ACIT, CIR-6(3), MUMBAI V. M/S. M C SHAH & SONS INVESTMENT CO.PVT.LTD., MUMBAI

ITA 2723/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9449 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Advance ruling

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 2723/MUM/2009(A.Y. 2005-06) THE ACIT, CIR. 6(3), ROOM NO.522, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (APPELLANT) VS. M/S. M.C.SHAH & SONS INVESTMENT CO. PVT. LTD., RUBY HOUSE, J.K.SAWANT MARG, DADAR (WEST), MUMBAI - 400 028 PAN:AABCH 0171P APPELLANT BY : SHRI MOHIT JAIN RESPONDENT BY : S/SHRI VINOD KUMAR BI NDAL & GAURAV BANSAL DATE OF HEARING : 27/11/2012 DATE OF PRONOUNCEMENT : 0 5/12/2012 ORDER PER I.P.BANSAL, J.M THIS IS AN APPEAL BY THE REVENUE. IT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-VI , MUMBAI DATED 13/2/2009 FOR ASSE SSMENT YEAR 2005-06. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: ORIGINAL GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN REVERSING THE FINDING OF THE ASSESSING OFFICER, WHE REBY HE TREATED THE SHORT TERM AND LONG TERM CAPITAL GAINS AS BUSINESS INCOME, BY RELYING ON THE ITAT(DEL) DECISION IN THE CASE OF ITO VS. V N A GGARWAL (ITA NO.2030/DEL/2006 AND 1663/DEL/2006 ) AND WITHOUT AP PRECIATING THE FACT THAT THE ASSESSING OFFICER CAME TO THE AFORES AID CONCLUSION AFTER CONSIDERING THE RATIO LAID DOWN IN THE JUDICIAL PRO NOUNCEMENTS IN THE CASE OF RAJA BAHADUR VISHESHWAR SINGH VS. CIT (1961 ) 41 ITR 685 (SC), A.V.THOMAS AND CO. LTD. VS. CIT (1963) 48 ITR 67 (S C) AND AUTHORITY OF ITA NO. 2723/MUM/2009(A.Y. 2005-06) 2 ADVANCE RULINGS IN THE CASE OF XYZ/ABC EQUITY FUND (2001) 250 ITR 194 REVISED GROUND OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN REVERSING THE FINDING OF THE ASSESSING OFFICER, WHEREBY HE TREATED THE SHORT TERM AND LONG TERM CAPITAL GAINS AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE ASSESSING OFFICER CA ME TO THE AFORESAID CONCLUSION AFTER CONSIDERING THE RATIO LAID DOWN IN VARIOUS JUDICIAL PRONOUNCEMENTS. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT, LENDING AND TRADING. LD. AO, IN THE ASSESSMENT ORDER AFTE R REFERRING TO VARIOUS JUDICIAL PRONOUNCEMENTS, CONSIDERING THE FACTS OF THE ASSESS EES CASE HAS COME TO A CONCLUSION THAT INCOME ARISING TO ASSESSEE FROM SAL E AND PURCHASE OF SHARES IS BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSE E THAT THE INCOME FROM SUCH ACTIVITY SHOULD BE ASSESSED AS SHORT TERM AND LONG TERM CAPITAL GAIN ACCORDING TO THE PERIOD OF HOLDING INVOLVED IN THE RESPECTIVE CASES. THOUGH AO HAS QUOTED SOME TABLE IN THE ASSESSMENT ORDER BUT T HE FACTS ARE NOT VERY MUCH CLEAR FROM THE ASSESSMENT ORDER THAT HOW THE TRANSA CTIONS OF SALE AND PURCHASE OF SHARES HAVE TAKEN PLACE DURING THE RELE VANT ACCOUNTING PERIOD. THESE HAVE BEEN DESCRIBED IN THE DETAILS FILED BY T HE ASSESSEE AT PAGES 1,2 & 3 OF THE PAPER BOOK. LONG TERM CAPITAL GAIN HAS BEEN COMPUTED ON SALE OF 5000 TISCO SHARES, WHICH WERE PURCHASED ON 1/4/2003 AND SOLD ON 14/10/2004. THE DETAILS ARE AS UNDER: WORKING OF LONG TERM CAPITAL GAIN ON SALE OF SHARES : TISCO LTD. (5000 SHARES) SALES - 14/10/2004 PURCHASES - 01/04/2003 1,494,738.45 597,687.50 LONG TERM CAPITAL GAIN 897,050.95 ITA NO. 2723/MUM/2009(A.Y. 2005-06) 3 DETAILS OF SHORT TERM CAPITAL GAIN ON SALE /SWITCH OVER OF SHARES & MUTUAL FUND: S. NO. NAME OF THE SCRIPS NO. OF SHARES PURCHASE DATE AMOUNT SALES DATE AMOUNT PROFIT/ LOSSS STT PAID 1. ONGC 2100 19/4/04 1,575,000.00 5/5/04 1,761,030.00 136,030.00 NIL 2. BANK OF MAHARASHTRA 2800 12/4/04 64,400.00 12/10/04 71,257.50 6,857.50 51.84 3. 20000 3/11/04 1,001,750.00 31/12/04 1,200,501.45 198,751.45 903.50 4. TISCO 1000 BONUS 17/2/05 410,400.00 410,400. 00 309.01 5. TISCO 500 BONUS 2/3/05 211,800.00 211,800.00 159.69 6. ESSAR STEEL 3500 9/3/05 181,434.00 14/3/05 209 ,319.75 27,885.75 158.00 TOTAL ..(A) 2,822,584 3,864,308.70 1,041,724.70 MUTUAL FUND 1. FRANKLIN BLUE CHIP 13/5/04 21/5/04 2,500,000.00] 2,500,000.00] 21/9/04 5,570,301.81 570,301.81 NIL 2. FRANKLIN BLUE CHIP (GP) 12/8/04 500,000.00 8/2/05 631,432.56 131,432.56 947.0 0 3. FRANKLIN TEMPLETON BLUE CHIP (DP) 29/6/04 9/11/04 20/1/05 500,000.00 1,000,000.00 500,000.00 8/2/05 2,113,502.78 113,502.78 3,170.00 4. TEMPLETON TRASY MANGT. 17/9/04 DIV. INVT. 2,021,038.91 7,398.89 1/11/04 2,029,679.00 1241.20 NIL TOTAL RS..(B) 9,528,437.80 =========== 10,344,916.15 ============ 816,478.35 ========== TOTAL RS.(A) + (B) 12,351,021.80 ============= 14,209,224.85 ============= 1,858,203.05 ========== S.T.T. PAID ON 1,100,630 .00 TAXABLE @ 10% S.T.T NOT PAI D ON 757,573.00 ---------------- 1,858,203.00 =========== 3. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT AO WAS W RONG IN TREATING THE ACTIVITY OF SALE AND PURCHASE OF SHARES AND UNITS O F MUTUAL FUNDS AS BUSINESS INCOME. THAT ALL SHARES AND MUTUAL FUNDS WERE HELD BY THE ASSESSEE AS INVESTMENT. REFERENCE WAS MADE TO VARIOUS DECISIO NS OF ITAT TO CONTEND THAT WHEN ASSESSEE IS DEALING IN SHARES BOTH AS TRADER A S WELL AS INVESTOR AND MAINTAIN SEPARATE ACCOUNTS FOR TWO PORTFOLIO, THE A SSESSEE CAN BE TRADER AS WELL ITA NO. 2723/MUM/2009(A.Y. 2005-06) 4 AS INVESTOR, GAIN OF WHICH WILL BE ASSESSABLE SEPA RATELY UNDER THE HEAD BUSINESS AND CAPITAL GAIN. IT WAS SUBMITTED THAT T HE ASSESSEE HAS CONDUCTED ONLY SEVEN SALE TRANSACTIONS IN SIX SCRIPS. THE SHA RES OF TISCO WERE HELD AS INVESTMENT EVEN IN EARLIER YEAR AND IN THE YEAR UND ER CONSIDERATION SHORT TERM CAPITAL GAIN IS COMPUTED ON BONUS COMPONENT. ON SU CH SUBMISSIONS OF THE ASSESSEE LD. CIT(A) HAS RETURNED A FINDING THAT ASS ESSEE HAS CONDUCTED ONLY SEVEN SALE TRANSACTIONS IN SIX SCRIPS. THE SHARES OF TISCO WERE HELD AS INVESTMENT IN EARLIER YEAR AND LONG TERM CAPITAL GAIN WAS SHOWN IN THIS RESPECT. SHORT TERM CAPITAL GAIN WAS SHOWN IN BONU S SHARES OF TISCO. IT CANNOT BE SAID THAT THE ASSESSEE IS ENGAGED IN THE REGULAR BUSINESS OF SHARES . FOR CONDUCTING BUSINESS THE ASSESSEE HAS TO DEVOTE TIME AND ENERGY CONSISTENTLY. THE ASSESSEE HAS ALSO SHOWN THESE SH ARES AS INVESTMENT IN THE BOOKS OF ACCOUNT. THERE IS NO DOUBT THAT SOME OF T HE SHARES WERE SHOWN AS STOCK IN TRADE BY THE ASSESSEE FOR WHICH THE ASSESS EE HAS DISCLOSED INCOME AS BUSINESS INCOME BUT THAT DOES NOT MEAN THAT ASSESSE E IS DOING BUSINESS. LD. CIT(A) RELIED UPON THE DECISIONS OF ITAT DELHI BENC HES IN THE CASE OF ITO VS. V.N.AGARWAL IN ITA NO.2030/DEL/06 AND ITA NO.1663/D EL/2006 AND IN THIS MANNER HE HAS DECIDED THE ISSUE IN FAVOUR OF ASSES SEE. THE DEPARTMENT IS AGGRIEVED, HENCE, IN APPEAL. 4. AFTER NARRATING THE FACTS LD. D.R RELIED UPON TH E ASSESSMENT ORDER AND CONTENDED THAT FREQUENCY OF THE TRANSACTIONS AND TH E CONDUCT OF THE ASSESSEE CLEARLY INDICATED THAT THE ACTIVITY OF SALE AND PUR CHASE OF SHARES AND UNIT WAS DONE BY THE ASSESSEE AS AN ACTIVITY OF BUSINESS. T HEREFORE, LD. D.R PLEADED THAT AO WAS RIGHT IN TREATING THE INCOME ARISING FR OM SUCH ACTIVITY AS BUSINESS INCOME AND LD. CIT(A) HAS WRONGLY GRANTED THE RELIE F TO THE ASSESSEE. 5. ON THE OTHER HAND, REFERRING TO THE DETAILS OF S ALE AND PURCHASE, IT WAS SUBMITTED BY LD. A.R THAT LD. CIT(A) HAS RIGHTLY HE LD THAT THE SALE AND PURCHASE ACTIVITY OF ASSESSEE REGARDING SHARES AND MUTUAL FUNDS WAS IN THE ITA NO. 2723/MUM/2009(A.Y. 2005-06) 5 NATURE OF CAPITAL GAIN AND IT COULD NOT BE TREATED AS BUSINESS INCOME. HE ALSO REFERRED TO THE COPY OF MINUTES OF MEETING HELD BY BOARD OF DIRECTORS OF THE ASSESSEE COMPANY ON 3/4/2004, WHICH IS PLACED AT PA GES 75 AND 76 OF THE PAPER BOOK, WHEREIN IT HAS BEEN MENTIONED THAT OPEN ING STOCK AS ON 1/4/2004 OF SHARES AND MUTUAL FUNDS WILL CONTINUE TO BE CONS IDERED AS STOCK IN TRADE EXCEPT 2000 SHARES OF RELIANCE INDUSTRIES LTD., WHI CH WERE TO BE CONSIDERED AS INVESTMENT AND IT WAS INTER ALIA MENTIONED THAT SHA RES PURCHASED AFTER 1/4/2004 FROM OPEN MARKET WERE TO BE CONSIDERED AS INVESTMENT AND ALSO INVESTMENT IN EQUITY ORIENTED MUTUAL FUND AFTER 1/ 4/2004 WERE TO BE CONSIDERED AS INVESTMENT. THE OPENING STOCK OF S TOCK IN TRADE WAS ALSO LISTED IN THE SAID RESOLUTION. HE SUBMITTED THAT THE SALE AND PURCHASE ENTERED INTO BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS ONLY RELEVANT AND THE SAME BEING INVESTMENT, IT HAS RIGHTLY BEEN HELD B Y LD. CIT(A) THAT IT HAS GIVEN RISE TO CAPITAL GAIN. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE ALSO GONE THROUGH THE ORDER PA SSED BY AO AS WELL AS LD. CIT(A). WE HAVE ALSO GONE THROUGH DETAILS OF SALES AND PURCHASES MADE DURING THE YEAR AND ALSO RESOLUTION REFERRED IN THE ABOVE PART OF THIS ORDER. SO FAR AS IT RELATES TO SALE AND PURCHASE OF TISCO SHARES, THE O RIGINAL SHARES WERE PURCHASED BY THE ASSESSEE ON 1/4/2003 AND THEY WERE SOLD ON 14/10/2004 AND THOSE WERE ALSO STANDING AS INVESTMENT IN TH E BOOKS OF THE ASSESSEE. THEREFORE, THE GAIN ARISING OUT OF FROM THOSE SHA RES AMOUNTING TO RS.8,97,050.95 CANNOT BE SAID TO BE BUSINESS ACTIVI TY OF THE ASSESSEE. NOW COMING TO THE OTHER DETAILS THE DATE OF PURCHASE AS WELL AS SALE HAS BEEN GIVEN. IN THE RESOLUTION IT HAS BEEN CLEARLY MENTIONED THA T THE SHARES OR MUTUAL FUNDS PURCHASE AFTER 1/4/2004 WILL BE TREATED AS IN VESTMENT AND THE EXISTENCE OF THE RESOLUTION HAS NOT BEEN CONTROVERTED BY THE REVENUE. IF IT IS SO THE INVESTMENT IN THE SHARES AND MUTUAL FUNDS MADE BY THE ASSESSEE AFTER 1/4/2004 AND SALE THEREOF DURING THE YEAR ITSELF C AN ONLY BE SAID TO HAVE GIVEN RISE TO THE SHORT TERM CAPITAL GAIN. THEREFO RE, LOOKING INTO FACTS OF THE ITA NO. 2723/MUM/2009(A.Y. 2005-06) 6 PRESENT CASE, WE SEE NO INFIRMITY IN THE ORDER OF L D. CIT(A) ON THIS ISSUE AND THEREFORE, WE DECLINE TO INTERFERE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH DAY OF DEC. 2012 SD/- SD/- (SANJAY ARORA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 5 TH DEC. 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R B BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.