Girish Gulati, New Delhi V. ACIT (OSD), New Delhi

ITA 3203/DEL/2012

• Counselvise Citation: 320320114 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: RANO JAIN CAS
• Keywords: Capital asset; Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3203/DEL./2012 (ASSESSMENT YEAR : 2008-09) SHRI GIRISH GULATI, VS. ACIT (OSD), E 63, POCKET K, CIT VIII, NEW DELHI. SHIEKH SARAI, PHASE II, NEW DELHI 110 017. (PAN : AIFPG9164Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN & SMT. RANO JAIN, CAS REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XXIII, NEW DELHI DATED 27.03.2012 FOR THE ASSESSMENT YEAR 2008-09. 2. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SHOWN INCOME UNDER THE HEADS BUSINESS AND PROFESSION AND SHOR T TERM CAPITAL GAINS. THE RETURN OF INCOME WAS FILED ON 29.09.2008 DECLAR ING INCOME AT RS.99,97,775/-. THE ASSESSING OFFICER TREATED THE INCOME DECLARED UNDER THE HEAD SHORT TERM CAPITAL GAIN AS BUSINESS INC OME AND ASSESSED THE ITA NO.3203/DEL/2012 2 INCOME AT RS.1,00,97,775/-. THE CIT (A) HAS CONFIR MED THE ADDITION BY HOLDING AS UNDER :- (5) I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS F ILED AND HAVE EXAMINED THE DETAILS OF SHORT TERM CAPITAL GAI NS DISCLOSED ON SALE OF SHARES. THE APPELLANT'S CLAIM THAT HE MA INTAINED TWO PORTFOLIOS, ONE IN THE NATURE OF TRADING ASSETS OR STOCK-IN-TRADE, AND THE OTHER IN THE NATURE OF CAPITAL ASSETS OR IN VESTMENTS, IS BASED ON THE BIFURCATION OF THE STOCKS IN THE BALAN CE SHEET AS ON 31.03.2008. THE APPELLANT HAS RELIED ON A NUMBER OF CASE LAWS AS ALSO THE CBDT CIRCULAR NO. 4/2007 DATED 15. 06.2007, TO ARGUE THAT A TAXPAYER MAY HAVE INCOME FROM SALE OF SHARES UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSI NESS INCOME. HOWEVER, THE APPELLANT HAS COMPLETELY FAILED TO EXP LAIN THE BASIS OF BIFURCATION OF SHARES INTO STOCK-IN-TRADE AND CAPITAL ASSETS. THOUGH SPECIFICALLY REQUIRED TO PROVIDE THE PERIOD OF HOLDING OF THE ENTIRE SHARE HOLDING, THE APPELLANT FAILED TO FURNISH THE DETAILS. HENCE, THE DETAILS OF SHARES SOLD, AS PROVIDED BY THE APPELLANT, ARE LIMITED TO THE NUMBE R OF SHARES PURCHASED AND SOLD, AND THE PROFIT THEREON, UNDER T HE HEAD SHORT TERM CAPITAL GAINS, BUT NOT THOSE DISCLOSED U NDER THE HEAD BUSINESS. THE ASSESSING OFFICER HAS ANNEXED TO THE ASSESSMENT ORDER, A CHART OF SHARES SOLD IN EACH QUARTER OF TH E YEAR, ON WHICH PROFIT HAS BEEN DISCLOSED ON SHORT TERM CAPIT AL GAINS. THE PERIOD OF HOLDING OF THE SHARES RANGES BETWEEN A FEW DAYS TO A FEW MONTHS. IT IS ALSO EVIDENT THAT TRADING HA S TAKEN PLACE ON ALMOST EVERY DAY OF THE YEAR. AS THE APPELLANT H AS NOT COMPLIED WITH THE REQUIREMENT TO PROVIDE THE PERIOD OF HOLDING OF SHARES 'TRADED', THERE IS NO DISCERNIBLE METHOD, BY WHICH THE TRANSACTIONS HAVE BEEN PLACED UNDER THE HEADS SHORT TERM CAPITAL GAINS AND BUSINESS PROFITS. THE APPELLANT H AS NOT REBUTTED THE ASSESSING OFFICER'S FINDING THAT THE S ALE OF SHARES YIELDING LEAST PROFIT HAVE BEEN DISCLOSED AS TRADIN G, AND THE SALE OF SHARES YIELDING HIGHER PROFIT HAVE BEEN DIS CLOSED UNDER THE HEAD SHORT TERM CAPITAL GAINS. (5) THE ASSESSING OFFICER HAS VALIDLY OBSERVED THA T THE APPELLANT WAS ENGAGED IN TRADING OF SHARES EVEN IN EARLIER YEARS, AND. UNTIL THE ASSESSMENT YEAR 2007-08 HAD D ISCLOSED THE PROFIT FROM SUCH ACTIVITY UNDER THE HEAD BUSINE SS INCOME. THE ASSESSING OFFICER ALLOWED THE APPELLANT SEVERAL OPPORTUNITIES TO EXPLAIN THE REASONS FOR TREATING P ART OF THE ITA NO.3203/DEL/2012 3 TURNOVER OF PURCHASE AND SALE OF SHARES AS INCOME F ROM SHORT TERM CAPITAL GAINS FOR THE FIRST TIME IN THE CURREN T YEAR. THE APPELLANT FAILED TO PROVIDE ANY JUSTIFICATION EITHE R DURING THE ASSESSMENT PROCEEDINGS, OR IN THE COURSE OF HEARING OF THIS APPEAL. THE APPELLANT'S ARGUMENT THAT THE TRADING O F SHARES WAS CARRIED ON THROUGH A FINANCIAL CONSULTANT DOES NOT HELP HIS CASE IN ANY WAY. IT IS EVIDENT THAT THE APPELLANT IS ENG AGED IN THE BUSINESS OF TRADING IN SHARES AS A REGULAR AND CONT INUOUS ACTIVITY. THE APPELLANT HAS NOT HELD ANY OF THE SCR IPS FOR A PERIOD OF TIME EXCEEDING A FEW MONTHS. IN MOST CASE S, THE SHARES HAVE BEEN PURCHASED AND SOLD WITHIN DAYS. TH E TOTAL TURNOVER OF TRADING IN SHARES WORKS OUT TO RS.10,28 ,73,209/- (RS.6,98,61,347 + RS.3,30,11,862). CARRYING ON OF A BUSINESS CONNOTES SOME SUBSTANTIAL, SYSTEMATIC AND ORGANISED ACTIVITY WITH THE OBJECT OF MAKING GAIN OR PROFIT THEREFROM - CIT VS. H.D. AGGARWALA & SONS [1988] 169 ITR 617 (PATNA). THE MAGNITUDE AND REGULARITY OF THE TRANSACTIONS CLEARL Y POINTS TO THE CARRYING ON OF BUSINESS IN THIS CASE. THE INTEN TION OF THE ASSESSEE TO RETAIN THE SHARES HELD FOR INVESTMENT A ND ENJOY THEIR DIVIDENDS, AND NOT TO CIRCULATE AND PART WITH THEM IN THE COURSE OF BUSINESS, MUST BE DISTINCTLY SHOWN - BIKH AMCHAND BAGRI VS. CIT [1962] 44 ITR 746 (CALCUTTA). THE APP ELLANT HAS PATENTLY FAILED TO PROVE THE HOLDING OF SHARES AS I NVESTMENT, AND HAS EVIDENTLY ACQUIRED AND SOLD THE SHARES ENTI RELY WITH THE MOTIVE OF PROFIT. AFTER CONSIDERING ALL THE ABO VE FACTS AND CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER IN TREATING THE PROFIT OF RS.98,56,125/- AS BUSINESS PROFITS, A S AGAINST SHORT TERM CAPITAL GAINS CLAIMED BY THE APPELLANT, IS UPH ELD. THE APPELLANT FAILS AT GROUNDS OF APPEAL NOS. 2 & 3. 3. NOW, THE ASSESSEE IS IN APPEAL BY TAKING THE FOL LOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN CONFIR MING THE ACTION OF ASSESSING OFFICER OF TREATING I ASSESSING THE SHORT TERM CAPITAL GAIN OF RS.98,56,125/- AS BUSINESS INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W, THE LOWER AUTHORITIES ERRED IN TREATING ASSESSING THE S HORT TERM CAPITAL GAIN OF RS.98,56,125/- AS BUSINESS INCOME. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LAW, THE AMOUNT OF RS.98,56,125/- SHOULD HAVE BEEN ASSESSED AS SHORT T ERM CAPITAL GAIN AS RETURNED BY THE APPELLANT. ITA NO.3203/DEL/2012 4 THE APPELLANT CRAVES LEAVE TO ADD ONE OR MORE GROUN D OF APPEAL OR TO ALTER I MODIFY THE EXISTING GROUND BEF ORE OR AT THE TIME OF HEARING OF APPEAL. THE ONLY ISSUE INVOLVED IN THE APPEAL IS RELATED TO TREATING THE SHORT TERM CAPITAL GAIN OF RS.98,56,125/- AS BUSINESS INCOME. 4. WHILE PLEADING ON BEHALF OF THE ASSESSEE LD. AR SUBMITTED THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN TREADING A S WELL AS IN INVESTMENT IN SHARES. THE ASSESSEE IS MAINTAINING DUAL PORTFO LIO OF SHARES. ONE PORTFOLIO IS IN THE NATURE OF TRADING ASSETS IN WHI CH THE STOCK IS SHOWN AND ACCORDINGLY, THE PROFITS/SURPLUS WAS DECLARED AS BU SINESS INCOME. THE OTHER PORTFOLIO WAS IN THE NATURE OF CAPITAL WHERE THE ASSESSEE HAS INVESTED IN SHARES AND GAINS/LOSS ON THE SALE OF TH ESE SHARES WERE DECLARED AS CAPITAL GAINS/LOSS. IT IS SUBMITTED THAT THE AS SESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE GAIN OF RS.98,56,125/- ON THE INVESTMENT PORTFOLIO AS BUSINESS INCOME. LD. AR SUBMITTED THAT THE ASSE SSING OFFICER HAS REACHED ON THE CONCLUSION BY HOLDING THAT MAGNITUDE OF THE TRANSACTION WAS HIGH. ON THIS, THE LD. AR SUBMITTED THAT THE A SSESSEE HAS INDULGED IN INVESTMENT ACTIVITIES IN A SMALL AND REASONABLE AMO UNT. EVEN THE FREQUENCY AND NUMBER OF TRANSACTIONS ARE NOT AS MUC H WHICH CAN BE HELD TO BE AS BUSINESS INCOME. THE NUMBER OF TRANSACTIO NS APPEARS TO BE LARGE DUE TO THE REASON THAT SHARES PURCHASED IN ONE TRAN SACTION HAS BEEN SOLD IN VARIOUS TRANSACTIONS. THEREFORE, NUMBER OF TRANSAC TIONS APPEARS TO BE ITA NO.3203/DEL/2012 5 MORE WHILE IT IS NOT SO. THE LD. AR FURTHER SUBMIT TED THAT IN LAW, THERE IS NO BAR THAT A PERSON WHO IS TRADING IN SHARES SHALL NOT BE AN INVESTOR OR VICE VERSA. THE ASSESSEE IS MAINTAINING SEPARATE P ORTFOLIO/RECORD OF SHARES HELD AS STOCK-IN-TRADE AND HELD AS INVESTMEN TS. THESE TWO SETS OF PORTFOLIO OF SHARES HAVE BEEN SEPARATELY SHOWN IN T HE BALANCE SHEET. FURTHER, THE INVESTMENT IN SHARES IS OUT OF THE ASS ESSEES OWN FUND AND THERE WERE NO BORROWED FUNDS FOR THE INVESTMENT IN THE SHARES. THE ASSESSEE HAS ALSO NOT CLAIMED THE CREDIT/REBATE OF STT PAID WHICH IS ALLOWABLE U/S 88E OF THE ACT ON THE BUSINESS INCOME BUT IT IS NOT ALLOWABLE IN THE CASE OF CAPITAL GAINS. HE FURTHER RELIED ON THE DECISION OF HON'BLE CHANDIGARH HON'BLE HIGH COURT IN THE CASE O F VESTA INVESTMENTS & TRADING CO. (P) LTD. REPORTED IN 70 ITD 200 (CHD) FOR THE PROPOSITION THAT WHERE THE DOMINANT INTENTION OF THE ASSESSEE W HILE PURCHASING SHARES IS FOR THE PURPOSE OF INVESTMENT, AND THIS IS SUPPO RTED BY THE RECORDING OF SUCH PURCHASES IN A SEPARATE INVESTMENT PORTFOLIO A CCOUNT, THE PROFIT ON SALE OF SUCH SHARES WOULD BE TAXED AS CAPITAL GAIN EVEN THOUGH THE ASSESSEE MAY ALSO BE ENGAGED IN THE BUSINESS OF TRA DING IN SHARES, WHICH TRANSACTIONS ARE RECORDED IN A SEPARATE ACCOUNT. H E ALSO RELIED ON THE DECISION OF HON'BLE KERALA HON'BLE HIGH COURT IN TH E CASE OF ACIT VS. KETHAN KUMAR & SHAN REPORTED IN 242 ITR 83 (KER.) F OR THE PROPOSITION THAT A DEALER IN SHARES MAY HOLD SHARES ON INVESTME NT ACCOUNT AND THE INCOME ON SALE OF SUCH SHARES HELD AS INVESTMENT WO ULD BE TAXED UNDER ITA NO.3203/DEL/2012 6 THE HEAD CAPITAL GAIN. FURTHER RELIANCE WAS ALSO P LACED ON THE DECISION OF HON'BLE MADRAS HON'BLE HIGH COURT IN THE CASE OF CI T VS. N.S.S. INVESTMENTS PVT. LTD. REPORTED IN 277 ITR 149 (MAD. ) RELIANCE WAS ALSO PLACED ON THE CBDT CIRCULAR NO.4/2007 DATED 15 TH JUNE, 2007 WHEREIN IT HAS BEEN MENTIONED THAT IT IS POSSIBLE FOR A TAXPAY ER TO HAVE TWO PORTFOLIOS, FOR EXAMPLE, AN INVESTMENT PORTFOLIO CO MPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRA DING PORTFOLIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADIN G ASSET. WHERE THE ASSESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS, I.E. CAPITAL GAIN AS WELL AS BUSINESS INCOME . RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE ALLAHABAD HIGH CO URT IN THE CASE OF L. SOHAN LAL GUPTA VS. CIT REPORTED IN 33 ITR 786 (ALL .). HE HAS FINALLY RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT REPORTED IN 336 ITR 287 (BOM.) WH EREIN THE SLP FILED BY THE REVENUE HAS BEEN DISMISSED BY HON'BLE SUPREM E COURT ON 15.11.2010 IN CC NO.16802/2010. 5. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT VOLUME OF TRANSACTIONS ARE LARGE AND THE ASSESSEE WAS NOT DECLARING CAPITAL GAIN IN THE PAST YEARS AND THIS IS THE YEAR THE ASSESSEE HAS ADOPTED THIS DEVICE TO AVOID THE TAX. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE WAS DEALING IN SHARES. AS PER BOOKS, THE ASSESSEE WAS MAINTAINING DUAL ITA NO.3203/DEL/2012 7 PORTFOLIO, ONE FOR INVESTMENTS AND THE OTHER FOR TR ADING. BOTH THESE ACCOUNTS WERE DECLARED SEPARATELY IN THE BALANCE SH EET IN BOOKS OF ACCOUNTS. IT IS ALSO UNDISPUTED FACT THAT ASSESSEE HAS NOT UTILIZED THE BORROWED CAPITAL FOR MAKING INVESTMENT IN SHARES. HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT, CITED S UPRA, HAS HELD AS UNDER:- 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRAN SACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT I N SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHAR ES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLI ED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINE SS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE T REATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED EITHER AS SHOR T TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN A RRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTIN CT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIB UNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NAT URE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE P RESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIP LE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDING S. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF ITA NO.3203/DEL/2012 8 RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OU GHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE F AULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPT ING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUEST ION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SU BSTANTIAL QUESTION. CONSIDERING THE FACTS OF THE ASSESSEES CASE AND RA TIO LAID DOWN IN THE AFORESAID CASE, WE FIND THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TAXING THE INCOME WORKED OUT AS SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. ACCORDINGLY, WE ALLOW THE GROUND OF ASSESS EES APPEAL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS14TH DAY OF NOVEMBER, 2014. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 14 TH DAY OF NOVEMBER, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT