DCIT, New Delhi V. M/s W.G. Share Broking Pvt. Ltd., New Delhi

ITA 2553/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97016 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 22-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: G C SRIVASTAVA; DAVESH S BHARDWAJ S
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO S. 2559 & 2553 /DEL/201 1 ASSESSMENT YEAR S : 2006 - 07 & 2007 - 08 DCIT, CIRCLE - 18(1), VS. W.G. SHARE BROKING PVT. LTD., ROOM NO. 211A, C.R. BUILDING, 51, HAUZ KHAS, NEW DELHI NEW DELHI (PAN: AAACW4545K ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. G.C. SRIVASTAVA & SH. DAVESH S. BHARDWAJ, ADVOCATES DEPARTMENT BY: SH. J.P. CHANDRAKAR, SR. DR DATE OF HEARING: 22.06.2015 DATE OF PRONOUNCEMENT: 19.08.2015 ORDER PER INTURI RAMA RAO, A.M. : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST DIFFERENT ORDERS OF CIT(A) PASSED ON 21.02.2011 AND 28.02.2011 FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 RESPECTIVELY. 2. IN ITA NO. 2559/DEL/2011 FOR AY 2006 - 07, THE REV ENUE HAS RAISED THE FOLLOWING G ROUNDS OF APPEAL: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT PROFIT ON SALE OF SHARES HELD FOR LESS THAN THIRTY DAYS WOULD CONSTITUTE BUSINESS INCOME AND THE REMAINING SUCH PROFIT WOULD CONSTITUTE CAPITAL GR AINS AND THEREBY DECIDING THAT OUT OF THE PROFIT OF RS. 6,35,42,874/ - FROM SHARE TRANSACTIONS TREATED BY THE AO AS BUSINESS INCOME, LONELY RS. 2,17,10,019/ - WOULD BE BUSINESS INCOME AND THE BALANCE OF RS. 4,18,32,855/ - WOULD BE CAPITAL GAINS. 2 II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DECIDING THAT INTEREST EXPENDITURE OF RS. 82,28,065/ - IS TO BE TREATED AS INCURRED IN CONNECTION WITH INCOME FROM CAPITAL GAINS AND INTEREST EXPENDITURE OF RS. 42,70,124/ - IS TO BE TREATED A S INCURRED IN CONNECTION WITH INCOME FROM BUSINESS OF THE ASSESSEE COMPANY. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW PROPORTIONATE CLAIM OUT OF SECURITY TRANSACTION TAX PAYMENT INCURRED IN RES PECT OF BUSINESS INCOME OF RS. 2,17,10,019/ - 3. IN ITA NO. 2553/DEL/2011 FOR AY 2007 - 08, FOLLOWING GROUNDS OF APPEAL HAS BEEN RAISED: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT PROFIT ON SALE OF SHARES HEL D FOR LESS THAN THIRTY DAYS WOULD CONSTITUTE BUSINESS INCOME AND THE REMAINING SUCH PROFIT WOULD CONSTITUTE CAPITAL GAINS AND THEREBY DECIDING THAT OUT OF THE PROFIT OF RS. 1,02,92,943/ - FROM SHARE TRANSACTIONS TREATED BY THE AO AS BUSINESS INCOME, LONELY RS. 54,85,307/ - WOULD BE BUSINESS INCOME AND THE BALANCE RS. 48,07,636/ - WOULD BE CAPITAL GAINS. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DECIDING THAT INTEREST EXPENDITURE OF RS. 18,90,484/ - IS TO BE TREATED AS INCURR ED IN CONNECTION WITH INCOME FROM CAPITAL GAINS AND INTEREST EXPENDITURE OF RS. 21,56,962/ - IS TO BE TREATED AS INCURRED IN CONNECTION WITH INCOME FROM BUSINESS OF THE ASSESSEE COMPANY. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW PROPORTIONATE CLAIM OUT OF SECURITY TRANSACTION TAX PAYMENT INCURRED IN RESPECT OF BUSINESS INCOME OF RS. 54,85,307/ - OUT OF THE INCOME OF RS. 38,72,78,020/ - FROM TRANSACTIONS IN SHARES AND SECURITIES HELD BY THE AO AS B USINESS INCOME, ONLY AN AMOUNT OF RS. 19,30,207/ - WOULD COMPRISE BUSINESS INCOME AND THE REMAINING RS. 38,53,47,813/ - WOULD COMPRISE CAPITAL GAINS. IV. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF EXPLANAT ION TO SECTION 73 OF THE I.T. ACT ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE AND THE INCOME FROM TRANSACTIONS IN SHARES AND SECURITIES BY THE ASSESSEE IS NOT TO BE HELD AS INCOME FROM SPECULATIVE BUSINESS. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A PRIVATE COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT. THE APPELLANT IS ENGAGED 3 IN THE BUSINESS OF STOCK BROKER, SUB - BROKER ETC. AND ALSO DULY REGISTERED WITH SEBI. HOWEVER, BECAUSE OF ITS INABILITY TO COMPLY WITH THE STRI NGENT REQUIREMENTS OF SEBI IT WAS DECIDED TO TRADE ONLY IN COMMODITIES AND DERIVATIVES FEATURES ETC. ON NSE, BSE & NCDEX APART FROM INVESTING SURPLUS FUNDS IN THE STOCK MARKET WITH A VIEW TO ENJOYING THE APPRECIATION IN CAPITAL VALUES. FOR THE ASSESSMENT Y EAR S 2006 - 07AND 2007 - 08, THE RETURN S OF INCOME W ERE FILED ON 28 TH MARCH, 2007 AND 29 TH MARCH, 2008, DISCLOSING INCOME S OF RS. 5,30,89,757/ - AND RS. 2,20,03,920/ - RESPECTIVELY . THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND FINALLY THE ASSESSMENT S WERE COMPLETED FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 VIDE ORDER S DATED 30 TH DECEMBER, 2008 AND 29 TH DECEMBER, 2009 RESPECTIVELY PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE THE ACT ) BY ACIT, RANGE - XVII I , NEW DELHI, AT A TOTAL INCOME S OF RS. 6,46,90,877 / - AND RS. 1,25,00,003 / - . WHILE DOING SO, THE ASSESSING OFFICER TREATED THE PROFIT ARISING FROM THE SALE OF SHARES OF WIMCO LTD. OF RS. 1,77,23,023/ - AS PROFIT FROM BUSINESS AS AGAINST THE CAPITAL GAINS RETURNED BY RESPONDENT ASS ESSEE AND ALSO TREATED THE LOSS ARIS ING ON THE SALE OF SHARES OF COLOUR CEM LTD. AS A BUSINESS LOSS AND ALSO DISALLOWED THE INTEREST PAID OF RS. 1 , 24,98,189/ - . BEING AGGRIEVED BY THIS ADDITION, APPEAL S FOR AYS 2006 - 07 AND 2007 - 08 WERE FILED BEFORE THE CIT(A) - XXI, NEW DELHI, WHO PARTLY ALLOWED THE APPEAL S . IN RESPECT OF THE TREATING THE CAPITAL GAINS AS BUSINESS INCOME , THE LEARNED CIT(A) FOLLOWING THE DECISION OF ITAT, AHMEDABAD BENCH, 4 IN THE CASE OF SH. SHUGAM CHAND C. SHAH VS. ACIT, ITA NO. 3554/AHD/ 2008, DT. 29.01.2010, OBSERVED THAT THE SHARE S WHICH WERE HELD FOR LESS THAN 30 DAYS WOULD BE THE INCOME ARIS EN FROM THE SALE OF SHARES , SHALL BE TREATED AS A TRADING INCOME AND OTHERS AS INVESTMENTS I.E. CAPITAL GAINS. IN RESPECT OF THE DISALLOWANCE OF IN TEREST, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOCATE PROPORTIONATELY THE TOTAL INTEREST EXPENDITURE BETWEEN THE TRADING PORTFOLIO AND INVESTMENT PORTFOLIO AS PER PARA 6 OF HIS ORDER. HE FURTHER DIRECTED THE ASSESSING OFFICER TO ALLOW STATUTORY REB ATE UNDER SECTION 88A OF THE ACT IN RESPECT OF THE TRADING PORTFOLIO. AGGRIEVED BY THESE FINDINGS, THE REVENUE HAD COME UP WITH THE PRESENT APPEAL S . 5. THE LEARNED DR VEHEMENTLY ARGUED THAT SINCE THE RESPONDENT ASSESSEE COMPANY S MAIN BUSINESS IS TRADING IN STOCKS AND DERIVATIVES FEATURES, THE ENTIRE INCOME ARISEN FROM THESE TRANSACTIONS SHOULD BE TREATED AS A TRADING INCOME. 6. ON THE OTHER HAND, THE LEARNED COUNSEL HAD SUBMITTED THAT SIMPLY BECAUSE THE ASSESSEE S MAIN BUSINESS IS TRADIN G, THE WHOLE PR OFIT CAN NOT BE TAXED UNDER THE BUSINESS HEAD. HE FURTHER SUBMITTED THAT ANY ASSESSEE IS ENTITLED TO MAINTAIN TWO DIFFERENT PORTFOLIO S I.E. TRADING AND INVESTMENT PORTFOLIO AND THIS PRINCIPLE IS RECOGNIZED BY CBDT IN ITS CIRCULAR NO. 4 OF 2007, DATED 15 TH J UNE, 2007. HE ALSO RELIED ON THE CASE OF PVS RAJU VS. ACIT, HYDERABAD, [2012] 18 TAXMANN.COM 9 (AP). 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE RESPONDENT ASSESSEE COMPANY IS ENGAGED IN TRAD ING OF STOCKS, DERIVATIVES AND FEATURES , IT DOES NOT MEAN THAT THE ASSESSEE COMPANY IS PRECLUDED FROM MAINTAINING INVESTMENT PORTFOLIO. THIS PRINCIPLE IS VERY WELL RECOGNIZED BY THE CBDT CIRCULAR NO. 4 OF 2007 ISSUED BY CBDT. THE RELEVANT PARA OF THE CIRCU LAR IS REPRODUCED HERE: CBDT ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS (INCLUDING INVESTMENT IN WIMCO & COLOR CHEM LIMITED) AND A TRADING PORTFOLIO COMPRISING OF STOCK - IN - TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. 8. FROM THE ABOVE CIRCULAR, IT IS CLEAR THAT THAT THE ASSESSEE IS ENTITLED TO MAINTAIN TWO PORTFOLIOS I.E. INVESTMENT PORTFOLIO AND TRA DING PORTFOLIO. THE PROFIT ARISING ON ACCOUNT OF INVESTMENT PORTFOLIO OUGHT TO BE TREATED UNDER THE H E AD CAPITAL GAINS WHE REAS THE PROFIT ARISING ON ACCOUNT OF SALE OF TRADING PORTFOLIO OUGHT TO BE TREATED AS BUSINESS PROFITS . WHETHER PARTICULAR SCRIP IS HELD UNDER INVESTMENT PORTFOLIO OR A TRADING PORTFOLIO IS TO BE DETERMINED WITH REFERENCE TO THE INTENTION OF THE PARTIES AS WELL AS THE CONDUCT OF THE PARTIES. THE HON BLE SUPREME COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CIT, 35 ITR 594, HELD THAT IN ORDER TO DETERMINE WHETHER THE TRANSACTIONS OF PURCHASE AMOUNT TO ADVENT URE IN THE NAME OF TRADE OR NOT, T HE INTENTION OF THE PARTIES AT THE TIME OF PURCHASE IS MATERIAL. THIS PRINCIPLE HAS BEEN REITERATED SUBSEQUENTLY BY HON BLE APEX COURT IN THE CASE OF CIT VS. HOLCK LARSEN (H.), 160 ITR 67 (SC) AND 6 HON BLE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. RAUNAQ SINGH SWAR AN SINGH, 85 ITR 220. THEREFORE, FROM THESE DECISIONS IT IS CLEAR THAT THE INTENTION ALONE IS THE MATERIAL FACTOR TO DETERMINE WHETHER A PARTICULAR SHARE IS HELD AS INVESTMENT OR TRADING PORTFOLIO. IN ORDER TO FIND OUT THE INTENTION OF THE PARTIES , ONE IS TO LOOK AT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT AND THE CONDUCT OF THE ASSESSEE THAT APART , THE COURTS HAVE EVOLVED SEVERAL TESTS INCLUDING WHETHER THE SCRIPS ARE BOUGHT FROM THE BORROWED FUNDS AND THE PERIOD FOR WHICH THE SHARES ARE HELD AND THE FR EQUENCY OF THE TRADING ETC. APPLYING THESE PRINCIPLES TO THE FACTS OF THE CASE, IT IS VERY CLEAR THAT THE RESPONDENT ASSESSEE COMPANY FROM THE BEGINNING HELD THE SHARES UNDER INVESTMENT PORTFOLIO THE SAME IS TREATED AS INVESTMENTS IN THE BOOKS OF ACCOUNT A ND WHERE THE SHARES ARE HELD FOR TRADING PURPOSES THE PROFIT ARISING THERE ON IS OFFERED TO TAXED UNDER THE BUSINESS HEAD. THE INTENTION OF THE PARTIES IS MADE CLEAR FROM THE MINUTES OF THE BOARD OF DIRECTORS THEREFORE, THE REASONING GIVEN BY THE CIT(A) IS LOGICAL AND SUPPORTED BY THE JUDICIAL PRECEDENTS. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE ON THE FIRST GROUND RAISED BY THE REVENUE. ACCORDINGLY, THE SAME IS DISMISSED. 9. THE SECOND GROUND OF THE REVENUE RELATES TO THE DISALLOWANCE OF INTEREST. FROM THE ORDER OF CIT(A), IT IS VERY CLEAR THAT THE CIT(A) HAD MADE A BIFURCATION BETWEEN THE INVESTMENT PORTFOLIO AND TRADING PORTFOLIO AND THEREFORE, THE SAME IS IN LINE WITH THE PROVISIONS OF SEC. 14 A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. THUS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE 7 REASONING GIVEN BY THE CIT(A). ACCORDINGLY, THE SECOND GROUND RAISED BY THE REVENUE IS DISMISSED. 10. THE THIRD GROUND RELATES TO THE ALLOWANCE OF TAX REBATE UNDER SECTION 8 8A OF THE ACT. THE FINDINGS GIVEN BY THE CIT(A) IN THIS REGARD ARE IN CONFORMITY WITH SECTION 88A OF THE ACT. ACCORDINGLY, THE THIRD GROUND IS ALSO DISMISSED. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE R EVENUE ARE DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 9 T H A U G U S T , 2015. S D / - S D / - ( I.C. SUDHIR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 9 T H A U G U S T , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI