The DCIT, Circle-14, Ahmedabad V. Shri Prof. Bastiram H.Jajoo, Ahmedabad

ITA 3437/AHD/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1167 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 30-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M M PATEL
• Keywords: Capital asset; Business income; Salary income; Rule of consistency; Wrong claim
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 3437/AHD/2009 (ASSESSMENT YEAR: 2006-07) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-14, AHMEDABAD V/S PROF. BASTIRAM H. JAJOO, INDIAN INSTITUTE OF MANAGEMENT, VASTRAPUR, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAPPJ2647C APPELLANT BY : SHRI JAMES KURIAN, SR. D.R . RESPONDENT BY : SHRI M.M. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 04 -07-20 16 DATE OF PRONOUNCEMENT : 07 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-XXI, AHMEDABAD DATED 12.10. 2009 PERTAINING TO A.Y. 2006-07. ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 2 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN LAW AND ON FACTS IN DIRECTING NOT TO TREAT THE SHORT TE RM CAPITAL GAINS AMOUNTING TO RS. 60,28,574/- EARNED BY THE ASSESSEE AS BUSINESS INCOME. 3. THE ASSESSEE IS A SALARIED EMPLOYEE, EMPLOYED WITH THE INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD. THE RETURN OF I NCOME FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED ON 28.07.2006 DE CLARING TOTAL INCOME AT RS.69,25,500/-. ON THE BASIS OF AIR INFOR MATION, THE RETURN WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGL Y STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS DECLARED INCOME FROM SALARY, CAPITAL GAIN ON SALE OF SHARES AND SECURITIES AND INCOME FR OM OTHER SOURCES. 5. THE A.O. WAS OF THE FIRM BELIEF THAT THE ASSESSEE H AS FREQUENTLY AND REPEATEDLY TRADED IN SHARES OF INDIAN COMPANIES AND ACCORDINGLY ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SHOR T TERM CAPITAL GAIN ARISING OUT OF PURCHASE AND SALE OF SHARES SHO ULD NOT BE TAXED AS BUSINESS INCOME. ASSESSEE FILED A DETAILED REPLY JU STIFYING HIS STAND THAT THE GAINS HAVE TO BE TAXED UNDER THE HEAD SHOR T TERM CAPITAL GAINS. THE DETAILED SUBMISSIONS MADE BY THE ASSESSE E DID NOT FIND FAVOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THA T THE LENGTH OF PERIOD OF OWNERSHIP, THE FREQUENCY/NUMBER OF TRANSA CTIONS AND THE UTILIZATION OF BORROWED FUNDS CLEARLY SHOWS THAT TH E ASSESSEE WAS IN FACT TRADING IN SHARES AND TREATED THE ENTIRE CAPIT AL GAINS AS BUSINESS INCOME OF THE ASSESSEE. ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 3 6. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED THE CLAIM OF CAPITAL GAINS. A FTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND AFTER DISCUSSING CERT AIN JUDICIAL DECISIONS, THE FIRST APPELLATE AUTHORITY WAS CONVIN CED THAT THE ASSESSEE WAS AN INVESTOR, THEREFORE, ANY PROFIT ARI SING OUT OF PURCHASE AND SALE OF SHARES SHOULD BE TAXED UNDER THE HEAD S HORT TERM CAPITAL GAINS. 7. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 8. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. IT IS THE SAY OF THE LD. D.R. THAT UTILIZATION OF BORROWED FUNDS FOR PURCHASE OF SHARES AND UNITS OF MUTUAL FUNDS CLEARLY SHOW THAT THE ASS ESSEE WAS TRADING IN SHARES AND, THEREFORE, THE PROFITS DERIVED FROM THE PURCHASE AND SALE OF SHARES HAVE BEEN RIGHTLY TAXED UNDER THE HE AD BUSINESS INCOME BY THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASS ESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHO RITIES BELOW. 10. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SA LE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHET HER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CA SE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DE BATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUAT ION. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE SHOWS THAT THE ASSESSEE HAS SEPARATELY SHOWN DERIVATIVE PROFIT, LONG TERM CAPIT AL GAINS/SHORT TERM ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 4 CAPITAL GAINS ON SHARES. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMEN T SHARES HAVE BEEN VALUED AT COST. THE HON'BLE SUPREME COURT IN T HE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 I TR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN IT S CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS -WI THIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT ' 11. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVER SIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE S AME READS AS UNDER:- SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASS ETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITA! ASSETS OR STOCK-IN-TRADE/ TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVE STMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN- ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 5 TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OL UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK- IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT' ) HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIR CULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION 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 PRI NCIPAL 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 NAT URE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED O NES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASS ESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED S HARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSI NESS 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/SECURIT IES 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 TRA NSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQU ENT ASSESSMENT ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 6 YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED T O ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUE NT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHAL L CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LON G TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRAN SACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINI NG CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVE D FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 12. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD, IN OUR CONSIDERED OPINION, T HE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHASE OF SHARES IS P ARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVESTOR A ND SHOWING THE SHARES AS INVESTMENT, WE DO NOT FIND ANY REASON TO DISTURB THE INTENTION OF THE ASSESSEE. AT THIS JUNCTURE, LET US SEE THE PAST AND FUTURE ASSESSMENTS OF THE ASSESSEE:- CHART SHOWING ASSESSMENT STATUS OF SHORT-TERM & LON G-TERM GAINS ON SALE OF SECURITIES FROM A.Y. 2000-0 1 TO A.Y. 2009-10 ASSESSMENT YEAR SALE VALUE OF STCG SHARES (RS. ) SHORT-TERM CAPITAL GAIN (RS.) SALE VALUE OF LTCG SHARES (RS.) LONG-TERM CAPITAL GAIN (RS.) DIVIDEND INCOME (RS.) ASSESSMENT STATUS A.Y. 2000- 01 4,14,109 -112,891 1,27,18,245 1,19,90,645 1,74,487 ACCEPTED U/S. 143(1) ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 7 A.Y. 2001- 02 32,01,060 12,292 2,83,79,887 2,77,28,287 2,01,484 A CCEPTED U/S. 143(1) A.Y. 2002- 03 1,75,53,424 -3,986,219 1,67,37,739 1,53,71,953 6,92 ,086 ACCEPTED U/S. 143(3) A.Y. 2003- 04 27,22,903 59,473 69,880 28,880 3,48,445 ACCEPTED U/S. 143(1) A.Y.2004- 05 75,88,873 77 1,85,56,982 43,959 6,80,247 ACCEPTED U/S. 143(3) A.Y. 2005- 06 1,47,72,152 8,73,335 55,21,143 -1,239,656 4,61,754 ACCEPTED U/S. 143(1) A.Y. 2006- 07 4,12,69,176 60,28,574 36,96,126 6,40,470 6,68,713 I N APPEAL BEFORE ITAT A.Y. 2007- 08 1,03,80,950 14,91,930 64,87,430 14,34,494 8,24,725 ACCEPTED U/S. 143(1) 2008-09 4,69,647 1,27,343 1,47,82,988 40,92,931 4,9 2,933 ACCEPTED U/S. 143(1) 2009-10 5,05,624 29,123 55,95,184 37,07,915 5,08,25 9 ACCEPTED U/S. 143(1) 13. A PERUSAL OF THE AFOREMENTIONED HISTORY OF ASSESSME NTS OF THE ASSESSEE SHOWS THAT ONLY DURING THE IMPUGNED ASSESS MENT YEAR, THE A.O. HAS TAKEN A STAND THAT THAT THE ASSESSEE IS TR ADING IN SHARES. THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SAT SANG 193 ITR 321 HAS EXPOUNDED THE RULE OF CONSISTENCY OBSERVING THAT IF THE FACTS ARE IDENTICAL AND THE LAW HAS NOT CHANGED THEN THE VIEW TAKEN IN THE EARLIER YEARS SHOULD BE FOLLOWED. 14. CONSIDERING THE FACTS OF THE CASE IN HAND IN TOTALI TY, IN THE LIGHT OF THE AFORE-STATED CBDT CIRCULAR, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. ITA NO. 3437 /AHD/2009 . A.Y. 2006-07 8 15. APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D. ORDER PRONOUNCED IN OPEN COURT 07 - 07 - 201 6. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD