ASST CIT RG 25(3), MUMBAI V. KINNARY SANGHVI, MUMBAI

ITA 2004/MUM/2011

• Counselvise Citation: 200419914 RSA 2011
• Duration Of Justice: 3 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 16-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JITENDRA KUMAR
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Capital asset; Business income; Rule of consistency; Cost of acquisition
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA, AM & SHRI VIVEK VARMA , JM ITA NO. 2004 / MUM/20 1 1 ( ASSESSMENT YEAR : 200 7 - 08 ) ACIT - 25(3), MUMBAI VS. MRS.KINNARY SANGHAVI, A - 1001, UDAYGIRI APARTMENT, NR. JAIN TEMPLE, ASHOK ROAD, KANDIVALI (E), MUMBAI - 400 101 PAN/GIR NO. : BABPS 06 15 K ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI JITENDRA KUMAR /ASSESSEE BY : SHRI S. C.TIWARI & MS. NATASHA MANGAT DATE OF HEARING : 05 / 01 /201 5 DATE OF PRONOUNCEMENT : 20 /02 /2015 O R D E R PER R.C.SHARMA ( A .M.) : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), DATED 12 - 1 - 2011 FOR THE ASSESSMENT YEAR 200 7 - 08, IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE I.T.ACT . 2 . THE ONLY GRIEVANCE OF THE REVENUE RELATES TO CIT(A)A DIRECTION FOR ACCEPTING ASSESSEES CLAIM OF SHORT TERM AND LONG TERM CAPITAL GAINS IN PLACE OF AOS TREATMENT AS BUSINESS INCOME. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. FACTS IN BRIEF ARE THAT ASSESSEE WAS INVESTING IN SHARES. DURING THE YEAR UNDER ITA NO. 2004 /20 1 1 2 CONSIDERATION, ASSESSEE EARNED SHORT TERM CAPITAL GAINS OF RS. 19,61,661/ - AND LONG TERM CAPITAL GAINS OF RS. 55,330/ - . ALL THESE GAINS WERE IN RESPECT OF DELIVERY BASED T RANSACTION. THE ASSESSEE WAS ALSO TRADING IN SHARES IN NON - DELIVERY BASED TRANSACTIONS, PROFIT FROM WHICH WAS OFFERED AS BUSINESS INCOME. THE AO DID NOT ACCEPT ASSESSEES CLAIM OF SHORT TERM AND LONG TERM CAPITAL GAINS ON THE PLEA THAT THE ASSESSEE WAS REG ULARLY DEALING IN SHARES AND KEEPING IN VIEW THE VOLUME OF TRANSACTIONS, PERIOD OF HOLDING ETC., THE GAINS SO AROSE FROM THE SALE OF SHARES WERE LIABLE TO BE TAXED AS BUSINESS INCOME. 4 . BY THE IMPUGNED ORDER THE CIT(A) ACCEPTED ASSESSEES CLAIM OF SHORT TERM AND LONG TERM CAPITAL GAINS AFTER HAVING FOLLOWING OBSERVATIONS: - 5.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE AND STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLANT HAS DIVIDED DELIVERY BASED AND TREATED THE 1ST CATEGORY UNDER THE HEAD CAPITAL GAINS. IT IS ALSO SEEN THAT THE APPELLANT TRANSFERRED ALL THE SHARES IN RESPECT OF WHICH THE CAPITAL GAIN WAS ADMITTED IN THE NAME OF THE APPELLANT AS PER THE DEMAT ACCOUNT AND PAID S T T AT THE RATE APPLICABLE TO THE INVESTMENT. EVEN THOUGH THE APP ELLANT HAS ADMITTED PROFIT FROM SHARE TRADING, THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN. SHARES AND ALSO HOLD SOME SHARES AS I NVESTMENT AS HELD BY THE DECISION OF HO N 'BLE HYDERABAD TRIBUNAL IN THE CASE OF SHAH - LA INVESTMENTS AND FINANCIAL CO NSULTANTS PVT. LTD VS. DY.CIT (2 SOT 371). FURTHER THE SAME VIEW WAS TAKEN BY THE HORI'BLE MUMBAI TRIBUNAL IN THE' CASE OF J. M. SHARE & STOCK BROKERS LIMITED VS. JCIT (FEB 2008) ITA NO. 2801/MUM/2000 DATED 30.11.2007. AS CONTENDED BY THE REPRESENTATIVE, E VEN SHARES PURCHASED AS INVESTMENT HAD TO BE SOLD WITHIN A SHORT TIME OF ITS PURCHASE ON ACCOUNT OF VARIOUS FACTORS LIKE CHANGE IN GOVERNMENT POLICY, CHA NGE IN MANAGEMENT, CHANGE IN GLOBAL TREND AND T AKE OVER OR MERGER/AMALGAMATION NOT GOING THROUGH ETC. T HUS, THE SALE OF SHARES WAS ONLY WITH A VIEW TO PROTECT THE AMOUNT INVESTED BY THE APPELLANT WHICH WOULD NOT CONVERT THE INVESTMENT INTO STOCK - IN - TRADE. FURTHER IT IS SEEN THAT FOR A.Y. 2006 - 07, THE A P PELLA N T HAS ADMITTED SHORT TERM CAPITAL GAIN WHICH WAS NOT DISTURBED BY THE A.O. FURTHER THERE IS NO DISPUTE THAT THE SHARES WERE SHOWN AS INVESTMENT IN BALANCE SHEET WHICH INDICATED THE INTEN T ION OF THE APPELLANT TO HOLD THEM AS INVESTMENT. FURTHER THE APPELLANT PAID STT AT THE RATE APPLICABLE TO THE INVESTOR WHICH IS AT DISPUTED BY THE A.O. AS CONTENDED BY THE REPRESENTATIVE, THE ITA NO. 2004 /20 1 1 3 ENTRIES IN THE BOOKS OF ACCOUNTS AS INVESTMENT IN DICATES THE INTE NTION OF THE APPE LLANT TO HOLD THEM AS INVESTMENT. IT IS FURTHER SEEN THAT THE APPELLANT DID NOR SELL MOST OF THE SH ARES WITHIN VERY FEW DAYS AND MANY SHARES WERE HELD BY THE APPELLANT FOR MORE THAN 60 DAYS EVEN THOUGH MORE THAN 50% OF THE SHORT TERM CAPITAL GAIN WAS EARNED BY HOLDING SHARES FOR LESS THAN 60 DAYS. THE A O . HIMSELF ACCEPTED THAT THE APPELLANT HELD SHARES IN FEW CASES FOR 6 - 9 MONTHS. AS HELD BY THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUR OHIT VS. JCIT (29 SOT 117) THE PRINCIPLE OF CONSISTENCY SHOULD BE FOLL OWED AND THE VERY FACT THAT THE APPELLANT ADMITTED PROFIT ON SALE SHARES UNDER THE HEAD CAPI TAL GAINS IN THE EARLIER YEAR SHOWS THAT THE SAME CANNOT BE CHANGED IN THE SUBSEQUENT YEARS. FURTHER THE APPELLANT HELD THE SHARES FOR MORE THAN ONE YEAR AND EARNED LONG TERM CAPITAL GAIN WHICH CANNOT BE TREATED AS BUSINESS INCOME OF THE APPELLANT. 5.2 F URTHER, THE HON 'BLE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. ,J CIT (29 SOT 117) HELD AS UNDER: 'IN OUR VIEW, THE LEG ISLATI VE CHANG E OF THIS NATURE, WHEREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTIONS, RESULT ING INTO ANY ADVANTAGE CANNOT BE TAKEN. AWAY BY THE REVENUE AUTH ORITIES IN THIS MANNER AND I N THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT. PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHE R' SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO INDIVIDUALS(S) ENTERING INTO THESE TRANSACTI ONS. THUS, IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED. 5.3 FURTHER, THE HORIBLE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA VS. ACIT (11 SOT 627) HEL D THAT THE FREQUENCY AND RNAGNITUDE OF TRANSACTION CAN NOT BE THE CRITERIA FOR DETERMINING THE HEAD OF INCOME. IT WAS HELD AS UNDER : - THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NO T ALTER THE NATURE OF TRANSACTION. !T IS AN ESTABLISHED P RINCIPLE THAT INCOME IS BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANS ACTI ON IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF RES JU DICATA DOES NOT APPLY TO THE INCOME - TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEA R OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALL Y ACCEPTED PRINCIPLE THAT S A ME VIEW SHOULD BE ADOPTED FOR THE SU BSE QUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. THEIR LORDSHIPS OF HON'BLE SUPREME COURT IN THE ITA NO. 2004 /20 1 1 4 RADHASOAMI SATSANG V CIT( 1992] 193 ITR 321 HAVE CATEGORICALLY HELD AS UNDER: ' .... STRICT LY SPEAKING, RESJUDICAIA DOES NO T APPLY TO INCOME- TAX PROCEEDINGS. THOUGH, EACH AS SESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR, WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOND AS A FACT ONE - WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NO T CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' THE SAME VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI COURT IN CIT V . NEO POLY PACK (P) L T D (2000 ) 245 ITR 492. 5.4 RECENT LY THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. SMK SHARES AND STOCK BROKING PVT. LTD. IN ITA NO.799/MUM/09 DT.24.11.2010 FOR A.Y.2005 - 06 HELD AS UNDER IN PARA 13. 13. CBDT, VIDE CIRCULAR NO.4/2007 DATED 15 TH JUNE 2007) HAS OBSERVED THAT W HETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORM PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WH O HOLDS HIS SHARES AND HE SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS R ECORDS AS TO WHETHER HE IS MAINTAINING ANY STOCK - IN - TRADE OR HOLDING THE SHARES BY WAY OF INVESTMENT. IN THE PRESENT CASE, IT IS NOT DISPUTED TH AT THE ASSESSEE HAD MAINTAINED THIS DISTINCTION IN ITS RECORDS. IT IS TRUE THAT VOLUME OF TRANSACTION. IS AN IMP ORTANT INDICATOR OF THE INTENTION OF THE ASSESSEE WHETHER TO DEAL IN SHARES AS TRADING ASSET OR TO HOLD THE SHARES AS INVESTOR BUT CERTAINLY NOT THE SALE CRITERION. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER'S CONCLUSION THAT SINCE SALE AND PURCHASE HAD BEEN DETERMINED BY THE VOLATILITY IN THE MARKET THE SAME IS AGAINST THE BASIC FEATURE OF INVESTOR IS NOT BASED ON THE SOUND RATIONAL REA SONIN G . A PRUDENT INVESTOR ALWAYS KEEPS A WATCH ON THE MARKET. TRENDS AND, THEREFORE) IS NOT BARRED UNDER LAW FROM L IQ UIDATI NG HIS INVESTMENTS IN SHARES ALWAYS A VEXED QUESTION TO FIND OUT AS TO WHETHER THE ASSESSEE WAS HOLDING THE SHARES AS STOCK IN TRADE OR UNDER AN INVESTMENT PORTFOLIO PARTICULARLY BECAUSE ONE HAS TO INFER THE INTENTION OF THE ASSESSEE WHICH IS PRIMA RILY WITHIN HIS OWN KNOWLEDGE. THE CONDUCT OF THE ASSESSEE ASSUMES SIGNIFICANCE IN THIS REGARD. IT HAS BEEN LAID DOWN IN VARIOUS JUDICIAL PRONOUNCEMENTS THAT THERE IS NO ACID TEST TO DECIDE THIS ISSUE. IN THE PRESENT CASE WE FIND THAT THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER UNDER SECTION 143(3) FOR ASSESSMENT YEARS 2001 - 02 AND 2004 - 05, DID NOT DISPUTE ASSESSEES CLAIM REGARDING PROFIT ON SALE OF INVESTMENT. O NE MORE IMPORTANT ASPECT IS THAT THE ASSESSEE HAD NO T BORROWED ANY FUND FOR INVESTMENT IN SHARES AND THIS FACT CANNOT BE LOST SIGHT OFF WHILE DECIDING THE TRUE INTENTION OF THE ASSESSEE. ITA NO. 2004 /20 1 1 5 THE ABOVE DECISION OF THE HON'BLE MUMBAI TRIBUNAL SUPPORTS THE CASE OF THE APPELLANT ESPECIALLY WHEN THERE ARE NO COMMERCIAL BORROWINGS UTILIZED FOR INVES TMENT IN SHARES. IT IS TRUE THAT THE ASSESSEE HAD AVAILED LOANS BUT THE SAME WERE FROM FAMILY MEM B ERS AND CONSEQUENTLY IT CANNOT BE SAID THAT THE APPELLAN T BORROWED FROM PERSONS OTHER THAN FAMILY MEMBERS FOR THE PURPOSE OF PURCHASE OF SHARES. 5.5 IN THE LIGHT OF THE ABOVE JURISDICTIONAL DECISI.ONS AND FOR THE OTHER FACTUAL FINDINGS GIVEN ABOVE, I DIRECT THE A.O. TO ACCEPT THE CLAIM OF THE APPELLANT BY ACCEPTING THE LONG TERM AND SHORT TERM CAPITAL GAIN ADMITTED BY THE APPELLANT. 6. IN T HE RESULT , THE A PPEAL IS ALLOWED. 5 . AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 6 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO PERUSED THE SHARES HELD AS INVESTM ENT IN HER BOOKS OF ACCOUNTS WHICH WERE PURCHASED WITH THE INTENTION OF INVESTMENT. 7 . THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. [1971] 82 ITR 586 (SC) HAS OBSERVED AS UNDER: WHETHER A PARTICULAR H OLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 8 . WE HAVE DELIBERATED UPON VARIOUS CASE LAWS CITED BY THE LD. AUTHORIZED REPRESENTATIVE AND LD. CIT DR IN THE CON TEXT OF FACTUAL MATRIX OF THE CASE. WE HAD ALSO DELIBERATED ON THE CASE LAWS REFERRED TO BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. THE QUESTION AS TO WHETHER THE ASSESSEE HAS EARNED CAPITAL GAIN OR BUSINESS PROFITS ON THE SHARES ITA NO. 2004 /20 1 1 6 SOLD BY HIM DEP END ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. SUCH DECISION IS TO BE ARRIVED AT BY TAKING INTO ACCOUNT THE INTENTION OF THE ASSESSEE WHILE PURCHASING THE SHARES, AS TO WHETHER THE SAME WAS ACQUIRED FOR HOLDING AS INVESTMENT OR FOR DOING BUSINESS THEREIN . THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS ALSO ONE OF THE DECISIVE FACTORS TO FIND OUT WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRADE. IF THE SHARES ARE BOUGHT WITH THE INTENTION OF EARNING CAPITAL GAINS THEREON AND ALS O DIVIDEND INCOME BY KEEPING THE SAME AS INVESTMENT, THE GAIN ARISING THERE FROM IS REQUIRED TO BE TREATED AS CAPITAL GAINS. ON THE OTHER HAND, IF THE SHARES ARE PURCHASED WITH THE INTENTION TO EARN PROFIT THEREON AND THE SAME IS TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT, THE PROFIT ARISING OUT OF SALE OF SUCH SHARES ARE LIABLE TO BE TREATED AS BUSINESS INCOME. VOLUME AND FREQUENCY OF TRANSACTION IS ALSO ONE OF THE GUIDING FACTORS TO FIND OUT WHETHER THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHA SE AND SALE OF SHARES OR MAKING INVESTMENT TO HAVE CAPITAL GAINS THEREON. IN THE INSTANT CASES BEFORE US, THE ASSESSEE W AS INVEST ING IN SHARES OF INDIAN COMPANIES , WHICH IS CLEAR FROM THE STATEMENT OF SHAREHOLDING OF THE ASSESSEE. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS TREATED THE EQUITY SHARES OF INDIAN COMPANIES AS INVESTMENT I.E. CAPITAL ASSET ALL ALONG. THE ASSESSEE HAS ALSO VALUED THE SHARES AT COST THUS GIVEN A PARTICULAR TREATMENT TO THE SHARES HELD AS INVESTMENT, THEREFORE, WIT HOUT BRINING ON RECORD CONTRARY MATERIAL, THE AO CANNOT CHANGE THE INTENTION AND MANNER OF INVESTMENT BEING MADE BY THE ASSESSEE. HAD THE ASSESSEE VALUED SUCH SHARES AT COST OR MARKET PRICE WHICHEVER IS LOWER, THE GAIN ARISING OUT OF SALE OF SHARES COULD E ASILY BE ITA NO. 2004 /20 1 1 7 TREATED AS BUSINESS INCOME. ASSESSEE HAD NOT VALUED THE SHARES AS STOCK BUT VALUED THE SAME AS INVESTMENT. THUS, WHAT WAS A CAPITAL ASSET WILL REMAIN A CAPITAL ASSET UNLESS A PERSON HOLDING THE ASSET HIMSELF CHANGES THE NATURE BY A SPECIFIC ACTION LIKE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. IN THE INSTANT CASES BEFORE US, THE ASSESSEE HAS NOT TREATED THE INVESTMENT IN EQUITY SHARES OF INDIAN COMPANIES AS STOCK IN TRADE. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAM K UMAR AGARWAL & BROTHERS, 205 ITR 251, THE AO WAS NOT JUSTIFIED IN TREATING THE CAPITAL GAIN EARNED FROM SALE OF THESE SHARES, AS BUSINESS PROFITS, WHICH WERE ENTERED BY THE ASSESSEE AS INVESTMENT IN BOOKS OF ACCOUNT. THERE IS ALSO NO DISPUTE TO THE WELL SE TTLED LEGAL PROPOSITION THAT THOUGH THE PRINCIPLE OF RES JUDICATA DO NOT STRICTLY APPLY TO THE INCOME TAX PROCEEDINGS, BUT AT THE VERY SAME TIME, IT IS WELL SETTLED THAT PRINCIPLE OF CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES IS THE FUNDAMENTAL OF JUDICIAL PRINCIPLE, WHICH CANNOT BE BRUSHED ASIDE WITHOUT PROPER REASONING. IN THIS REGARD, RELIANCE CAN BE PLACED ON THE DECISION IN CASE OF S.M.K. SHARES AND STOCK BROKING PRIVATE LIMITED, I.T.A. NO. 799/MUM/09 ORDER DATED 24.11.2010. IN THIS PROPOSITION , THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GOPAL PUROHIT, 228 CTR 582, IS VERY MUCH RELEVANT AND IMPORTANT. 9 . MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVESTMENT WITHIN A SHORT SPAN OF TIME, WHICH HAD GIVEN BETTER OVERALL EARNING TO THE AS SESSEE, WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD NO INTENTION TO KEEP ON THE FUNDS AS INVESTOR IN EQUITY SHARES, BUT WAS ACTUALLY INTENDED TO TRADE IN SHARES. ITA NO. 2004 /20 1 1 8 10 . HERE, IT IS PERTINENT TO MENTION THE INTENTION OF GOVERNMENT FOR INTRODUCING T HE SECURITY TRANSACTION TAX AND EXEMPT THE LONG TERM CAPITAL GAIN EARNED FROM SALE OF SHARES AND LEVYING 10 % TAX ON SHORT TERM CAPITAL GAIN AND EARNED ON SALE OF SHARES. IT IS NOTED THAT UNDER THE OLD PROVISIONS OF THE INCOME - TAX ACT, PROFITS OR GAINS ARI SING 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 WE RE TAXED AT THE APPLICABLE RATES (NORMAL 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% BU T WITHOUT INDEXATION. FOR FOREIGN INSTITUTIONAL 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 T AXED AS ANY OTHER NORMAL BUSINESS INCOME. 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 INCO ME HAS IN - FACT ARISEN AFTER THE AMENDMENT 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 SIMPLIFY THE TAX REGIME ON SECURITIES TRANSACTIONS, A TAX AT THE RATE OF 0.015 PER CENT. (SEE: CHANGE IN RATES ON SECURITIES TRANSACTIONS, BY ITA NO. 2004 /20 1 1 9 FINANCE ACTS, AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE PLACE 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 C ONTAINED IN CHAPTER VII OF THE FINANCE (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 SO LD ON THE STOCK EXCHANGE. A NEW SECTION 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 ASSESSMENT 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 TRANSACTIONS 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 W HICH ARE TO BE TREATED AS TRADING ASSETS. IN VIEW OF THESE FACTS, PROFIT AROSE ON SHARES IN ITA NO. 2004 /20 1 1 10 RESPECT OF DELIVERY BASED TRANSACTION ARE LIABLE TO BE TAXED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 11 . 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 EXPRESSION OF HUMAN THOUGHT AND, AS POINTED OUT BY LORD DENNING, IT WOULD BE I DLE TO EXPECT EVERY STATUTORY PROVISIONS TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. WE CAN DO BETTER THAN REPEAT THE FAMOUS WORDS OF JUDGE LEARNED HAND WHEN HE SAID. THE ABOVE OBSERVATIONS OF HON'BLE JUDGES OF THE APEX COURT WAS REITERA TED BY 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 T HE FINANCE 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 SITUATION 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. 12. THE HON'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 JUDI CATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, WHERE A ISSUE HAS BEEN DECIDED CONSISTENTLY IN EARLIER ASSESSMENT YEARS IN PARTICULAR MANNER, THE SAME VIEW SHOULD PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN FACTS, MEANING THEREBY, THER E MUST BE MATERIAL CHANGE IN THE FACTS. ITA NO. 2004 /20 1 1 11 1 3 . FROM THE RECORD, WE FOUND THAT ASSESSEE WAS CONSISTENTLY INVESTING IN SHARES. SHE HAS NEITHER TRADED IN THE INVESTMENT SECURITIES NOR SHE HAD ANY INTENTION TO CONVERT HER INVESTMENT INTO STOCK - IN - TRADE. ONLY THE INTENTION OF THE ASSESSEE WAS TO EARN CAPITAL GAIN ON APPRECIATION OF VALUE OF SHARES AND DIVIDEND INCOME. IN THE ASSESSEES OWN CASE FOR THE A.Y.2006 - 07, THE DEPARTMENT HAS ACCEPTED ASSESSEES CLAIM OF CAPITAL GAIN AMOUNTING TO RS. 24,79,925/ - FOR THE A.Y.2006 - 07. THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING SHARES AS INVESTMENT. THE ASSESSEE WAS HAVING SHARES OF 10 COMPANIES ONLY AS ON 31 - 3 - 2007, HAVING A MARKET VALUE OF RS. 71,47,342/ - AS AGAINST THE COST PRICE OF RS. 64,69,972/ - . IT IS ALSO NOT IN DISPUTE THAT THE SHARES IN RESPECT OF WHICH ASSESSEE HAS CLAIMED CAPITAL GAIN WAS HELD AS INVESTMENT IN THE BALANCE SHEET WHICH INDICATED THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASES. IT IS ALSO NOT IN DISPUTE THAT THE INVESTMENT IN SHARES WERE MADE FOR EARNING DIVIDEND INCOME AND MERELY BECAUSE THE ASSESSEE SOLD SOME OF THE SHARES DURING THE YEAR CONSIDERING THE MARKET POSITION, THE SAME WOULD NOT BECOME STOCK - IN - TRADE. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE HAS NOT CLAIMED SECUR ITY TRANSACTION TAX (STT) SINCE HE IS AN INVESTOR IN SHARE, WHILE COMPUTING CAPITAL GAINS. THERE IS NO BAR ON THE ASSESSEE TO DO BUSINESS IN SHARES AND ALSO HOLD SOME OF THE SHARES AS INVESTMENT AS HELD BY THE COORDINATE BENCH IN THE CASE OF GOPAL PUROHIT, 122 TTJ 87 , WHICH WAS CONFIRMED BY THE HONBLE HIGH COURT REPORTED IN 258 CTR 582 AND THE SLP AGAINST WHICH HAS BEEN DISMISSED BY THE HON BLE SUPREME COURT, VIDE ORDER DATED 15 - 12 - 2010. ITA NO. 2004 /20 1 1 12 1 4 . IT IS ALSO NOT IN DISPUTE THAT ASSESSEE HAS NOT BORROWED ANY FUN D FOR INVESTING IN SHARES FROM THE OUTSIDE PARTIES, AND THE SUM WAS TAKEN FROM THE FAMILY MEMBERS AND INTEREST ON WHICH WAS ALSO DEBITED INTO THE CAPITAL ACCOUNT. A CATEGORICAL FINDING WAS ALSO RECORDED BY THE CIT(A) TO THE EFFECT THAT ALL THE SHARES SO PU RCHASED ON WHICH CAPITAL GAINS AROSE WAS TRANSFERRED BY THE ASSESSEE IN THE DEMAT ACCOUNT AND ALSO PAID STT THEREON. IT WAS ALSO OBSERVED BY THE CIT(A) THAT TO PROTECT THE AMOUNT INVESTED, THE ASSESSEE HAD SOLD THE SHARES. A CATEGORICAL FINDING HAS ALSO BE EN RECORDED BY THE CIT(A) TO THE EFFECT THAT SHARES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET WHICH INDICATED THE INTENTION OF THE ASSESSEE TO HOLD THE SAME AS INVESTMENT. IT IS ALSO NOT THE CASE OF THE AO THAT ASSESSEE HAS VALUED THE SHARES AT THE COS T OF MARKET PRICE AT THE END OF THE YEAR. ON THE CONTRARY, THE SHARES WERE RECORDED IN THE BALANCE SHEET ON THE COST OF ACQUISITION ONLY. THE INTENTION OF ASSESSEE, PERIOD OF HOLDING, FREQUENCY OF TRANSACTIONS ARE TO BE CONSIDERED IN TOTALITY WHILE HOLDING THAT PROFIT AROSE ON SALE OF SHARES IS CAPITAL GAIN ON BUSINESS INCOME. AFTER APPLYING VARIOUS JUDICIAL PRONOUNCEMENTS AS WELL AS CBDT CIRCULAR NO. 4/2007, DATED 15 TH JUNE, 2007, THE CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT PROFIT AROSE ON SALE OF SH ARES ARE LIABLE TO BE TAXED AS SHORT TERM AND LONG TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDINGS. IF THE CONCLUSION DRAWN IN THE IMPUGNED ORDER, OBSERVATIONS MADE FROM THE ASSESSMENT ORDER, ASSERTIONS MADE BY RESPECTIVE COUNSEL AND THE MATERIAL AV AILABLE ON RECORD ARE KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE ASSESSEE HAD BEEN CONSISTENTLY INVESTING IN SHARES AND INCOME ARISING FROM DELIVERY BASED TRANSACTION OF SALE AND ITA NO. 2004 /20 1 1 13 PURCHASE OF SHARES HAD BEEN SHOWN AS CAPITAL GAINS I.E. LTCG AND ST CG DEPENDING UPON PERIOD OF HOLDING. THE FINDINGS RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD AND NOTHING WAS BROUGHT ON RECORD BY LD. DR TO PERSUADE US TO DEVIATE FROM THE FINDING RECORDED BY THE CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE FINDINGS RECORDED BY THE CIT(A), WHICH RESULTED INTO TREATMENT OF PROFIT ON SALE OF SHARES AS CAPITAL GAINS IN PLACE OF AOS TREATMENT OF BUSINESS INCOME. 1 5 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN CO URT ON THIS 20 TH FEB . 201 5 . SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 20 / 0 2 /201 5 /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//