Shri Mulshankar Saburbhai Panchal, Vadodara V. The Dy.CIT, Intl. Taxn., Baroda

ITA 21/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8100 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: CHETAN VADGAMA
• Keywords: Capital asset; Business income; Business expenditure
• Section: 143(3)

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 21/AHD/2016, 2335/AHD/2017 & 1129/AHD/2 018 ( ASSESSMENT YEARS : 2011-12, 2013-14 & 2014-15) MULSHANKAR SABURBHAI PANCHAL 8, NAVDURGA SOCIETY, NIZAMPURA, VADODARA- 390002 & MULSHANKAR SABURBHAI PANCHAL C/O CHETAN VADGAMA, E-16, VALMIKI NAGAR, NEW SAMA ROAD, VADODARA- 390024 / VS. DCIT , INTERNATIONAL TAXATION, BARODA ./ ./ PAN/GIR NO. : AULPP7991A ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI CHETAN VADGAMA, A.R. / RESPONDENT BY : SHRI SAURABH SINGH, SR.D.R. DATE OF HEARING 12/06/2018 !'# / DATE OF PRONOUNCEMENT 20/06/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED BY THE ASSESS EE CONCERNING ASSESSMENT YEARS 2011-12, 2013-14 AND 20 14-15 AGAINST THE RESPECTIVE ORDERS OF CIT(A)-13, AHMEDABAD (CIT (A) IN SHORT), ARISING IN THE RESPECTIVE ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ITA NO. 21/AHD/16, 2335/AHD/17 & 1129/AHD/18 [MULSHANKAR S. PANCHAL] A.YS. 2011-12, 13-14 & 14-1 5 - 2 - 2. THE ISSUE INVOLVED IN ALL THE THREE APPEALS IS S TATED TO BE COMMON ON SIMILAR FACTS. ACCORDINGLY ALL THE MATTE RS WERE HEARD TOGETHER AND BEING ADJUDICATED BY THIS COMMON ORDER . 3. THE SOLITARY DISPUTE IN ALL THE THREE APPEALS CO NCERNS TAXABILITY OF GAINS/LOSS ARISING ON SALE OF SHARES UNDER THE A PPROPRIATE HEAD OF INCOME. WHILE ASSESSEE HAS OFFERED THE GAINS/LOSS ARISING ON SALE OF SHARES TO BE CHARGEABLE UNDER THE HEAD CAPITAL GAI NS, THE REVENUE HAS SOUGHT TO TREAT THE GAINS/LOSS ARISING ON SALE OF SHARES UNDER THE HEAD BUSINESS INCOME. 4. THE ASSESSEE IS A NON-RESIDENT INDIAN FOR THE PU RPOSES OF INCOME TAX ACT, 1961 FOR ALL THE ASSESSMENT YEARS UNDER CO NSIDERATION. THE ASSESSEE WHILE FILING THE RETURN OF INCOME INTER ALIA DECLARED PROFITS/LOSS ARISING ON SALE OF SHARES UNDER THE HE AD CAPITAL GAINS. CONSEQUENTLY, THE ASSESSEE REPORTED SHORT TERM CAPI TAL LOSS OF RS.66,87,109/- FOR THE ASSESSMENT YEAR 2011-12 AND SIMILARLY, REPORTED SHORT TERM CAPITAL GAINS OF RS.26,00,610/- & RS.39, 06,958/- FOR ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY. T HE ASSESSMENT FOR ASSESSMENT YEAR 2014-15 WAS SUBJECTED TO SCRUTINY A SSESSMENT LIKEWISE THE RETURN FOR ASSESSMENT YEARS 2011-12 & 2013-14 WAS REOPENED UNDER S.147 OF THE ACT. IN THE COURSE OF SCRUTINY ASSESSMENTS, THE AO IN ALL THE THREE ASSESSMENT YEA RS OBSERVED THAT THE ASSESSEE HAS INDULGED IN PURCHASE AND SALE OF S HARES IN THE REGULAR COURSE. HAVING REGARD TO THE FREQUENT BUYING AND SE LLING OF STOCKS IN REGULARITY AND HAVING REGARD TO THE VOLUME OF TRANS ACTIONS, THE AO OPINED THAT THE GAINS/LOSS ARISING ON SALE OF SHARE S ARE AKIN TO BUSINESS ACTIVITY AND REQUIRES TO BE TAXED UNDER THE HEAD B USINESS INCOME INSTEAD OF UNDER THE HEAD CAPITAL GAINS OFFERED B Y THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). ITA NO. 21/AHD/16, 2335/AHD/17 & 1129/AHD/18 [MULSHANKAR S. PANCHAL] A.YS. 2011-12, 13-14 & 14-1 5 - 3 - 5.1 IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE ASS ESSEE IS A NON- RESIDENT INDIAN AND IS GOVERNED BY THE FOREIGN EXCH ANGE MANAGEMENT REGULATIONS, 2000. FOR THE PURPOSES OF PURCHASE OF EQUITY SHARES ETC., THE BANK, NAMELY, AXIS BANK HAS APPLIED TO THE COMP ETENT AUTHORITY I.E. RESERVE BANK OF INDIA AS PER FEMA REGULATIONS SEEKING PERMISSION FOR PURCHASE OF EQUITY SHARES THROUGH NR EPIS SBI ACCOUNT OF THE ASSESSEE. SECONDLY, THE ASSESSEE HAS ALWAYS ENTERED INTO DELIVERY BASED TRANSACTIONS AS PER THE PERMISSION O BTAINED FROM THE RESERVE BANK OF INDIA. IT WAS FURTHER SUBMITTED BE FORE THE CIT(A) THAT THE ASSESSEE HAS MAINTAINED THE SEPARATE ACCOU NTS AND SHOWN PURCHASE OF SHARES AS INVESTMENTS IN HIS BOOKS OF A CCOUNTS AND RETURN OF INCOME. IT WAS FURTHER POINTED OUT THAT NO BUSIN ESS EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE UNDER S.28 TO 44C OF T HE INCOME TAX ACT. THE ASSESSEE FURTHER SUBMITTED BEFORE THE CIT (A) THAT IT HAS USED OWN FUNDS IN NRE ACCOUNT FOR PURCHASE OF SHARES WHI CH ALSO AMPLIFIES ITS INTENTION TO HOLD THE SHARES AS INVESTOR. THE CIT(A) HOWEVER WAS NOT IMPRESSED. THE CIT(A) NOTED THAT THE ASSESSEE HAD ENTERED INTO TRANSACTIONS IN MORE THAN 230 DIFFERENT SHARES DURI NG THE FINANCIAL YEAR. HAVING REGARD TO THE CONTINUOUS NATURE OF TH E ACTIVITY, QUANTUM, THE FREQUENCY AND THE VOLUME OF SALE PURCH ASE TRANSACTIONS, THE CIT(A) IMPUTED PROFIT MOTIVES IN SUCH TRANSACTI ONS AND THEREFORE ENDORSED THE ACTION OF THE AO THAT THE TRANSACTIONS GIVE RISE TO INCOME CHARGEABLE UNDER THE HEAD BUSINESS INCOME. THE C IT(A) ACCORDINGLY DENIED ANY RELIEF TO THE ASSESSEE. 6. FURTHER AGGRIEVED, THE ASSESSEE KNOCKED THE DOOR OF THE TRIBUNAL. 6.1 THE LEARNED AR FOR THE ASSESSEE REITERATED VARI OUS CONTENTIONS MADE BEFORE THE LOWER AUTHORITIES. IT WAS SUBMITTED WITH VEHEMENCE THAT THE ASSESSEE IS A NON-RESIDENT INDIAN AND THER EFORE, IS DICTATED BY SEPARATE GUIDELINES FOR INVESTMENTS IN SECURITY MAR KET. THE ASSESSEE ITA NO. 21/AHD/16, 2335/AHD/17 & 1129/AHD/18 [MULSHANKAR S. PANCHAL] A.YS. 2011-12, 13-14 & 14-1 5 - 4 - BEING AN NRI IS ENTITLED TO DO DELIVERY BASED TRANS ACTIONS ONLY. AN NRI CANNOT DO TRADING AND THE TRANSACTIONS ARE MONI TORED BY THE BANKERS AND R.B.I. THE LEARNED AR EMPHASIZED THAT THE ASSESSEE HAS USED HIS OWN FUNDS ALONE OUT OF NRE ACCOUNT FOR INV ESTMENT PURPOSES AND NO BORROWED FUNDS IS INVOLVED. THIS VINDICATES HIS INTENTION TO PURCHASE SHARES AS A CAPITAL ASSET. THE BOOKS OF A CCOUNTS MAINTAINED BY THE ASSESSEE ALSO REFLECT HIS INTENTION TO HOLD SHARES AS CAPITAL ASSET. IT WAS ALSO SUBMITTED THAT ASSESSEE IS PRES ENTLY RESIDING IN EGYPT AND IS OUT OF INDIA FOR MORE THAN 30 YEARS. IT WAS CLAIMED THAT IN ORDER TO TAX THE INCOME AS BUSINESS, NRI MUST HA VE BUSINESS CONNECTION AS PER SECTION 9(1)(I) OF THE ACT. IT W AS HEAVILY EXHORTED THAT NO BUSINESS EXPENDITURE HAS BEEN CLAIMED AS TH ERE IS NO SYSTEMATIC AND ORGANIZED ACTIVITY. THE LEARNED AR NEXT SUBMITTED THAT THE VOLUME AND FREQUENCY DEPENDS, AT TIMES, UPON TH E SIZE OF FUNDS AVAILABLE AND DOES NOT NECESSARILY GIVE RISE TO INF ERENCE OF TRADING ACTIVITY. IT WAS SUBMITTED THAT THE JUDICIAL PRECE DENTS HAVE ECHOED THAT NO SINGLE TEST OR FORMULA CAN BE APPLIED FOR D ETERMINING WHETHER THE TRANSACTION IS IN THE NATURE OF ADVENTURE OR EN TERED INTO FOR CAPITAL PURPOSES. THE LEARNED AR THEREAFTER RELIED UPON CB DT CIRCULAR NO. 4/2007 DATED 15.06.2007 TO BUTTRESS ITS POINT THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE P RINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, T HE SHARES HELD BY THE ASSESSEE IS TO BE TREATED AS CAPITAL ASSET OR A S TRADING ASSET. THE LEARNED AR SUBMITTED THAT HAVING REGARD TO THE DELI VERY BASED TRANSACTIONS MAKING FULL PAYMENT IN COMPLIANCE WITH NRI-PIS SCHEME AND HAVING REGARD TO ABSENCE OF ANY BUSINESS EXPENS E, THERE WAS NO WARRANT FOR THE REVENUE TO INFER BUSINESS INTENT IN THE CASE OF THE NON- RESIDENT ASSESSEE. THE LEARNED AR ACCORDINGLY PLEA DED THAT THE GAINS/LOSS ARISING ON SALE OF SHARES SHOULD BE ADMI TTED UNDER THE HEAD CAPITAL GAINS FOR THE PURPOSES OF TAXATION AS CLA IMED BY THE ASSESSEE. ITA NO. 21/AHD/16, 2335/AHD/17 & 1129/AHD/18 [MULSHANKAR S. PANCHAL] A.YS. 2011-12, 13-14 & 14-1 5 - 5 - 6.2 THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF AO AND CIT(A) AND SUBMITTED THAT HE DOES NOT INTEND TO EXPAND FURTHER. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND MATERIAL RE FERRED TO AND RELIED UPON IN THIS REGARD. THE SUBSTANTIVE ISSUE IN THE PRESENT APPEAL IS WHETHER GAINS ARISING ON SALE OF SHARES BY THE ASSE SSEE IN THE RELEVANT ASSESSMENT YEARS IS REQUIRED TO BE TAXED UNDER THE HEAD CAPITAL GAINS AS OFFERED BY THE ASSESSEE OR IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE QUESTION IS ESSENTIALLY FACTUAL IN NATURE AND DEPENDS ON THE FACTS PREVALENT IN A GIVEN CASE. IT IS THE CASE OF THE ASSESSEE THAT THE SHARES WERE ACQUIRED/PURCHASED OUT OF SPEC IFICALLY DESIGNATED BANK ACCOUNT OPENED IN COMPLIANCE WITH NRI-PIS SCHE ME IN TERMS OF PERMISSION OBTAINED UNDER FEMA REGULATIONS. IT IS FURTHER CASE OF THE ASSESSEE THAT THE SHARES WERE HELD AS CAPITAL A SSET IN THE NATURE OF INVESTMENT IN ITS BOOKS OF ACCOUNTS. SIGNIFICANTLY , THE ASSESSEE IS AN NRI AND THE REGULAR SOURCE OF INCOME IN THE FORM OF SALARY ARISES IN THE COUNTRY OF RESIDENT, NAMELY, EGYPT. WE ALSO NO TE THE SIGNIFICANT PLEA OF THE ASSESSEE THAT SOURCE OF INVESTMENT IS M ET OUT OF OWN FUNDS. THE ASSESSEE BEING A RESIDENT ABROAD AT PRESENT, IT CANNOT BE INFERRED THAT IT HAS DEVOTED SIGNIFICANT TIME FOR THE INVEST MENT TRANSACTIONS CARRIED OUT IN INDIA. NOTABLY, THE YIELD IN THE FO RM OF DIVIDEND INCOME HAS ALSO BEEN RECEIVED REGULARLY. WE ALSO N OTE THE ABSENCE OF BUSINESS INGREDIENTS OF ANY KIND PRESENT IN THE CAS E OWING TO ABSENCE OF ANY INVOLVEMENT OF MANPOWER OR ANY MACHINERY OF ANY KIND TO GENERATE THE SO CALLED BUSINESS INCOME. THE ASSESS EE HAS NOT CLAIMED ANY KIND OF BUSINESS EXPENDITURE FOR EARNING THE GA INS. THE ASSESSEE ALSO HAS DENIED ANY BUSINESS CONNECTION IN TERMS OF SECTION 9(1)(I) OF THE ACT FOR ITS TAXABILITY AS BUSINESS INCOME. WE PAUSE TO NOTE THAT THE ACTION OF THE REVENUE IS PRE-DOMINANTLY GUIDED BY THE CONSIDERATIONS OF REVENUE ALONE TO COLLECT RELATIVE LY MORE TAXES WITHOUT REBUTTING PECULIAR FACTORS EXISTING IN THE CASE. THE REVENUE ITA NO. 21/AHD/16, 2335/AHD/17 & 1129/AHD/18 [MULSHANKAR S. PANCHAL] A.YS. 2011-12, 13-14 & 14-1 5 - 6 - HAS SOUGHT TO CHANGE THE CHARACTER OF THE INCOME ME RELY ALLEGING VOLUME, FREQUENCY AND MAGNITUDE WHICH IS RELATIVE I N NATURE. AT THIS JUNCTURE, WE OBSERVE THAT THE ASSESSEE HAS BEEN GRA NTED A LATITUDE IN LAW TO HOLD CERTAIN CLASS OF ASSETS AS CAPITAL ASSE TS EVEN WHILE HE IS DEALING WITH THE ASSETS OF SIMILAR NATURE IN BUSINE SS WITH COMMERCIAL OBJECTIVES. HERE, THE SITUATION IS RATHER SIMPLE. THE ASSESSEE HAS CLAIMED TO BE INVESTOR ALONE. THUS, IN THE TOTALITY OF CIRCUMSTANCES EXISTING IN THE PRESENT CASE, WE FIND THAT PLEA OF THE ASSESSEE HAS MERITS AND DESERVES ACCEPTANCE. WE ACCORDINGLY HOLD THAT CLAIM OF THE ASSESSEE THAT HE HOLDS SHARES/SECURITIES CAPITAL AS SETS BEFORE IT SALE AND CONSEQUENTIAL GAINS ARISING ON SALE THERETO ARE CHARGEABLE UNDER THE HEAD CAPITAL GAINS IS PERMISSIBLE. ACCORDING LY, THE ACTION OF AO TREATING THE PROFITS/LOSS CLAIMED BY ASSESSEE UNDER CAPITAL GAINS AS CHARGEABLE UNDER THE HEAD BUSINESS INCOME IS REVE RSED AND CLAIM OF ASSESSEE IS RESTORED. 8. IN THE RESULT, ALL THE CAPTIONED APPEALS OF ASSE SSEE ARE ALLOWED. SD/- SD/- (MADHUMITA ROY) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 20/06/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT 20/06/2018