Shri Ramakant R. Kasat, Surat V. The Dy. CIT., Circle-1(2), Surat

ITA 2643/AHD/2016

• Counselvise Citation: [2018] 111 COUNSELVISE.COM (IT) 1923 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Capital Gains
• Section: 22

Judgement Text

SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 1 OF 6 INCOM TAX APPELLATE TRIBUNAL SURAT-BENCH-SURAT BEFORE SHRI C .M. GARG, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. NO.2643/AHD/2016/SRT : ASSESSMENT YEAR: 2012-13 SHRI RAMAKANT R KASAT, 505-508, SHREE LAXMI MARKET, RING ROAD, SURAT 395 002 PAN: ABVPK 6554F V S . DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), SURAT. APPELLANT /RESPONDENT [ /ASSESSEE BY: SHRI RASHESH SHAH, CA /REVENUE BY: SHRI R.P.RASTOGI, SR.DR / DATE OF HEARING: 21 .03.2018 /PRONOUNCEMENT DATE: 22 .03.2018 ORDER PER O. P. MEENA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, SURAT DATED 05.08.2016 FOR THE ASSESSMENT YEAR 2012-13. 2. THE FOLLOWING GROUNDS OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN PARTLY CONFIRMING THE ACTION OF ASSESSING OFFICER IN TREATING THE CAPITAL GAINS INCOME ARISING ON SALE OF SHARES AS BUSINESS INCOME IN RESPECT OF SHARES WHERE HOLDING PERIOD IS LESS THAN ONE MONTH. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE TREATED ENTIRE GAIN ARISING ON SALE OF SHARES AS CAPITAL GAINS. 3. THE RELEVANT FACTS CONCERNING THE ISSUE INVOLVED ARE THAT THE ASSESSEE IS ENGAGED IN THE TRADING BUSINESS OF ART SILK CLOTH. THE ASSESSEE DERIVES STCGS SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 2 OF 6 AND LTCGS ON SALE OF SHARES. THE ASSESSEE FILED THE RETURN OF INCOME SHOWING TAXABLE INCOME OF RS.NIL WHICH INCLUDED STCGS OF RS.8,70,161/- AND SHORT TERM CAPITAL LOSS AT RS.2,88,80,362/-. THE ASSESSEE HAS DECLARED LTCGS OF RS.3,75,99,342/-. THE LTCGS NOTED ABOVE WERE CLAIMED AS EXEMPT INCOME UNDER SECTION 10(38) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO THE ACT). THE ASSESSEE ALSO AVAILED CONCESSIONAL RATE OF TAX AT 15% UNDER SECTION 111A OF THE ACT IN RESPECT OF STCGS NOTED ABOVE. THE AO AFTER OBTAINING THE REQUISITE DETAILS CONCERNING THE TRANSACTIONS GIVING RISE TO LTCGS AND STCGS CONCLUDED THAT THE AFORESAID GAINS ON SALE OF SHARES ARE IN THE NATURE OF BUSINESS INCOME HAVING REGARD TO THE QUANTUM, VOLUME, FREQUENCY AND PROFIT MOTIVE. HE ACCORDINGLY TREATED THE GAINS ARISING ON SALE OF SHARES CLAIMED AS STCGS OF RS.8,70,161/- AND FOR LTCGS OF RS.3,75,99,342/-, AS THE CASE MAY BE, AS BUSINESS INCOME OF THE ASSESSEE WHILE FRAMING THE ASSESSMENT. 4. IN FIRST APPEAL AGAINST THE ORDER OF THE AO, THE CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE. THE CIT(A) TOOK NOTE OF THE DECISION RENDERED IN ASSESSEES OWN CASE IN RESPECT OF EARLIER AY 2011-12 AND DECISION OF ITAT IN ITA NO.1707 AND 2019/AHD/2010 AND FOLLOWING THE SAME, DIRECTED THE AO TO TREAT THE INCOME ON SALE OF SHARES AS STCGS OR LTCGS AS THE CASE MAY BE UNDER THE HEAD CAPITAL GAIN IN SO FAR AS GAIN ARISING ON SALE OF SHARES WHICH WERE HELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN ONE MONTH, AS STCG AND SHARES HELD FOR MORE THAN ONE YEAR SHOULD BE LTCG. THE RELEVANT PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER: SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 3 OF 6 6.1.2 ON THE PERUSAL OF THE DETAILS, IT IS OBSERVED THAT THE AO HAS TREATED THE STCG OF RS.8,71,161/- AND LTCG OF RS.3,75,99,342/- AS BUSINESS INCOME AND HAS MAINLY RELIED ON THE ASSESSMENT ORDER OF THE EARLIER YEARS. THE APPELLANT IN HIS SUBMISSIONS HAS RELIED ON THE ORDER OF CIT(A) IN APPELLANTS OWN CASE FOR AY 2006-07, 2007-08, 2008-09, 2010-11 AND 2011-12. IN ALL THESE DECISION THE ISSUE OF ASSESSABILITY OF THE INCOME HAS BEEN DECIDED ON THE PRINCIPLE LAID DOWN IN THE CASE OF SHRI SUGAMCHAND C SHAH V/S ACIT OF ITAT AHMEDABADS IN THE DECISION DATED 29.01.2010. THE HONBLE ITAT, AHMEDABAD IN THE APPELLANTS OWN CASE FOR AY 2006-07, 2007-08 AND 2008-09 HELD IN A CONSOLIDATED ORDER DATED 31.05.2016 HELD THAT LTLCG IS NOT BUSINESS INCOME AND THE STCG ON THE SALE OF SHARE HAVING HOLDING PERIOD OF LESS THAN 1 YEAR IS STCG AND NOT BUSINESS INCOME. 5. THE LD.AUTHORISED REPRESENTATIVE, MR.RASESH SHAH, AT THE OUTSET, SUBMITTED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS ARISEN BEFORE THE HONBLE ITAT AHMEDABAD OWN ASSESSEES OWN CASE IN ITA NOS.1970 & 2247/AHD/2011 & ORS. FOR AY 2006-07 AND ALSO IN OTHER ASSESSMENT YEARS, ORDER DATED 31/05/2016 AND IN ITA NO.328/AHD/2011 DATED 03.01.2017 FOR A.Y. 2010- 11 THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE ON SIMILAR FACTS. THEREAFTER, THE LD.AR POINTED OUT THAT THE ACTION OF THE CIT(A) IN HOLDING THE GAINS ARISING ON SALE OF SHARES WHICH WERE HELD FOR LESS THAN 30 DAYS PRIOR TO ITS SALE AS BUSINESS INCOME IS WITHOUT ANY LEGAL FOUNDATION AND MISDIRECTED IN LAW. IT WAS SUBMITTED THAT THE SCHEME OF ACT DOES NOT PROVIDE FOR SUCH DISTINCTION WITH REFERENCE TO PERIOD OF HOLDING. THE LD.AR ON FACTS CONTENDED THAT THE ASSESSEE IS NOT A HABITUAL TRADER IN SHARES AND HAS DECLARED THE SHARES UNDER THE HEAD INVESTMENT IN ITS BOOKS OF ACCOUNTS. 6. THE LD.DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 4 OF 6 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AS WELL AS THE CASE-LAW CITED. THE LIMITED CONTROVERSY IN HAND IS WHETHER THE LTCGS AMOUNTING TO RS.3,75,9,342/- AND STCGS AMOUNTING TO RS.8,70,161/- EARNED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL GAINS AS DECLARED BY THE ASSESSEE ON A BUSINESS INCOME AS SOUGHT TO BE HELD BY THE AO. IT IS THE CASE OF THE ASSESSEE THAT THE SHARES WERE HELD AS CAPITAL ASSET AND NOT AS A TRADING ASSET PRIOR TO ITS SALE. THE INTENTION OF THE ASSESSEE IN THIS RESPECT CAN BE GAUGED FROM THE FACT THAT THE ASSESSEE IS OVERWHELMINGLY ENGAGED IN TEXTILE BUSINESS AND THEREFORE NOT OCCUPIED PRIMARILY AS A TRADER. SECONDLY, IT IS CLAIMED THAT THE ASSESSEE HAS CLEARLY MAINTAINED SEPARATION BETWEEN INVESTMENT IN SHARES AND STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNTS. WE ALSO OBSERVE THAT IN THE EARLIER ASSESSMENT YEARS, THE CIT(A) HAS TAKEN VIEW IN FAVOUR OF ASSESSEE ON SIMILAR FACTS. WE ALSO TAKE NOTE OF THE CONTENTION ON BEHALF OF THE ASSESSEE THAT THE CAPITAL GAINS ON TRANSACTIONS HELD FOR LESS THAN 30 DAYS IS MEAGER, AND SHORT TERM CAPITAL GAIN OFFERED FOR TAX @15%. FURTHER THE LTCGS OF RS.3,75,99,342/- WERE EARNED WHERE THE MAJOR INCOME HAS ARISEN ON SALE OF SHARES WHERE THE PERIOD OF HOLDING IS MORE THAN 8 YEARS. THESE FACTS DO NOT SUPPORT THE ASSUMPTION MADE BY THE AO WITH REGARD TO VOLUME, FREQUENCY AND MAGNITUDE ADVERSE TO THE ASSESSEE. WE NOTE THAT SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH OF THE TIAT IN ITA NOS.1970 & 2247/AHD/2011 & ORS. FOR AY 2008-09, ORDER DATED 31/05/2016 IN ASSESSEES OWN CASE WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT PARAS OF THE TRIBUNALS ORDER READ AS UNDER:- 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 5 OF 6 BY THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE SHOW THAT THE ASSESSEE HAS SEPARATELY SHOWN DERIVATIVE PROFIT, LONG TERM CAPITAL GAINS/SHORT TERM CAPITAL GAINS ON SHARES. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD INVESTMENT. THESE INVESTMENT SHARES HAVE BEEN VALUED AT COST. THE HONBLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO.4/2007 DT. 15.6.2007, HAS OBSERVED THAT : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY 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-ON-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. 20. THE CBDT IN ITS CIRCULAR NO.6/2016 DATED 29.02.2016, INTERALIA OBSERVED AS UNDER:- 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPLICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BUY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (LE, WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE TO BED DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 21. THE ALLEGATION OF THE A.O IS THAT THE ASSESSEE HAS INDULGED INTO HIGH FREQUENCY TRANSACTION. THIS IN ITSELF COULD NOT MEAN THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVESTOR ALWAYS KEEP A WATCH ON THE VOLATILITY OF THE MARKET AND MAKES SOUND INVESTMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITS INVESTMENTS IN SHARES AS AND WHEN NECESSARY. THE LAW ITSELF HAS RECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAINS FOR SHARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPITAL GAINS WHERE THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS BEEN NOT THE CASE, ALL THE GAINS ON SHARES WOULD HAVE BEEN CONSIDERED AS BUSINESS INCOME ONLY. THE FACT THAT THE LAW RECOGNIZES SUCH VOLATILITY AND HAS SPECIFICALLY PROVIDED A SEPARATE HOLDING PERIOD IN RESPECT OF SUCH SHARES MAKES IT VERY CLEAR THOSE GAINS ON SUCH SHARES HAVING A HOLDING PERIOD OF LESS THAN 12 MONTHS AND HELD AS SHRI RAMAKANT R KASAT IN ITA NO.2643/AHD/2016 FOR A.Y.2012-13 PAGE 6 OF 6 INVESTMENT WOULD BE CONSIDERED AS SHORT TERMS CAPITAL GAINS ONLY. THUS THE ASSESSEES CLAIM CANNOT BE NEGATED ON THE BASIS OF FREQUENCY OF TRANSACTION. 22. CONSIDERING THE ENTIRE FACTS IN TOTALITY, WE FIND THAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RIGHT FROM THE YEAR OF PURCHASE AND THAT WAS SHOWN AS SUCH IN THE BALANCE SHEET OF THE ASSESSEE WHICH WAS FILED BEFORE THE A.O. 23. IN OUR HUMBLE OPINION, THE SHARES HAVE TO BE TREATED AS INVESTMENTS AND, THEREFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPITAL GAINS. 8. WHILE THE VOLUME, FREQUENCY AND MAGNITUDE OF TRANSACTIONS ARE RELEVANT FACTORS FOR DETERMINATIVE OF NATURE OF TRANSACTIONS, NO SINGLE TEST BY ITSELF IS DETERMINATION OF THE ISSUE. THE CUMULATIVE EFFECT HAS TO BE WEIGHED TO DETERMINE AS TO WHETHER THE IMPUGNED TRANSACTIONS BEAR THE TRAPPINGS OF THE ADVENTURE IN THE NATURE OF TRADE OR COMMERCE ETC. OR OTHERWISE. IN THE LIGHT OF AFORESAID DECISION RENDERED IN SIMILAR FACTS AND ON THE TOTALITY OF THE FACTS, WE ARE OF THE OPINION THAT SHARES HAVE TO BE TREATED AS CAPITAL GAINS. THEREFORE, ANY PROFIT EARNED ON THE SALE OF SHARES IS TO BE TREATED AS CAPITAL GAINS ONLY WHETHER IT IS STCG OR LTCG AS THE CASE MAY BE. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-03-2018 SD/- SD/- (C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: 22 ND MARCH, 2018 COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT