SUJATA KAPADIA, MUMBAI V. JT CIT RG 16(3), MUMBAI

ITA 1980/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84545 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 20-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Capital asset; Business income; Rule of consistency; Cost of acquisition

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI , BEFORE : SHRI I.P.BANSAL, JM & SHRI R.C.SHARMA , A M ITA NO. 1980 / MUM/20 1 2 ( ASSESSMENT YEAR : 200 8 - 200 9 ) SMT. SUJATA KAPADIA, 428, PAREKH MARKET, 39, KENNEDY BRIDGE, OPERA HOUSE, MUMBAI - 400004 VS. JCIT, RANGE - 16(3), MUMBAI PAN/GIR NO. : A ABPK 5657 Q ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI VIPUL B. JOSHI /REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 20 TH OCT . 201 4 DATE OF PRONOUNCEMENT : 18 /12/ 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , DATED 17 - 1 - 2012 FOR ASSESSMENT YEAR 200 3 - 0 4 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T. ACT . 2. THE ONLY GRI EVANCE OF THE ASSESSEE RELATES TO TREATMENT OF SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS. 21,30,60,478/ - ON TRANSFER OF 36,042/ - SHARES OF M/S T ECNIMONT ICB PVT. LTD. TO M/S TECNIMONT S.P.S., ITALY. THE ASSESSEE HAS ALSO OFFERED SHORT TERM CAPITAL GAINS OF RS. 34,64,485/ - , HOWEVER, THE AO HAS ACCEPTED ITA NO. 1980 /1 2 2 ASSESSEES CLAIM OF LONG TERM CAPITAL GAIN BUT TREATED SHORT TERM CAPITAL GAINS AS BUSINESS INCOME . 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO FOR TREATING SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. 5. FROM THE RECORD, WE FOUND THAT ASSESSEE WAS INVESTING IN SHARES AS INVESTOR. IN THE EARLIER ASSESSMENT YEAR 2006 - 07 & 2007 - 0 8, THE SHORT TERM CAPITAL GAIN OFFERED BY THE ASSESSEE WAS ACCEPTED BY THE AO WHILE MAKING SCRUTINY ASSESSMENT U/S.143(3). FURTHERMORE, IN THE IMMEDIATELY SUBSEQUENT ASSESSMENT YEAR I.E. 2009 - 10, THE AO HAS ALSO ACCEPTED ASSESSEES CLAIM OF SHORT TERM CAP ITAL GAIN AFTER MAKING DETAILED ENQUIRY. THUS, THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION . EVEN THOUGH PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS BUT AT THE VERY SAME TIME, THE RULE OF C ONSISTENCY STILL APPLIES WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES. IT IS PERTINENT TO MENTION THAT ASSESSEES TREATMENT OF SHARES AS INVESTMENT AND THEREBY DECLARING LONG TERM CAPITAL GAINS HAVE BEEN ACCEPTED BY THE AO. WE ALSO FOUND THAT ASS ESSEE HAD ENTERED INTO TRANSACTION ONLY FOR 23 DAYS WHEN THE MARKET WAS AT PEAK, ACCORDINGLY, ASSESSEE TOOK THE BENEFIT OF PEAK MARKET AND SOLD ITS INVESTMENT . WE ALSO FOUND THAT THESE SHARES WERE ACCEPTED AS INVESTMENT BY DEPARTMENT AS ON 31 - 3 - 2007, WHICH WAS CARRIED AS OPEN ING INVESTMENT AS ON 1 - 4 - 2007 AND THE SAME WAS SOLD DURING THE YEAR. 6 . MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVESTMENT WITHIN A SHORT SPAN OF TIME, WHICH HAD GIVEN BETTER OVERALL EARNING TO THE ASSESSEE, WOULD NOT LEAD TO THE CO NCLUSION THAT THE ASSESSEE HAD NO ITA NO. 1980 /1 2 3 INTENTION TO KEEP ON THE FUNDS AS INVESTOR IN EQUITY SHARES, BUT WAS ACTUALLY INTENDED TO TRADE IN SHARES. 7 . HERE, IT IS PERTINENT TO MENTION THE INTENTION OF GOVERNMENT FOR INTRODUCING THE SECURITY TRANSACTION TAX AND E XEMPT THE LONG TERM CAPITAL GAIN EARNED FROM SALE OF SHARES AND LEVYING 10 % TAX ON SHORT TERM CAPITAL GAIN EARNED ON SALE OF SHARES. IT IS NOTED THAT UNDER THE OLD PROVISIONS OF THE INCOME - TAX ACT, PROFITS OR GAINS ARISING TO AN INVESTOR FROM THE TRANSFER OF SECURITIES WERE CHARGED TO TAX EITHER AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAID SECURITIES; SHORT - TERM CAPITAL GAINS ARISING FROM TRANSFER OF SECURITIES WERE TAXED AT THE APPLICABLE RATES (NOR MAL RATE) AND LONG - TERM CAPITAL GAINS WERE TAXED @ 20%, AFTER ADJUSTING FOR INFLATION BY INDEXING THE COST OF ACQUISITION. FOR LISTED SECURITIES, THE TAXPAYER HAD AN OPTION TO PAY TAX ON LONG - TERM CAPITAL GAINS @ 10% BUT WITHOUT INDEXATION. FOR FOREIGN INS TITUTIONAL INVESTORS (FIIS), THE LONG - TERM CAPITAL GAINS AND SHORT - TERM CAPITAL GAINS WERE TAXED AT THE RATE OF 10% (WITHOUT INDEXATION) AND 30% RESPECTIVELY. IN CASE OF A TRADER IN SECURITIES, HOWEVER, THE GAINS WERE TAXED AS ANY OTHER NORMAL BUSINESS INC OME. THUS TAX LIABILITY ON THE INCOME FROM PURCHASE & SALE OF SHARES AS REGARDS TO THE STCG & BUSINESS INCOME WAS AT PAR. HOWEVER, THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS CAPITAL GAIN OR BUSINESS INCOME HAS IN - FACT ARISEN AFTER THE AMEND MENT BROUGHT WITH FINANCE ACT - 2004 BY INSERTION OF PROVISIONS OF SECTION 111A AND 10(38) AS REGARDS TO LEVY OF TRANSACTION TAX AND EXEMPTION / CONCESSION ON CAPITAL GAIN ARISING FROM SECURITIES ENTERED IN A RECOGNIZED STOCK EXCHANGE. WITH A VIEW TO ITA NO. 1980 /1 2 4 SIMPL IFY THE TAX REGIME ON SECURITIES TRANSACTIONS, A TAX AT THE RATE OF 0.015 PER CENT. (SEE: CHANGE IN RATES ON SECURITIES TRANSACTIONS, BY FINANCE ACTS, AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE P LACE IN A RECOGNIZED STOCK EXCHANGE IN INDIA. THIS TAX IS COLLECTED BY THE STOCK EXCHANGE FROM THE PURCHASER OF SUCH SECURITIES AND PAID TO THE EXCHEQUER. THE PROVISIONS RELATING TO THE SECURITIES TRANSACTIONS TAX ARE CONTAINED IN CHAPTER VII OF THE FINANC E (NO.2) BILL, 2004, AND CAME INTO EFFECT FROM 01.10.2004. FURTHER, CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 OF THE INCOME - TAX ACT, SO AS TO PROVIDE EXEMPTION FROM LONG - TERM CAPITAL GAINS ARISING OUT OF SECURITIES SOLD ON THE STOCK EXCHANGE. A NEW SECTI ON 111A HAS ALSO BEEN INSERTED AND SECTION L15AD IS AMENDED, SO AS TO PROVIDE THAT SHORT - TERM CAPITAL GAINS ARISING FROM SALE OF SUCH SECURITIES TO AN INVESTOR INCLUDING FIIS SHALL BE CHARGED AT THE RATE OF TEN PER CENT. THESE AMENDMENTS APPLY TO ASSESSMEN T YEAR 2005 - 2006 AND SUBSEQUENT YEARS. THROUGH FINANCE ACT, 2008, SECTIONS 111A AND 115AD HAVE FURTHER BEEN AMENDED WHEREBY THE RATE OF TAX ON SUCH SHORT - TERM CAPITAL GAIN HAS BEEN RAISED TO FIFTEEN PERCENT. THUS, W.E.F. 01.10.2004; ON THE SHARE TRANSACTI ONS SUBJECTED TO STT; CONCESSIONAL TAX RATE OF 10% (WHICH HAS BEEN INCREASED TO 15% FROM AY 2009 - 10) ARE APPLICABLE IN RESPECT OF STCG WHEREAS NO TAX IS CHARGEABLE IN RESPECT OF LTCG. IT IS ALSO NOTED THAT THE CBDT VIDE ITS CIRCULAR NO.4/2007, DATED 15.06. 2007 HAS ALSO RECOGNIZED POSSIBILITY OF TWO PORTFOLIOS, I.E. ONE 'INVESTMENT PORTFOLIO' COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE OTHER 'TRADING PORTFOLIO' COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASS ETS. IN VIEW OF THESE FACTS, PROFIT AROSE ON SHARES IN ITA NO. 1980 /1 2 5 RESPECT OF DELIVERY BASED TRANSACTION ARE LIABLE TO BE TAXED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 8 . EVEN THE HON'BLE APEX COURT IN THE CASE OF K.P. VERGHESE VS TO, 131 ITR 597 (SC) OBSERVED AS UNDER: - THE TASK OF INTERPRETATION OF A STATUTORY ENACTMENT IS NOT MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORD POSSESSES THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXP RESSION OF HUMAN THOUGHT AND, AS POINTED OUT BY LORD DENNING, IT WOULD BE IDLE TO EXPECT EVERY STATUTORY PROVISIONS TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. 9 . THE ABOVE OBSERVATIONS OF HON'BLE JUDGES OF THE APEX COURT WAS REITERATED B Y HON'BLE APEX COURT IN THE CASE OF KERALA STATE INDUSTRIAL CORPORATION, 259 ITR 51 (SC) HOLDING AS UNDER: - THAT THE FINANCE MINISTERS SPEECH CAN BE RELIED UPON TO THROW LIGHT ON THE OBJECT AND PURPOSE OF THE PARTICULAR PROVISIONS INTRODUCTION BY THE FI NANCE BILL HAS BEEN RECOGNIZED BY THIS COURT IN K.P. VERGHESE VS ITO 1981), 131 ITR 597 (SC), AT 609. AGAIN IN THE CASE OF R & B FALCON (A) PVT. LTD VS CIT (2008) 301 ITR 309 (SC), IT WAS HELD THAT (PAGE 323): - RULES OF EXECUTIVE CONSTRUCTION IN A SIT UATION OF THIS NATURE MAY ALSO BE APPLIED. WHERE A REPRESENTATION IS MADE BY THE MAKERS OF LEGISLATION AT THE TIME OF INTRODUCTION OF BILL OR CONSTRUCTION THEREUPON IS PUT BY THE EXECUTIVE UPON ITS COMING INTO FORCE, THE CARRIES GREAT WEIGHT. 10 . THE HO N'BLE DELHI HIGH COURT IN ARJ SECURITY PRINTERS, 264 ITR 276 AND NEO POLLYPACK PVT LTD. 245 ITR 492 (DEL.) HELD THAT EVEN WHEN THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, WHERE A ISSUE HAS BEEN DECIDED CONSISTENTLY IN EARLIER AS SESSMENT YEARS IN PARTICULAR MANNER, THE SAME VIEW SHOULD PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN FACTS, MEANING THEREBY, THERE MUST BE MATERIAL CHANGE IN THE FACTS. ITA NO. 1980 /1 2 6 1 1 . THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHANTILAL M JAIN VS ACIT VIDE ORDER DATED 27 - 04 - 2011 (ITA NO. 269/MUM/2010) HELD THAT DESPITE LARGE VOLUME OF SHARES TRANSACTIONS, THE ASSESSING OFFICER CANNOT IGNORE THE RULE OF CONSISTENCY TO TREAT THE GAINS ON SALE OF SHARES AS STCG. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF INVESTMENT IN SHARES AND SECURITIES OFFERED RS. 1.54 CRORES AS SHORT TERM CAPITAL GAIN AND RS. 2.91 CRORES FROM LONG TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN WAS ACCEPTED WHEREAS SHORT TERM CAPITAL GAIN WAS HELD T O BE BUSINESS PROFIT. SINCE IN EARLIER ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS CONSISTENTLY ACCEPTED AS SHORT TERM CAPITAL GAIN, IT WAS HELD THAT THE RULE OF CONSISTENCY AS PROPOUNDED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) , IT IS FAIRLY APPLICABLE AND THE INCOME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IDENTICALLY IN THE CASE OF NAGINDAS P SETH (ITA NO.961/MUM/2010) IT WAS HELD THAT DESPITE LARGE NUMBER OF TRANSACTIONS IN SHARES, THE PROFIT CAN BE ASSESSED AS CAPI TAL GAINS UNDER THE FACTS OF THE CASE. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THESE DECISIONS MORE SPECIFICALLY WHEN THE ASSESSEE WAS HOLD THE SHARES IN HIS BOOKS AS INVESTOR, AS WELL AS TOCK - IN - TRADE SEPARATELY. THE DECISION IN THE CASE OF JANAK S RANAWALA, 11 SOT 627 (MUM.) FURTHER SUPPORTS THE CASE OF THE ASSESSEE. LIKEWISE, THE DECISION FROM HON'BLE MADRAS HIGH COURT IN CIT VS N.S.S. INVESTMENT PVT LTD. 227 ITR 149 (MAD), CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY, 82 ITR 526 (SC) SUPPO RTS THE CASE OF THE ASSESSEE. IN THE PRESENT APPEAL, WE NOTE THAT THE ASSESSEE MADE INVESTMENT IN SHARES WITH INTENTION TO EARN DIVIDEND INCOME ON APPRECIATION OF PRICE OF SHARES. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS. ITA NO. 1980 /1 2 7 12. IN VI EW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ACTION OF AO FOR TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 1 2 / 201 4 . / 1 2 / 2014 SD/ - SD/ - ( ) ( I.P.BANSAL ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 1 2 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//