ITO, New Delhi V. Sh. Rohit Anand, New Delhi

ITA 1915/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8430 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-07-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 08-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHAN GEORGE
• Keywords: Capital asset; Business income
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI VIMAL GANDHI, PRESIDENT AND SHRI DEEPAK R. SHAH, ACCOUNTANT MEMBER I.T.A.NO.1915/DEL/2009 ASSESSMENT YEAR : 2006-07 INCOME-TAX OFFICER, SHRI ROHIT ANAND, WARD 33(4), NEW DELHI. VS. 4/5209, DEV NAGAR, KAROL BAGH, NEW DELHI. I.T.A.NO.1916/DEL/2009 ASSESSMENT YEAR : 2006-07 INCOME-TAX OFFICER, SHRI ROHIT ANAND & SONS (HUF) , WARD 33(4), NEW DELHI. VS. 11/7B, PUSA ROAD, KAROL BAGH, NEW DELHI. (APPELLANT) (RESPONDENTS) APPELLANT BY : SHRI STEP HAN GEORGE, CIT-DR. RESPONDENTS BY : SHRI SANAT KAPOOR, ADVOCATE. O R D E R PER DEEPAK R. SHAH, ACCOUNTANT MEMBER. BOTH THESE APPEALS BY THE REVENUE ARE DIRECTED AGAI NST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XX VI, NEW DELHI, DATED 25.02.2009 IN AN APPEAL AGAINST ASSESSMENT FR AMED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT). 2 2. THE ONLY ISSUE RAISED IN BOTH THE APPEALS IS AGA INST THE TREATMENT OF PROFIT ON SALE OF SHARES TREATED BY THE ASSESSEE AS CAPITAL GAIN BUT ASSESSED BY THE ASSESSING OFFICER AS BUSINESS INCOME. 3. IN THE CASE OF SHRI ROHIT ANAND (INDIVIDUAL), TH E ASSESSEE DECLARED INCOME FROM BUSINESS, INCOME FROM SPECULATION BUSIN ESS, SHORT TERM AND LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER NOTE D THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN GOLD AND GOLD ORNAMENTS AND ALSO IN INVESTMENT IN SHARES AND MUTUAL FUNDS. THE ASSESSI NG OFFICER HELD THAT THE TRANSACTION IN SHARES WILL AMOUNT TO BUSINESS OF DE ALING IN SHARES AND HENCE BE TAXED ACCORDINGLY. FOR THIS PURPOSE, HE REFERRE D TO THE FOLLOWING:- (1) HE OBSERVED THAT INCOME FROM BUSINESS OF JEWELL ERY IS ONLY RS.2,60,025/- WHEREAS THE SHORT TERM CAPITAL LOSS D ECLARED IS RS.59,90,569/- AND LONG TERM CAPITAL GAIN DECLARED IS RS.3,01,34,6 00/-. (2) THE TOTAL TRANSACTION IN RESPECT OF SHORT TERM GAIN DECLARED IS RS.11,11,50,910/-. THEREFORE, THESE TRANSACTIONS A RE FOR MAKING PROFIT AND NOT FOR EARNING DIVIDEND OR INTEREST. (3) THE TOTAL TRANSACTION IN PURCHASE AND SALE OF S HARES IS RS.15,95,75,381/-. (4) THE TRANSACTIONS HAVE BEEN ENTERED INTO FROM 1. 5.2005 TO 31.3.2006. THERE IS CONTINUOUS PURCHASE AND SALE OF SHARES. I T IS NOT ONE TIME INVESTMENT BUT CONTINUOUS SERIES OF OPERATION. (5) THE PURCHASES ARE MADE OUT OF OWN FUNDS AND NOT BORROWED FUNDS. 3 (6) THE PERIOD OF HOLDING VARIES FROM 360 DAYS TO 2 0 DAYS. (7) THERE IS REGULAR PATTERN OF PURCHASE AND SALE. (8) LOOKING TO THE VOLUME OF TRANSACTION, THE ASSES SEE IS DEVOTING SUBSTANTIAL TIME FOR PURCHASE AND SALE OF SHARES. (9) THE SHARES ARE SHOWN AS INVESTMENT IN THE ACCOU NTS. (10) THE SECURITIES ARE LISTED SECURITIES. (11) THE INVESTMENT IS IN INDEPENDENT COMPANIES AND NOT IN SISTER OR RELATED COMPANIES OR IN WHICH THE ASSESSEE IS A PROMOTER. (12) THE AMOUNTS ARE RECEIVED AND PAID AND ARE NOT MERELY BOOK ENTRIES. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE AS TO WHY THE TRANSACTIONS SHOULD NOT BE TREATED AS BUSINESS INCOME AND NOT AS CAPITAL GAIN. THE ASSESSEE SUBMITTED AS UNDER:- 01. ALL INVESTMENTS HAVE BEEN CLEARLY MENTIONED I N THE PERSONAL BALANCE SHEET & BOOKS OF ACCOUNTS AS CAPIT AL ASSETS. THE DETAILS OF CLOSING INVESTMENT AS OF 31 ST MARCH OF RESPECTIVE YEAR HAD ALSO BEEN APPENDED AS ANNEXURE IN THE RESP ECTIVE ITR. 02. THE INVESTMENTS ARE IN THE NATURE OF INDEPENDEN T ACTIVITY. 03. THE INVESTMENTS HAVE ALWAYS BEEN MADE WITH A VI EW TOWARDS CAPITAL APPRECIATION & EARNING DIVIDEND INC OME FROM THEM. DURING THE COURSE OF THE YEAR CERTAIN INVEST MENTS MAY BE BOUGHT & SOLD WITH A VIEW TO ENHANCING LONG TERM AP PRECIATION PROSPECTS. DIVIDEND EARNED IN CURRENT & EARLIER YE ARS IS AS UNDER:- F.Y. 2003-04 RS.87,45,311.00 F.Y. 2004-05 RS.17,55,463.00 F.Y. 2005-06 RS.31.22.958.00 4 04. THE SCALE OF ACTIVITY IS NOT SUBSTANTIAL. WE A LSO SUBMIT THAT THE MAGNITUDE OF TRANSACTIONS DOES NOT CHANGE THE N ATURE OF THE TRANSACTIONS. 05. TRANSACTIONS REGARDING THESE INVESTMENTS ARE ON LY ENTERED INTO BASED ON SPECIFIC ADVICE FROM MARKET ADVISORS WITH A VIEW TO MAINTAIN AN IDEAL & BALANCED PORTFOLIO THAT IS G EARED TOWARDS GROWTH. SOMETIMES CAPITAL MARKET CRISIS DUE TO POL ITICAL/GLOBAL CONDITIONS ALONG WITH INVESTMENT CLIMATE MAY WARRAN T A TRANSACTION DECISION TO BE MADE. 06. ALL INVESTMENTS ARE FROM OWN FUNDS. 07. AS THESE ARE CAPITAL ASSETS THE TYPICAL HOLDING PERIOD OF THESE INVESTMENTS ARE LONG TERM, I.E., MORE THAN 1 YEAR. THE INVESTMENTS ARE WITH AN AIM TOWARDS CAPITAL APPRECI ATION. SHORT TERM INVESTMENTS ARE TYPICALLY MORE RISKY & WOULD E ASILY ERODE CAPITAL. 08. THE RATIO OF SALES TO HOLDING & PURCHASES IS VE RY LOW. SALES HAVE ALWAYS BEEN LOWER THAN THE HOLDING & PURCHASES . 09. I DO NOT DEVOTE MUCH TIME TOWARDS THESE INVESTM ENTS. THE PORTFOLIO NEEDS REALIGNMENT/ADJUSTMENT FROM TIME TO TIME, DEPENDING ON THE EVER CHANGING CAPITAL MARKET CONDI TIONS. THE INCOMES DERIVED FROM THESE INVESTMENTS ARE NOT THE PRIMARY MEANS OF LIVELIHOOD. THE INCOME IS MORE BY WAY OF P RESERVING CAPITAL & TRYING TO BEAT INFLATIONARY IMPACT OF THE ECONOMY. I AM TRYING TO DERIVE INCOME FROM EXPLOITATION OF MY OWN ASSETS. 10. THE HOLDINGS HAVE BEEN CLEARLY MENTIONED IN THE PERSONAL BALANCE SHEET AS INVESTMENT IN CAPITAL ASSETS. THI S HAS BEEN THE CASE CONSISTENTLY OVER A PERIOD OF MANY YEARS NOW. 11. ALL THE INVESTMENTS ARE MUTUAL FUNDS & SECURITI ES THAT ARE LISTED ON THE RECOGNIZED STOCK EXCHANGES IN THE COU NTRY LIKE NATIONAL STOCK EXCHANGE (NSE) & BOMBAY STOCK EXCHAN GE (BSE). 5 THE ASSESSING OFFICER HELD THAT JUST BY MENTIONING THE CLOSING STOCK AS INVESTMENT, IT CANNOT ALTER THE NATURE OF BUSINESS TRANSACTION. THE VOLUME OF TRANSACTION AND TIME DEVOTED TOWARDS THE ACTIVITY I S NOT AS AN INVESTMENT ACTIVITY. THE SCALE OF ACTIVITY IS SUBSTANTIAL CON SIDERING THE TRANSACTION TO THE TUNE OF OVER RS.15.95 CRORES AS HOLDING PERIOD FOR SHARES BOUGHT AND SOLD IS NOT MUCH. THEREFORE, THE INFERENCE CAN BE DRAWN TH AT THE NATURE OF TRANSACTION IS IN THE COURSE OF BUSINESS AND NOT BY WAY OF INVESTMENT. ACCORDINGLY, THE SHORT TERM AND LONG TERM CAPITAL G AIN DECLARED BY THE ASSESSEE IS TO BE ASSESSED AS BUSINESS INCOME. 4. THE LEARNED CIT(A) HELD THAT THE ASSESSEE HAS EA RNED DIVIDEND INCOME OF OVER RS.31 LAKH FROM THE INVESTMENT. DIVIDEND I NCOME IS DIRECTLY RELATED TO INVESTMENTS AND A TRADER IN SHARE WOULD NOT ORDI NARILY RECEIVED DIVIDEND TO THAT EXTENT. AVERAGE HOLDING PERIOD IN RESPECT O F LONG TERM CAPITAL GAIN COMES TO MORE THAN 2 YEARS 9 MONTHS AND IN RESPECT OF SHORT TERM CAPITAL GAIN, THE PERIOD OF HOLDING IS OF 5 MONTHS. THUS C ONSIDERING THE PERIOD OF HOLDING IT DOES NOT AMOUNT TO TRADING IN SHARES. H E ALSO HELD THAT THE INVESTMENT IS OUT OF THE OWN FUNDS AND NOT BORROWED FUNDS WHICH IS RELEVANT TO CONSIDER THE INTENTION OF THE ASSESSEE. HE ALSO HELD THAT NO EXPENSES HAVE BEEN MADE FOR CARRYING OUT SHARE PURCHASE AND SALE ACTIVITY AND ARE ALSO NOT CLAIMED. THE SHARES ARE TREATED AS INVESTMENT IN T HE BOOKS OF ACCOUNT. THE 6 ASSESSEE IN HIS INDIVIDUAL CAPACITY IS CARRYING ON INDEPENDENT JEWELLERY BUSINESS FROM WHICH HE IS DERIVING HIS BUSINESS INC OME. THE ASSESSEE HAS INVESTED ONLY IN FEW SCRIPS CONTRARY TO THE TRADING PATTERN WHERE THE TRADING IS DONE IN LARGE NUMBER OF SHARES WITH FREQUENT TRA NSACTIONS WHICH ARE SETTLED INTRADAY OR WITHIN A WEEK ITSELF. THE ASSE SSEE HAS NOT EVEN ROTATED HIS STOCK NUMBER OF TIMES WHICH NORMALLY A BUSINESS MAN DOES. TAKING ALL THESE FACTORS INTO CONSIDERATION, THE LEARNED CIT(A ) HELD THAT THE ASSESSEES INCOME IS TO BE ASSESSED UNDER THE HEAD CAPITAL GA INS AND NOT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 5. AS REGARDS INCOME IN THE HANDS OF HUF, THE ASSES SING OFFICER NOTED THAT THE LONG TERM CAPITAL GAIN EARNED BY THE ASSES SEE IS RS.1,89,00,735/-. TOTAL VALUE OF TRANSACTION IS RS.3,20,36,544/- IN R ESPECT OF SHORT TERM TRANSACTION AND TOTAL VOLUME OF THE SHARES PURCHASE D AND SOLD IS RS.5,13,14,009/-. THESE TRANSACTIONS ARE SUBSTANTI AL AND HENCE TO BE TREATED AS BUSINESS TRANSACTIONS AND NOT GIVING RISE TO CAP ITAL GAIN. 6. THE LEARNED CIT(A) APART FROM THE FACTS AS NOTED IN THE CASE OF INDIVIDUAL, ALSO NOTED THAT SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE IS RS.2,35,434/- AND LONG TERM CAPITAL GAIN IS RS.1,89 ,00,735/-. CONSIDERING THE FACT THAT THE SHARES ARE HELD AS INVESTMENT AND NOT OUT OF BORROWED FUNDS 7 AND BEING ON THE SAME LINE AS IN THE CASE OF INDIVI DUAL, THE AMOUNT IS TO BE ASSESSED AS CAPITAL GAIN. 7. THE REVENUE IS IN FURTHER APPEAL BEFORE US CHALL ENGING THE ACTION OF THE LEARNED CIT(A) TREATING THE INCOME AS CAPITAL G AIN AND NOT AS BUSINESS INCOME. 8. WHEREAS THE LEARNED DR SHRI STEPHAN GEORGE SOUGH T TO RELY UPON THE FINDING OF THE ASSESSING OFFICER, THE LEARNED COUNS EL FOR THE ASSESSEES SHRI SANAT KAPOOR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND HIS FINDINGS THEREON. 9. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND THE FINDINGS OF BOTH THE AUTHORITIES BELOW. THE ASSESSEE IN HIS IN DIVIDUAL CAPACITY CARRIES ON BUSINESS OF JEWELLERY. APART FROM SAID BUSINESS, T HE ASSESSEE INVESTED IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT. THIS ITSELF MANIFESTS THE INTENTION OF THE ASSESSEE AS TO WHETH ER HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AND PROFIT OUT O F SUCH INVESTMENT. THE ASSESSING OFFICER WAS GUIDED MORE BECAUSE OF THE TO TAL AMOUNT INVOLVED RATHER THAN THE ACTUAL INTENTION AND THE WAY OF CAR RYING ON SHARE TRANSACTION. THERE IS NO DOUBT THAT EVEN A SINGLE TRANSACTION CA N BE IN THE NATURE OF TRADE BUT THE ASSESSEE HAS DEMONSTRATED THAT HIS INTENTIO N WAS NEVER TO TRADE IN SHARES. THE INTENTION IS MANIFESTED BY TREATMENT G IVEN TO SUCH INVESTMENT 8 THAT THE INVESTMENT IS OUT OF OWN FUNDS AND NOT BOR ROWED FUNDS; THAT THE INVESTMENT IS NOT ROTATED FREQUENTLY; THAT THE TOTA L NUMBER OF TRANSACTIONS ARE VERY FEW; THAT ALL THE SHARES PURCHASED ARE NOT SOL D AND RATHER HELD FOR QUITE NUMBER OF DAYS. IT IS TO BE NOTED THAT THE INCOME- TAX ACT ITSELF HAS PROVIDED THAT WHEN THE SHARES ARE HELD FOR A PERIOD OF ONE Y EAR OR MORE WILL BE TREATED AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE THE HOLDING PERIOD TO TREAT SUCH ASSET AS LONG TERM IS MORE THAN 36 MONTH S. THUS EVEN AFTER HOLDING THE SHARES FOR MORE THAN 12 MONTHS AND SHOW ING SUCH INTENTION FROM THE CONDUCT, THE ASSESSING OFFICER CANNOT REPLACE H IS OPINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STO CK-IN-TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BUSINESS INCOME. IN ALL SUCH CASES THE INTENTION IS MANIFESTED BY THE ASSESSEE HIMSELF BY HIS CONDUCT A ND OTHER RELEVANT FACTORS AS CONSIDERED BY THE LEARNED CIT(A). IT IS ALSO SE EN THAT THE SHARES WERE TREATED AS INVESTMENT IN EARLIER YEAR AND WHICH FAC T HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO EARNED HU GE DIVIDEND INCOME FROM SUCH SHARES. THE ASSESSING OFFICER MERELY BECAUSE OF THE TOTAL VOLUME OF TRANSACTION IS SUBSTANTIAL, IS GUIDED TO HOLD THE I NCOME AS BUSINESS INCOME. HOWEVER, HE FAILED TO RECOGNIZE THAT THE VOLUME OF TRANSACTION INCLUDES THE APPRECIATION IN SHARES ALSO AND SUCH APPRECIATION H AS BEEN OFFERED FOR TAX. IF VOLUME OF TRANSACTION IS THE CRITERIA, WHAT IS TO B E EXAMINED IS HOW 9 FREQUENTLY THE TRANSACTION IS DONE, WHETHER THE TRA NSACTION IS SETTLED IN THE COURSE OF THE DAY OF TRADING ITSELF OR IN THE SETTL EMENT PERIOD ITSELF SO AS TO AVOID PAYMENT OF FULL PURCHASE PRICE. HERE THE ASS ESSEE HAS BEEN HOLDING THE SHARES BY TAKING DELIVERY AND MAKING FULL PAYME NT FOR SUCH INVESTMENT. IN SUCH CIRCUMSTANCES, THE TRANSACTIONS ARE TO BE T REATED AS GIVING RISE TO THE CAPITAL GAIN AND CANNOT BE BRANDED AS TRADING IN SH ARES. WHAT IS RELEVANT IS THE INTENTION OF THE ASSESSEE HIMSELF AT THE TIME O F MAKING INVESTMENT SO AS TO DETERMINE WHETHER THE TRANSACTION WAS FOR DEALIN G IN SHARES OR MAKING INVESTMENT FOR EARNING DIVIDEND AND APPRECIATION FR OM SUCH INVESTMENT. THE TOTAL NUMBER OF SHARES DEALT IN RESPECT OF LONG TERM PORTFOLIO IS ONLY 5. THIS CANNOT BE CONSIDERED AS VOLUMINOUS TRANSACTION . THEREFORE, THIS TRANSACTION IN SHARES CANNOT BE SAID TO BE WITH INT ENTION TO DEAL IN SUCH SHARES. RATHER THE TRANSACTIONS WERE WITH INTENTIO N OF EARNING APPRECIATION FROM SUCH SHARES. THEREFORE, THE SAME ARE ASSESSAB LE AS CAPITAL GAIN AND NOT AS PROFITS AND GAINS OF BUSINESS. WE, THEREFORE, U PHOLD THE ORDERS OF THE LEARNED CIT(A). 10. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2009. SD/- SD/- (VIMAL GANDHI) (DEEPAK R. SHAH) PRESIDENT ACCOUNTANT MEMBER DATED: 31 ST JULY 2009. 10 ITA NOS.1915 & 1916/DEL/2009 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.