDER: (I) IN THE CASE OF ITO V. RADHA BIRJU PATEL REPORTE D IN A(2011) 11 TAXMANN.COM 293(MUM), THE HONBLE MUMBAI TRIBUNAL HAS HELD, ON A SIMILAR ISSUE, AS UNDER: IT WAS APPARENT FROM THE RECORD THAT THE SHARE TRANSACTIONS IN QUESTION WERE CARRIED OUT BY THE ASSESSEES PMS MANAGER. THEREFORE, THESE TRANSACTIONS WERE CLEARLY IN THE NATURE OF TRANSACT IONS MEANT FOR MAXIMIZATION OF WEALTH RATHER ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES. THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS SUCH THAT THE INVESTMENT MADE BY AN ASSESSEE IS PROTECTE D AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT IT IS SCHEME OF TRADING IN SHARES AND STOCK. WHETHER, AN ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INVESTMENT IN SHAR ES IS ESSENTIALLY A QUESTION OF FACT AND IT HAS TO BE DETERMINED WITH REGARD TO THE ENTIRETY OF THE CIRCUMSTANCES. IN CIRCUMSTANCE, IN WHICH THE ASSESS EE WAS ENGAGED IN A SYSTEMATIC ACTIVITIES OF HOLDING PORTFOLIO THROUGH THE PMS MANAGER, IT COULD NOT BY ANY STRETCH OF IMAGINATION, BE SAID THAT THE MAIN OBJECT OF HOLDING THE PORTFOLIO WAS TO MAKE PROFIT BY SALE OF SHARES DURING THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OVER THE PERIOD. THEREFORE, TH E COMMISSIONER (APPEALS) WAS JUSTIFIED IN ACCEPTING THE GAIN ON SALE OF SHARES AS SHORT-TERM CAPITAL GA IN AS CLAIMED BY THE ASSESSEE. (II) YET ANOTHER FINDING, THE HONBLE H BENCH O F MUMBAI TRIBUNAL IN THE CASE OF MAHENDRA C SHAH V. A DDL. CIT REPORTED IN (2012) 19 TAXMANN.COM 350 (MUM) HAS HEL D THAT PRIMA FACIE THERE WAS ENOUGH EVIDENCE TO SHOW THAT THE ASSESSEE WAS AN INVESTOR IN SHARES AND, THEREFORE, THE SURPL US ARISING ON THE SALE OF SHARES SHOULD BE ASSESSED AS SHORT-TERM OR LONG-TERM CAPITAL GAINS, DEPENDING ON THE PERIOD OF HOLDING A ND NOT AS BUSINESS INCOME. ITA NO.1859/BANG/2013 PAGE 6 OF 8 ` (III) THE HONBLE GUJARAT HIGH COURT IN THE CIT V. NIRAJ AMIDHAR SURTI REPORTED IN (2012) 20 TAXMANN.COM 579 (GUJ) HAS RULED AS UNDER: THAT IN THE LIGHT OF THE FINDINGS RECORDED BY COMMISSIONER (APPEALS) THAT THE ASSESSEE HAD HELD THE SHARES IN QUESTION FOR FOURTEEN MONTHS WHICH IS A LONG PERIOD FOR THE PURPOSE OF LONG-TERM CAPITAL GA IN, THE INTENTION OF THE ASSESSEE HAD ALWAYS BEEN THAT OF MAKING INVESTMENT IN SHARES AND NOT DEALING IN SHARES, WHICH WAS ALSO APPARENT FROM THE FACT THAT THE SHARES HAD NOT BEEN TREATED AS STOCK IN TRADE BY TH E ASSESSEE; EVEN AFTER THE SALE, THE ASSESSEE HAD MAD E INVESTMENT IN BONDS OF NABARD, INDICATING THAT HE HAD TREATED THE SAME AS LONG-TERM CAPITAL GAIN; AS WELL AS THE FACT THAT THE ASSESSEE HAD NOT SPLIT TH E SHARES IN LOTS BUT HAD SOLD THE SAME IN ONE LOT; IT WAS NOT POSSIBLE TO AGREE WITH THE CONTENTION RAISED ON BEHALF OF THE REVENUE THAT THE TRANSACTION IN QUEST ION WAS AN ADVENTURE IN THE NATURE OF TRADE AND, THEREFORE, INCOME DERIVED BY THE ASSESSEE FROM THE SAID TRANSACTION WAS A BUSINESS INCOME AND COULD NO T BE TREATED AS CAPITAL GAINS. 6.2. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMS TANCES OF THE ISSUE AS DISCUSSED ABOVE AND ALSO IN CONFORMITY WIT H THE RATIOS LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT AND ALSO THE HONBLE MUMBAI TRIBUNAL (SUPRA), WE ARE OF THE VIEW THAT THE CIT (A) WAS JUSTIFIED IN COMING TO RIGHT CONCLUSION WHICH DOES NOT WARRANT ANY INTERFERENCE. IN ESSENCE, THE FINDI NGS OF THE CIT (A) FOR BOTH THE ASSESSMENT YEARS UNDER DISPUTE ARE UPHELD. 8. REVENUE HAD CARRIED THE ISSUE FURTHER IN APPEAL BEFORE THE JURISDICTIONAL HIGH COURT. THE HONBLE JURISDICTION AL HIGH COURT IN ITS JUDGMENT IN ITA NO.158/2014 DATED 20.4.2015 HAD HEL D AS UNDER:- 10. AS REGARDS THE FIRST QUESTION THAT MERELY BEC AUSE OF EMPLOYMENT OF PORTFOLIO MANAGEMENT SERVICE FOR INVE STMENT IN SHARES, THE SAME WOULD BECOME BUSINESS INCOME, WE A RE OF THE ITA NO.1859/BANG/2013 PAGE 7 OF 8 OPINION THAT THE SAID ISSUE HAS BEEN DEALT WITH AT LENGTH BY THE DELHI HIGH COURT IN THE CASE OF RADIALS INTERNATION AL (SUPRA), WHEREIN, IN SIMILAR FACTS, THE QUESTION HAS BEEN AN SWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. DET AILED REASONS FOR THE SAME HAVE BEEN GIVEN IN THE SAID JUDGMENT W ITH WHICH WE CONCUR. EVEN OTHERWISE, IT IS ADMITTEDLY NOT A CASE WHERE THE ASSESSEE HAD ENGAGED ITS OWN PERSONS OR HAD A SEPAR ATE BUSINESS INFRASTRUCTURE TO CARRY OUT ITS SHARE TRANSACTIONS FOR THE PURPOSE OF BUSINESS. IT IS MERELY A CASE WHERE THE ASSESSEE HA S INVESTED FUNDS THROUGH THE PORTFOLIO MANAGEMENT SERVICE. 11. IN OUR OPINION, INVESTMENT THROUGH PORTFOLIO M ANAGEMENT SERVICE, WHICH MAY DEAL WITH THE SHARES OF THE ASSE SSEE SO AS TO DERIVE MAXIMUM PROFITS CANNOT BE TERMED AS BUSINESS OF THE ASSESSEE BUT WOULD ONLY BE A CASE OF A MORE CAREFUL AND PRUDENT MODE OF INVESTMENT, WHICH HAS BEEN DONE BY THE ASSE SSEE. FUNDS WHICH LIE WITH THE ASSESSEE CAN ALWAYS BE INVESTED (FOR EARNING HIGHER RETURNS) IN THE SHARES EITHER DIRECTLY OR TH ROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEMENT SCHEME AND BY DOING SO, IT WOULD NOT MEAN THAT THE ASSESSEE IS CA RRYING ON THE BUSINESS OF INVESTMENT IN SHARES. PROFITS FROM SUCH INVESTMENT, EITHER DIRECTLY OR THROUGH PROFESSIONALLY MANAGED F IRM, WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAIN S AS THE SAME WILL NOT CHANGE THE NATURE OF INVESTMENT, WHICH IS IN SH ARES, AND THE LAW PERMITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 12. AS REGARDS THE SECOND QUESTION OF THE ASSESSEE HAVING TAKEN LOAN AND HAVING INVESTED BORROWED FUNDS IN PU RCHASE OF SHARES, WE ARE OF THE VIEW THAT THE INCOME TAX ACT DOES NOT PROHIBIT THE ASSESSEE FROM MAKING INVESTMENTS IN CA PITAL ASSETS AFTER USING BORROWED FUNDS. THE TRIBUNAL HAS ALSO C ONSIDERED THIS ASPECT OF THE MATTER AND DECIDED IN FAVOUR OF THE A SSESSSEE AND WE SEE NO REASON TO DIFFER WITH SUCH OPINION OF THE TRIBUNAL. 13. WE HAVE ALSO GONE THROUGH THE CIRCULAR OF THE CBDT DATED 15.06.2007 AND ARE OF THE OPINION THAT THE FI NDINGS ARRIVED AT BY THE TRIBUNAL ARE IN CONFORMITY WITH THE GUIDE LINES ISSUED BY THE SAID CIRCULAR. 14. IN VIEW OF THE AFORESAID, WE ARE OF THE OPINIO N THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR DETERMINATIO N OF THIS COURT. ITA NO.1859/BANG/2013 PAGE 8 OF 8 9. THUS, WE FIND THAT THE QUESTION RAISED BY THE RE VENUE STANDS FULLY COVERED IN FAVOUR OF ASSESSEE BY VIRTUE OF JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, PERTINENT PARAGRAPHS OF WHICH HAVE BEEN REPRODUCED ABOVE. THEREFORE, WE DO NOT FIND ANY ME RIT IN THIS APPEAL BY THE REVENUE. IT IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF APRIL, 2016. SD/- SD/- (GEORGE GEORGE K) ( ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 29TH APRIL, 2016. MCN COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.