L G ASIAN PLUS LTD, MUMBAI V. DDIT (IT) 4(1), MUMBAI

ITA 1908/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0861 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 24-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Keywords: Capital asset; Business income; Transactions in derivatives; Permanent establishment; Advance ruling; Cost of acquisition; Date of conversion; Initiation of penalty proceedings; Fair market value
• Section: 143(3); 244A; 234B; 43(5)

Judgement Text

+ , , IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI , , BEFORE MS. SUSHMA CH O WLA , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO. 7921/MUM/2010 ( / ASSESSMENT YEAR : 2007 - 08 M/S. LG ASIAN PLUS LTD., C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 / VS. THE ADIT (INTERNATIONAL TAXATION), RANGE - 4, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 / I .T.A. NO. 2089/MUM/2012 ( / ASSESSMENT YEAR : 2008 - 09 THE ADIT (INTERNATIONAL TAXATION), RANGE - 4, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 / VS. M/S. LG ASIAN PLUS LTD., C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 / I .T.A. NO. 1908MUM/2012 ( / ASSESSMENT YEAR : 2008 - 09 M/S. LG ASIAN PLUS LTD., C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 / VS. THE ADIT (INTERNATIONAL TAXATION), RANGE - 4, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 / I .T.A. NO . 5672/MUM/2012 ( / ASSESSMENT YEAR : 2009 - 10 M/S. LG ASIAN PLUS LTD., C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, / VS. THE ADIT (INTERNATIONAL TAXATION), RANGE - 4, SCINDIA HOUSE, BALLARD PIER, M/S. LG ASIAN PLUS LTD. 2 MUMBAI - 400 021 MUMBAI - 400 038 ./ ./ PAN/GIR NO. : AAACL 8243K ( / APPELLANT ) .. ( / RESPONDENT ) / A SSESSEE BY: SHRI RAJAN VORA / DEPARTMENT BY : SMT. VANDANA SAGAR / DATE OF HEARING : 22 . 0 7 .2015 / DATE OF PRONOUNCEMENT : 31 .0 7 .2015 / O R D E R PER N.K. BILLAIYA, AM: ITA NO. 7921/M/2010 IS THE APPEAL BY THE ASSESSEE FOR A.Y. 2007 - 08, ITA NO. 2089/M/2012 IS THE APPEAL BY THE REVENUE FOR A.Y. 2008 - 09, ITA NO. 1908/M/2012 IS THE CROSS APPEAL BY THE ASSESSEE FOR A.Y. 2008 - 09 AND ITA NO. 5672/M/2012 IS THE APPEAL BY THE ASSESSEE FOR A.Y. 2009 - 10. AS COMMON ISSUES ARE INVOLVED, A LL THESE APPEALS WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 7921/M/2010 A.Y. 2007 - 08 2. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE ADDL. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION - 4), MUMBAI MADE U/S 143(3) R.W. SEC. 144C(13) OF THE ACT PURSUANT TO THE DIRECTION RECEIVED FROM THE DISPUTE RESOLUTION PANEL - II, MUMBAI. 3. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. THE LEARNED ASSESSING OFFICER ERRED IN ADOPTING THE AVERAGE WEIGHTED MEAN PRICE ON THE D ATE OF CONVERSION OF M/S. LG ASIAN PLUS LTD. 3 SHARES UNDERLYING FOREIGN CURRENCY CONVERTIBLE BONDS INSTEAD OF ADOPTING THE CLOSING PRICE OF THE SHARES PREVAILING ON THE STOCK EXCHANGE THEREBY REDUCING THE SHORT - TERM CAPITAL LOSS BY RS. 2,985,363/ - 2. THE LD. AO ERRED IN NOT ALLOW ING THE BROUGHT FORWARD SHORT - TERM CAPITAL LOSS OF RS. 479,349,177 ARISING FROM EXCHANGE TRADED DERIVATIVES TO BE SET - OFF AGAINST THE INCOME FROM EXCHANGE TRADED DERIVATIVES EARNED DURING THE FINANCIAL YEAR ENDED 31 ST MARCH, 2007. 3. THE LD. AO ERRED IN L EVYING INTEREST OF RS. 17,716,427 U/S. 234B OF THE ACT. 4. THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS INCORPORATED IN CAYMAN ISLAND . THE ASSESSEE IS REGISTERED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) AS A SUB - ACCOUNT OF M/S. LLOYD GEORGE INVESTMENT MANAGEMENT (BERMUDA) LTD , A SEBI REGISTERED FOREIGN INSTITUTIONAL INVESTOR (FII). THE ASSESSEE HAS BEEN INVESTING IN THE INDIAN CAPITAL MARKET IN ACCORDANCE WITH THE SEBI REGULATIONS, 1995 AND HAS BEEN OFFERING ITS INCOME TO TAX U/S. 115AD OF THE ACT. 4.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE TRANSACTED IN EQUITY SHARES, SHARES UNDERLYING GLOBAL DEPOSITORY RECEIPTS (G DR), FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) AND EXCHANGE TRADED DERIVATIVE CONTRACT (ETD AND EARNED CAPITAL GAINS, DIVIDEND INCOME AND INTEREST U/S. 244A OF THE ACT. 4.2. THE RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ELECTRONICALLY ON 31.10 .2007. SUBSEQUENTLY THE RETURN OF INCOME WAS REVISED ON 25.3.2009 REPORTING A TOTAL INCOME OF RS. 764,782,994/ - . THE DETAILS OF M/S. LG ASIAN PLUS LTD. 4 THE INCOME EARNED BY THE ASSESSEE AS PER THE RETURN OF INCOME READ AS UNDER: SHORT TERM CAPITAL GAINS 1,967,068,688 SHORT TERM CAPITAL LOSSES 730,284,194 NET SHORT TERM CAPITAL GAINS 1,236,784,494 LESS:BROUGHT FORWARD SHORT - TERM CAPITAL LOSSES 479,349,177 NET SHORT - TERM CAPITAL GAINS AFTER SET - OFF 757,435,317 LONG TERM CAPITAL GAINS CHARGEABLE TO TAX 2,217,501 INTEREST UNDER SECTION 244A 5,220,176 TOTAL INCOME 764,782,994 4.3. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS SOLD SHARES UNDERLYING GDR/FCCB ISSUED BY INDIAN COMPANIES IN ACCORDANCE WITH THE ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES ( THROUGH DEPOSITORY RECEIPT MEC HANISM ) SCHEME OF 1993 NOTIFIED BY THE GOVERNMENT OF INDIA. AS PER THE SCHEME, THE COST OF ACQUISITION OF THE UNDERLYING SHARES ACQUIRED THROUGH THE REDEMPTION/ CONVERSION OF GDR/FCCBS HAS TO BE RECKONED AS THE PRICE OF UNDERLYING SHARES PREVAILING ON THE BOMBAY STOCK EXCHANGE (BSE) OR THE NATIONAL STOCK EXCHANGE (NSE) ON THE DATE OF THE ADVICE OF REDEMPTION BY THE OVERSEAS DEPOSITORY BANK TO THE DOMESTIC CUSTODIAN BANK IN THE CASE OF GDRS AND ON THE DATE OF CONVERSION IN THE CASE OF FCCBS AS THE CASE MAY BE. IN THE ABSENCE OF ANY SPECIFIC STIPULATION IN THE SCHEME AS TO WHAT PRICE SHO8ULD BE TAKEN ON THE DATE OF REDEMPTION/CONVERSION FOR CO MPUTING THE COST OF ACQUISITION OF THE M/S. LG ASIAN PLUS LTD. 5 SHARES UNDERLYING THE GDRS/FCCBS, THE ASSESSEE USED THE CLOSING PRICE OF THE SHARES ON THE BSE/NSE. 4.4. THIS METHOD ADOPTED BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO WHO WENT ON TO COMPUTE THE CAPITAL GAINS ARISING ON SALE OF SHARES BY TAKING WEIGHTED AVERAGE PRICE PREVAILING ON THE DATE OF REDEMPTION/CONVERSION OF GDR/FCCBS AS THE COST OF ACQUISITION. 5. THE ASSESSEE IS AGGRIEVED BY THIS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED TH AT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL, MUMBAI BENCH AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE IN THE CASE OF THE MASTER TRUST BANK OF JAPAN LTD IN ITSA NO. 7793/M/2011. ON THIS CONCESSION MADE BY THE LD. COUNSEL, WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL (SUPRA) . WE FIND THAT A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL VIDE GROUND NO. 1 WHICH READS AS UNDER: THE CIT(A) OUGHT TO HAVE DETERMINED THE COST OF ACQUISITION OF THE SHARES OF CIPLA LTD OBTAINED ON CONVERSION OF THE GLOBAL DEPOSITORY RECEIPTS BY TAKING THE CLOSING PRICE PREVAILING IN THE STOCK EXCHANGE ON THE DATE OF THE ADVICE OF REDEMPTION. HE FAILED TO APPRECIATE THAT RULE 40C HAD NO APPLICATION IN THE MATTER AND ERRED IN TAKING THE AVERAGE OF THE OPENING AND CLOS ING PRICE PREVAILING ON THE STOCK EXCHANGE. AND THE TRIBUNAL HAS DECIDED THIS ISSUE AT PARA - 13 OF ITS ORDER WHICH READS AS UNDER: WE HAVE CONSIDERED RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO CONSIDERED CBDT CIRCULAR 3/1957 AS WELL RULE 40C OF INCOME TAX RULES AND CIRCULAR NO. 9/2007. IT IS A FACT THAT THE TERM PREVAILING PRICE USED IN CLAUSE 7(3) OF THE SCHEME IS NOT DEFINED SPECIFICALLY IN THE SAID SCHEME M/S. LG ASIAN PLUS LTD. 6 NOR IT IS DEFINED IN THE PROVIS IONS OF INCOME TAX ACT. RELIANCE PLACED BY LD A.R. ON CIRCULAR NO. 3/1957 TO STATE THAT THE CLOSING PRICE NOTED IN THE STOCK EXCHANGES SHOULD BE CONSIDERED AS THE VALUE OF THE SHARES ON THE VALUATION DATE BUT WE AGREE WITH LD. DR THAT THE SAID CIRCULAR IS IN THE CONTEXT OF CONSIDERING VALUATION OF SHARES FOR THE PURPOSES OF WEALTH TAX ACT. WHEREAS RULE 40C OF INCOME TAX RULES IS IN THE CONTEXT OF VALUING SHARES FOR THE PURPOSE OF INCOME TAX ACT. RULE 40C SPECIFICALLY PROVIDES THE FAIR MARKET VALUE OF TH E SHARES ON THE DATE OF CONVERSION I.E. TO TAKE AVERAGE OF THE OPENING AND CLOSING PRICE. WE ARE OF THE CONSIDERED VIEW THAT LD CIT(A) HAS RIGHTLY HELD THAT RULE 40C IS COGNATE TO SEC. 17(2)(VI)(D) OF THE INCOME TAX ACT AND ALSO SEC. 48(II) FOR THE PURPOS E OF DETERMINATION OF COST OF ACQUISITION OF SHARES. THEREFORE, THE AVERAGE MARKET PRICE ADOPTED AS THE PREVAILING PRICE ON THE DATE OF CONVERSION OF GDRS INTO EQUITY SHARES AS THE COST OF ACQUISITION IS REASONABLE AND JUSTIFIABLE IN THE ABSENCE O F ANY OTHER CIRCULAR/RULE VIS - A - VIS SCHEME UNDER WHICH GDRS ARE ISSUED AND REDEEMED INTO ORDINARY SHARES OF THE COMPANY. HENCE, ON THE FACTS AND IN THE CIRCUMSTANCES, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). ACCORDINGLY, WE UPHOLD H IS ORDER AND REJECT GROUND NO.1 OF APPEAL TAKEN BY ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, GROUND NO. 1 IS DISMISSED. 7. GROUND NO. 2 RELATES TO DECLINING OF THE SET OFF AGAINST INCOME FROM EXCHANGE TRADED DERIVATIVES (ETD). 7.1. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004 - 05 WHICH HAS BEEN FOLLOWED FOR A.Y. 2003 - 04, 2005 - 06 AND 2006 - 07. IT IS THE SAY OF THE LD. COUNSEL THAT IN ASSESSEES OWN CASE THE TRIBUNAL VIDE ORDER DATED 27.5.2011 IN ITA NOS. 2645 & 2691/M/08 HAS UPHELD THE ASSESSEES CONTENTION THAT GAINS/LOSSES EARNED M/S. LG ASIAN PLUS LTD. 7 BY THE ASSESSEE FROM TRANSACTION IN ETD ARE TO BE ASSESSED UNDER THE HEAD CAP ITAL GAINS. 8. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL (SUPRA). WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE TRIBUNAL HAS UPHELD THE CONTENTION OF THE ASSESSEE THAT IT IS AN INVESTOR IN SECURITIES AND ANY GAINS/LOSSES ARISING FROM THE TRANSACTION IN SECURITIES HAVE TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE DIRECT THE AO TO ALLOW THE BROUGHT FORWARD SHORT TERM CAPITAL LOSS ARISING FROM ETD TO BE SET OF AGAINST THE INCOME FROM ET D EARNED DURING THE YEAR UNDER CONSIDERATION. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 9. GROUND NO. 3 RELATES TO THE LEVY OF INTEREST U/S. 234B OF THE ACT. ALTHOUGH, THE LEVY OF INTEREST IS MANDATORY BUT CONSEQUENTIAL IN THIS CASE, THE AO IS THEREFORE DIR ECTED TO LEVY THE INTEREST AS PER THE PROVISIONS OF THE LAW. 10. GROUND NO. 4 RELATES TO THE INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND ACCORDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE A SSESSEE IS PARTLY ALLOWED. ITA NO. 1908/M/12 A.Y. 2008 - 09 ASSESSEES APPEAL 12. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. ERRED IN CONFIRMING THE ADDITION OF RS. 1,03,44,445 TO THE TOTAL INCOME OF THE APPELLANT. M/S. LG ASIAN PLUS LTD. 8 2. ERRED IN CONFIRMING T HE ACTION OF THE AO IN TREATING THE NET SHORT TERM CAPITAL LOSSES FROM TRANSACTIONS IN EXCHANGE TRADED DERIVATIVES (ETDS) AMOUNTING TO RS. 1,03,44,445 AS BUSINESS LOSS. 3. FAILED TO APPRECIATE THAT FOR FOREIGN INSTITUTIONAL INVESTOR (FII) THERE IS SPECIA L PROVISION CONTAINED IN SECTION 115AD OF THE ACT, ACCORDING TO WHICH THE APPELLANT HAD OFFERED THE LOSSES AS SHORT TERM CAPITAL LOSS. 4. ERRED IN EXCEEDING HIS JURISDICTION BY NOT FOLLOWING THE DECISION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL (ITAT ), MUMBAI IN THE APPELLANTS OWN CASE FOR THE A.YRS 2003,04, 2004,05, 2005 - 01 AND 2006 - 07 WHEREIN THE HONBLE ITAT, ON IDENTICAL FACTS HAD HELD THAT GAINS/LOSS ARISING TO A FII FROM TRANSACTIONS IN ETDS ARE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. 5 . FAILED TO APPRECIATE THAT ON THE SAME SET OF FACTS, AO HAS BEEN TAKING DIFFERENT POSITIONS IN DIFFERENT YEARS, DEPENDING ON WHETHER THERE IS GAIN OR LOSS FROM TRANSACTIONS IN ETDS. HENCE, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER. 13. THE CRUX OF THE MATTER IS WHETHER THE ASSESSEE IS A TRADER IN SECURITIES OR AN INVESTOR IN SECURITIES SO AS TO DECIDE WHETHER ANY GAINS ARISING FROM THE TRANSACTION IN SECURITIES WOULD GIVE RISE TO BUSINESS INCOME OR CAPITAL GAIN . BEFORE GOING INTO THE MERITS OF THE CASE ALL THAT WE HAVE TO SEE IS WHAT ARE THE FACTORS TO BE GIVEN WEIGHT WHILE EXAMINING WHETHER THE TAX PAYER IS A DEALER IN SHARE OR HAVING REGARD TO THE NATURE OF INVESTMENT, IT IS TO BE CONSTRUED THAT THE INCOME BEARS THE CHARACTER OF SALE OF A CAPITAL ASSET SO AS TO ATTRACT CAPITAL GAINS TAX?. 13.1. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MADAN GOPAL RADHE LAL 73 ITR 652 DEALT WITH THE ISSUE AND DISCUSSED THE QUESTION. A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DEALING FOR HIS OWN PURPOSES, AND HOLD IT APART FROM THE STOCK IN M/S. LG ASIAN PLUS LTD. 9 TRADE OF HIS BUSINESS. THERE IS NO PRESUMPTION THAT EVERY ACQUISITION BY A DEALER IN A PARTICULAR COMMODITY IS ACQUISITION FOR THE PURPOSE OF HIS BUSINESS, IN EACH CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM THE EVIDENCE OF CONDUCT AND DEALINGS BY THE ACQUIRER WITH THE COMMODITY. 13.2. IN THE CASE OF P.M. MOHAMMED MEERAKHAN VS CIT 73 ITR 735 HONBLE SUPREME COURT REITERATED TH AT IT WAS NOT POSSIBLE TO EVOLVE ANY SINGLE TEST OR FORMULA WHICH CAN BE APPLIED IN DETERMINING WHETHER A TRANSACTION WAS AN ADVENTURE IN THE TRADE OR NOT. THE ANSWER TO THE QUESTION MUST NECESSARILY DEPEND IN EACH CASE ON THE TOTAL IMPRESSION AND EFFECT O F ALL THE RELEVANT FACTORS AND CIRCUMSTANCES PROVED THEREIN AND WHICH DETERMINE TH E CHARACTER OF THE TRANSACTION. 14. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS GOPAL PUROHIT 228 CTR 582 HAS HELD AS UNDER: (A) IT WAS OPEN TO AN ASSESSEE TO M AINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT AND ANOTHER RELATING TO BUSINESS OF DEALING IN SHARES. (B) THAT A FINDING OF FACT HAD BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT AND THOSE FOR THE PURPOSES OF BUSINESS. (C) THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTICULARLY IN THE CASE OF THE ASSESSEE AND (D) THAT ENTRIES IN BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME THROUGH THEY HAVE A BEARING. M/S. LG ASIAN PLUS LTD. 10 15. THE HONBLE SUPREME COURT VIDE ORDER DATED 15.11.2010 HAS DISMISSED DEPARTMENTS SPECIAL LEAVE PETITION AGAINST THIS JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT. 16. THE ONL Y PECULIAR FACT THAT HAS TO BE KEPT IN MIND WHILE DECIDING ASSESSEES APPEAL IS THAT THE ASSESSEE IS A FOREIGN INSTITUTIONAL INVESTOR REGISTERED WITH SEBI AND HAS BEEN INVESTED IN THE INDIAN CAPITAL MARKET IN ACCORDANCE WITH THE SEBI REGULATION AND THEREFO RE OFFERING ITS INCOME TO TAX U/S. 115AD OF THE ACT, SINCE THERE IS A SPECIAL PROVISION FOR FII. 17. COMING TO THE MERITS OF THE CASE, AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUES ARE NO MORE RES INTEGRA AS THEY HAVE BEEN D ECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL IN ITA NO. 2645 & 2691/M/08 FOR A.Y. 2004 - 05 WHICH WAS FOLLOWED BY THE TRIBUNAL IN ITA NOS. 3281 & 2899/M/09 FOR A.Y. 2003 - 04, ITA NOS 6485 & 6320/M/08 FOR A.Y. 2005 - 06 AND ITA NO. 2505/M/05 FOR A.Y 2006 - 07. 18. THE LD. DEPARTMENTAL REPRESENTATIVE OBJECTED TO THIS. IT IS THE SAY OF THE LD. DR THAT THE TRIBUNAL IN EARLIER OCCASION WHILE DECIDING THE APPEAL HAS NOT CONSIDERED THE DECISION OF THE AUTHORITY FOR ADVANCE RUL ING IN THE CASE OF ROYAL BANK OF CANADA AND ALSO RELY UPON THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF KALP E TTA ESTATE S LTD 211 ITR 0635 . IT IS THE SAY OF THE LD. DR THAT PRINCIPLES OF RES JUDICAT A DO NOT APPLY TO INCOME - TAX MATTERS. FURTHER SUPPORTING THE ARGUMENTS, THE LD. DR ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF NPR DRUGS 98 ITD 285 AND POINTED OUT THAT THE TRIBUNAL IN THAT CASE HAS HELD THAT THE DECISION OF A BENCH OF THE TRIBUNAL EVEN IN THE CASE OF THE SAME ASSESSEE IN A PARTICULAR ASSESSMENT YEAR DOES NOT CONSTITUTE A M/S. LG ASIAN PLUS LTD. 11 BINDING PRECEDENT ON SUBSEQUENT CO - ORDINA TE BENCH OF THE TRIBUNAL. THE ISSUES RAISED BY THE LD. DR HAVE BEEN ANSWERED BY THE TRIBUNAL IN ITA NOS. 152 TO 156/VIZ/2011 IN THE CASE OF CARGO HANDLING PVT. WORKERS POOL VS DCIT WHEREIN THE TRIBUNAL HAS HELD AS UNDER: NEXT WE SHALL DWELL UPON THE J UDICIAL RULINGS ABOUT THE BINDING NATURE OF ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL. THE HONBLE MP HIGH COURT IN THE CASE AGARWAL WAREHOUSING AND LEASING LTD. VS CIT (257 ITR 235) HAS HELD THAT THE ORDERS PASSED BY THE TRIBUNAL ARE BINDING ON ALL THE TAX AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF THE TRIBUNAL. WHILE SO HOLDING, IT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UOI VS KAMLAKSHI FINANCE CORPN. LTD (AIR 1992 SUPREME COURT 711,712) 55 ELT 433 (SC) WHICH H AS RULED AS UNDER: IT CANNOT BE TOO VEHEMENTLY EMPHASIZED THAT IT IS OF UTMOST IMPORTANCE THAT, IN DISPOSING OF THE QUASI - JUDICIAL ISSUES BEFORE THEM, REVENUE OFFICERS ARE BOUND BY THE DECISIONS OF APPELLATE AUTHORITIES. THE ORDER OF THE APPELLATE COLLECTOR IS BINDING ON THE ASSISTANT COLLECTORS WORK ING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDING UPON THE ASSISTANT COLLECTORS AND THE APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGH ER APPELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPTABLE TO THE DEPARTMENT IN ITSELF AN OBJECTIONABLE PHRASE AND IS THE SUBJECT MATTER OF AN A PPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO THE ASSESSEES AND CHAOS IN ADMINISTRATION OF TAX LAWS. THE H ONBLE M.P. HIGH COURT FURTHER OBSERVED IN CLEAR TERMS AS UNDER: M/S. LG ASIAN PLUS LTD. 12 OBVIOUSLY, THE COMMISSIONER OF INCOME TAX (APPEALS) NOT ONLY COMMITTED JUDICIAL IMPROPRIETY BUT ALSO ERRED IN LAW IN REFUSING TO FOLLOW THE ORDER OF THE APPELLATE TRIBUNAL. EVEN WHERE HE MAY HAVE SOME RESERVATIONS ABOUT THE CORRECTNESS OF THE DECISION OF THE TRIBUNAL, HE HAD TO FOLLOW THE ORDER. HE COULD AND SHOULD HAVE LEFT IT TO THE DEPARTMENT TO TAKE THE MATTER IN FURTHER APPEAL TO THE TRIBUNAL AND GET THE MISTAKE, IF ANY, RECTIFIED. 18.1. HAVING ANSWERED TO THE OBJECTIONS RAISED BY THE LD. DR, WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE REFERRED TO HEREINABOVE. WE FIND THAT AT PARA - 7, THE TRIBUNAL HAS ELABORATELY DISCUSSED THE TRANSACTIONS IN DERIVATIVES QUA SEC. 43(5) OF T HE ACT AND AT PARA - 8.3, THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SEC. 115AD QUA FII AND AFTER CONSIDERING THE DEFINITION OF CERTAIN TERMS UNDER THE HEADING OF SEC. 43 AT PARA - 10 OF ITS ORDER AT AT PARA - 11 THE TRIBUNAL FINALLY HELD AS UNDER: WE, TH EREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT INCOME FROM INDEX BASED OR NON - INDEX BASED DERIVATIVES BE TREATED AS BUSINESS INCOME, WHETHER SPECULATIVE OR NON SPECULATIVE. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE BY HOLDING THAT INCOME FROM DERIVATIVE TRANSACTION RESULTING INTO LOSS OF RS. 11.27 CRORES IS TO BE CONSIDERED AS SHORT - TERM CAPITAL LOSS ON THE SALE OF SECURITIES WHICH IS ELIGIBLE FOR ADJUSTMENT AGAINST SHORT - TERM CAPITAL GAINS ARISING FROM THE SALE OF SHARES. RESP ECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL ( SUPRA), WE DIRECT THE AO TO FOLLOW THE BINDING DECISION OF THE TRIBUNAL GIVEN IN EARLIER ASSESSMENT YEAR AND ACCORDINGLY WE DECIDE ALL THE GROUNDS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 19. BEFO RE PARTING, ONE ISSUE REMAINS TO BE HIGHLIGHTED. AS MENTIONED ELSEWHERE, ONE OF THE OBJECTIONS OF THE LD. DR WAS THAT THE DECISION OF THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF ROYAL BANK OF CANADA M/S. LG ASIAN PLUS LTD. 13 HAS NOT BEEN CONSIDERED BY THE TRIBUNAL. WE FIND TH AT IN THE CASE OF PLATINUM INVESTMENT MANAGEMENT LTD VS DDIT IN ITA NO. 3598/M/2010, THE TRIBUNAL HAS CONSIDERED THE DECISION GIVEN IN THE CASE OF THE PRESENT APPELLANT AT PARA - 5 OF ITS ORDER AND AT PARA - 6, IT HAS ELABORATELY DISCUSSED THE DECISION OF THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF ROYAL BANK OF CANADA. THEREFORE, THE OBJECTION RAISED BY THE LD. DR DOES NOT HOLD ANY WATER. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 2089/M/2012 A.Y. 2008 - 09 REVENUES APPEAL 21. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE SET OFF OF LOSS IGNORING THE FACT THAT WITHOUT THE EXISTENCE OF PERMANENT ESTABLISHMENT, THE BUSINE SS INCOME WOULD NOT BE ASSESSABLE IN INDIA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE SET OFF OF LOSS IGNORING THE FACT THAT THE DERIVATIVES RELATED TRANSACTIONS ARE ROUTED THROUGH THE STOCK EXCHANGE WI THOUT ANY ACTUAL DELIVERY AND THUS ANY LOSS ARISING OUT OF SUCH TRANSACTIONS WOULD BE INELIGIBLE FOR SET OFF AGAINST ANY OTHER HEAD OF INCOME. 22. FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS 2004 - 05, 2003 - 04, 2005 - 06 AND 2006 - 07 IN ITA NOS. 1908/M/2012, WE HAVE UPHELD THE FINDINGS OF THE CO - ORDINATE BENCH THAT THE ASSESSEE IS AN INVESTOR IN SECURITIES AND ANY GAINS/LOSSES ARISING OUT OF THE TRANSACTIONS IN SECURITIES WOULD GIVE RISE TO CAPITAL GAINS, THEREFORE, THIS APPEAL BY THE REVENUE BECOME OTIOSE. 23. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. \ M/S. LG ASIAN PLUS LTD. 14 ITA NO. 5672/M/2012 A.Y. 2009 - 10 - ASSESSEES APPEAL 24. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1 . IN CONFIRMING THE ACTION OF THE AO IN TREATING THE INC OME EARNED FROM TRANSACTIONS IN EXCHANGE TRADED DERIVATIVES CONTRACT (ETDS) AMOUNTING TO RS. 19,951,329 AS BEING CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 2 . IN F AIL ING TO APPRECIATE THAT THE ACT CONTAINS A SPECIAL PR OVISION IN SECTION 115AD FOR FOREIGN INSTITUTIONAL INVESTOR S (FII) IN ACCORD ANCE WITH WHICH THE APPELLANT HAD OFFERED THE INCOME FROM TRANSACTIONS IN ETDS AMOUNTING TO RS. 19,951,329 TO TAX AS SHORT TERM CAPITAL GAINS 3 . I N EXCEEDING HIS JURISDICTION B Y NOT FOLLOWING THE DECISION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL (ITAT), MUMBAI IN THE APPELLANTS OWN CASE FOR THE A.YRS 2003,04, 2004,05, 2005 - 01 AND 2006 - 07 WHEREIN THE HONBLE ITAT, ON IDENTICAL FACTS HAD HELD THAT INCOME ARISING TO THE APPELLANT FROM TRANSACTIONS IN ETDS ARE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. 4 . IN F AIL ING TO CONSIDER THE SUBMISSIONS OF THE APPELLANT THAT DECISION OF THE HONBLE ITAT CANNOT BE IGNORED AS THE SAME WAS NOT RENDERED IN IGNORANCE OF/WITHOUT CONSIDERING THE REGULATIONS/GUIDELINES ISSUED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA/RESERVE BANK OF INDIA, GOVERNING THE INVESTMENT BY FIIS IN ETDS. 25. FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YRS 2004 - 05, 2003 - 04, 2005 - 06 AND 2006 - 07 IN ITA NOS. 1908/M/2012, WE HAVE UPHELD THE FINDINGS OF THE CO - ORDINATE BENCH THAT THE ASSESSEE IS AN INVESTOR IN SECURITIES AND ANY GAINS/LOSSES ARISING OUT OF THE TRANSACTIONS IN SECURITIES WOULD GIVE RISE TO CAPITAL GAINS, THEREFORE, THI S APPEAL BY THE ASSESSEE IS ALLOWED. M/S. LG ASIAN PLUS LTD. 15 26. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 7921/M/10 FOR A.Y. 2007 - 08 IS PARTLY ALLOWED, ITA NOS. 1908/M/12 & 5672/M/12 FOR A.YRS 2008 - 09 & 2009 - 10 ARE ALLOWED AND THE REVENUES APPEAL IN ITA NO. 208 9/M/2012 IS DISMISSED. OR DER PRONOUNCED IN THE OPEN COURT ON 31 ST JU LY , 2015 SD/ - SD/ - ( SUSHMA CH O WLA ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 31 ST JU LY , 2015 . . ./ RJ , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI