ACIT, New Delhi V. Shri Jugmandar Dass Bansal, New Delhi

ITA 4381/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6960 (ITAT-DELHI)
• Duration Of Justice: 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Keywords: Capital asset; Business income; Salary income; Capital Gains
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH D DELHI ] BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJAN, AM I. T. APPEAL NO. 4381 (DEL) OF 2010 ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME-TAX, SHRI JUGMA NDAR DASS BANSAL, C I R C L E : 35 (1), VS. C 278, PHASE : I, VIVEK VIHAR, N E W D E L H I. D E L H I 110 095. P A N / G I R NO. AAA PB 2348 E. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI RANO JAIN, C. A.; DEPARTMENT BY : SHRI SALIL MISHRA, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 7-08 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XXVII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS FOLLOWS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT (APPEALS) HAS ERRED IN TREATING THE BUSINESS INCOME FROM THE SALE / PURCHASE OF THE SHARES, AS CAPITAL GAIN SPECIALLY WHEN THERE IS NO CLEAR CUT D EMARCATION IN STOCK AND INVESTMENT OF SHARES; 2. THE LD. CIT (APPEALS) HAS WRONGLY APPL IED THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT VS. JCIT IT APPE AL 1121 OF 2009 ON 6 TH 2 I. T. APPEAL NO. 4381 (DEL) OF 2010 JANUARY, 2010 AS THE FACT, ARE DEFERENT IN FROM THE PRESENT CASE. IN THIS CASE THE ASSESSEE HAS DECLARED HIS INCOME FROM SALARY, BUSIN ESS OR PROFESSION CAPITAL GAIN (SHORT TERMS AS WELL AS LONG TERM) AND INCOME FROM OTHER SOURCES. 3. THE ONLY GROUND RAISED BY THE REVENUE RELATES TO TREATING THE PROFITS AND GAINS ARISING ON SALE/PURCHASE OF SHARES AS CAPITAL GAINS AS AGAINST BUSINESS INCOME TREATED BY THE ASSESSING OFFICER. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IN THE RETURN OF INCOME DECLARED LONG TERM CAPITAL GAIN OF RS.9,02,893/- AND SHORT T ERM CAPITAL GAIN OF RS.25,91,831/- FROM SALE AND PURCHASE OF VARIOUS SECURITIES. IN RESPONSE TO A QUERY RAISED BY THE AO IT WAS SUBMITTED THAT THE INVESTMENTS IN SHARES HAD BEEN MADE FOR LONG TE RM APPRECIATION AND FOR EARNING DIVIDENDS THEREON. THE ASSESSEE EARNED DIVIDEND OF RS.50,058 /- WHICH SIGNIFIED THE FACT THAT THE ASSESSEE WAS AN INVESTOR AND NOT TRADER. THE SHARES/SECURIT IES WERE HELD BY THE ASSESSEE AS INVESTMENTS AND NOT STOCK-IN-TRADE. THE SHARES AT THE YEAR END HAVE BEEN VALUED AT COST AS INVESTMENT IN CAPITAL ASSET AND NOT VALUED AT COST OR MARKET PRIC E, WHICHEVER WAS LESS FOR THE PURPOSE OF STOCK IN TRADE. THE SHARES WERE PURCHASED OUT OF OWN FUN DS AND NOT FROM BORROWED FUNDS. IT WAS ALSO SUBMITTED THAT INVESTMENTS IN SHARES WAS AN OCCASIO NAL ACTIVITY UNDERTAKEN BY THE ASSESSEE AND, THEREFORE, IT WAS A CASUAL ACTIVITY. IN VIEW OF TH ESE FACTS IT WAS SUBMITTED THAT THE ASSESSEE WAS AN INVESTOR OF SHARES AND NOT TRADER. HE PLACED RE LIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEV. COM. LTD. 92 ITR 586 (SC). THE CONTENTION OF THE ASSESSEE, HOWEVER, WAS REJECTED B Y THE AO ON THE GROUND THAT THE ASSESSEE WAS INDULGING IN SALE AND PURCHASE OF SECURITIES FREQUE NTLY AND REGULARLY DURING FINANCIAL YEAR 2006- 07. THE SCALE OF ACTIVITIES OF SALE AND PURCHASE O F SECURITIES BY THE ASSESSEE WAS SUBSTANTIAL. THE HOLDING PERIOD OF MOST OF THE SECURITIES WAS VERY S HORT AS SHORT AS 5 DAYS. THE ASSESSEE WAS MAINLY DEALING IN SHARES IN WHICH THERE WAS AN ELEM ENT OF RISK OR UNCERTAINTY WAS INVOLVED, WHICH IS A BASIC PRE-REQUISITE TO CONSIDER AN ACTIV ITY IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE. THE AO, THEREFORE, TREATED THE INCOME ON SALE/PURCHASE OF SECURITIES UNDER THE HEAD BUSINESS AND PROFESSION. 3 I. T. APPEAL NO. 4381 (DEL) OF 2010 4. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT THE PURCHASE AND SALE OF SHARES EVEN ON SUBSTANTIAL BASIS WAS NOT FATAL TO EARNING OF CAPIT AL GAINS. THE LD. CIT (APPEALS) AFTER CONSIDERING THE WRITTEN SUBMISSIONS RELYING ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT 122 TTJ (MUM.) 87 (AT) OBSERVED TH AT ONCE THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENT, DELIVERY TAKEN AND GIVEN AND STT HAD BEEN PAID, THEN THE CLAIM OF CAPITAL GAIN WAS BOUND TO BE ACCEPTED. THE LD. CIT (APPEALS), T HEREFORE, TREATED THE PROFITS ARISING ON SALE OF SHARES AT RS.34,94,731/- AS SHORT TERM CAPITAL GAIN . 5. BEFORE US THE LD. SR. DR SUBMITTED THAT PURCHASE S AND SALES OF SHARES/ SECURITIES WAS WITH THE MOTIVE OF EARNING PROFITS AND NOT FOR EARNING T HE DIVIDENDS. THE ASSESSEE HAD TRADED IN SHARES AND SECURITIES FREQUENTLY AND, THEREFORE, TH E ASSESSEES CASE IS COVERED BY THE C.B.D.T. CIRCULAR NO 4 OF 2007. HE FURTHER SUBMITTED THAT THE FINDINGS RECORDED BY THE LD. CIT (A) IN PARA 7.4 THAT SHARES SOLD BY THE ASSESSEE WERE OUT OF SHARES ACQUIRED IN EARLIER YEARS IS FACTUALLY INCORRECT. HE FURTHER SUBMITTED THAT THE ASSESSEE S CASE IS NOT COVERED BY THE DECISION OF ITAT IN THE CASE OF GOPAL PUROHIT (SUPRA) AND, THEREFORE, T HE LD. CIT (A) IS NOT RIGHT IN PLACING RELIANCE ON THE DECISION OF THE ITAT IN THE CASE OF GOPAL PU ROHIT (SUPRA). ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN SH ARES WAS MADE OUT OF OWN FUNDS AND NOT FROM THE BORROWED FUNDS. THE ASSESSEE HAD TREATED THE P URCHASE AND SALE OF SHARES AS INVESTMENT IN ITS BOOKS OF ACCOUNTS. HE FURTHER SUBMITTED THAT THE A SSESSEE HAS ACTED AS SUB-BROKER AND THE INCOME FROM TRADING IN SHARES AND SECURITIES HAS BE EN OFFERED AS BUSINESS INCOME. HOWEVER, THE SHARES AND SECURITIES, WHICH WERE HELD AS INVESTMEN TS, HAVE BEEN OFFERED AS INCOME FROM CAPITAL GAINS. IT WAS ALSO SUBMITTED THAT THE ASSESSEES C ASE IS COVERED BY THE DECISION OF ITAT IN THE CASE OF GOPAL PUROHIT WHICH HAS BEEN AFFIRMED BY T HE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 6/01/2010 IN ITA. NO. 1121 OF 2009. SLP FILE D BY THE REVENUE AGAINST THE DECISION OF HONBLE BOMBAY HIGH COURT HAS BEEN DISMISSED BY HON BLE SUPREME COURT. THEREFORE, THE DECISION IN THE CASE OF GOPAL PUROHIT HAS ATTAINED FINALITY. SINCE THE SHARES AND SECURITIES WERE HELD AS INVESTMENTS, THE SAME IS LIABLE TO BE TAXED AS SHORT TERM/LONG TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING. 4 I. T. APPEAL NO. 4381 (DEL) OF 2010 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS PROP. OF M/S. SUN SECURITIES, WHICH IS REGISTERED AS SUB-BROKER WITH SEBI THROUGH THE MAIN BROKER M/S. INTEGRATED MASTERS P. LTD. M/S. S UN SECURITIES IS DEALING IN SALE / PURCHASE OF SHARES ON BSE ON BEHALF OF ITS CLIENTS AND HAD CHAR GED BROKERAGE FROM THEM. THE ASSESSEE HAD SHOWN BROKERAGE OF RS.9,14,940/- AND AFTER CLAIMING EXPENSES HAS ADMITTED LOSS OF RS.1,23,904/-. IN THE CASE OF ASSESSEE ALL THE SHAR ES HAVE BEEN ALLOTTED IN IPOS AND HAVE BEEN SOLD AFTER THE DELIVERY OF THE SAME WERE TAKEN BY I T IN ITS DEPOSITORY ACCOUNTS. THE ASSESSEE HAD SHOWN SUCH SHARES IN THE BOOKS OF ACCOUNTS AS INVES TMENTS. WE HAVE ALSO GONE THROUGH THE DETAILS OF THE SHORT TERM CAPITAL GAINS SHOWN BY TH E ASSESSEE. MAJORITY OF SHARES HAVE BEEN SOLD WITHIN THE SHORT PERIOD OF 5 DAYS TO THREE MONTHS. THE ASSESSEE HAD PAID STT ON SALE OF SHARES. THE STT PAID HAD NOT BEEN CLAIMED AS DEDUCTION IN T HE PROFIT AND LOSS ACCOUNT. THERE IS NO BAR THAT THE ASSESSEE TRADING IN SHARES CANNOT MAKE INV ESTMENTS IN THE SHARES. CBDT CIRCULAR NO. 4 DATED 15/06/2007 HAS CLARIFIED THAT IT IS POSSIBLE FOR TAXPAYER TO HAVE TWO PORT-FOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES, WHIC H ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORT-FOLIO COMPRISING OF STOCK-IN-TRADE, WH ICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORT-FOLIOS THE ASSESSEE MAY HA VE INCOME UNDER BOTH THE HEADS I.E. UNDER CAPITAL GAINS AS WELL AS BUSINESS INCOME. IN VIEW OF THE ABOVE FACTS, SINCE THE ASSESSEE HAD HELD THE SHARES AS INVESTMENTS, THE PROFIT ARISING ON SA LE OF SHARES WILL BE ASSESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT AS STOCK-IN-TRADE. SINCE THE ASSESSEE HAS RECEIVED THE SHARES AND HAS GIVEN DELIVERY OF SHARES AT THE TIME OF PURCHASE AN D SALE, AND HAD PAID STT, THE TRANSACTIONS INVOLVING PURCHASE AND SALE OF SHARES HAVE TO BE TR EATED IN THE NATURE OF INVESTMENTS. ITAT, MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT VS. CIT ( SUPRA) HAS HELD THAT WHERE ASSESSEE WAS ENGAGED IN SALE AND PURCHASE OF SHARES, THE DELIVER Y BASED TRANSACTION WERE TO BE TREATED AS OF NATURE OF INVESTMENTS AND PROFIT THEREFROM WERE TO BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GAINS DEPENDING ON PERIOD OF HOLDING. SUCH PROFITS COULD NOT BE TREATED AS BUSINESS INCOME. THE DECISION OF ITAT HAS BEEN UPHELD BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM). WE ALSO FIND THAT THE AO IN ASSESSMENT YEAR 2004-05 AND IN ASSESSMENT YEAR 2006-07 HAS ACCEPTED THE INCOME ARI SING ON SALE OF INVESTMENT AS SHORT TERM / LONG TERM CAPITAL GAINS, WHICH IS EVIDENT FROM ASSE SSMENT ORDERS PASSED UNDER SECTION 143(3) FOR THESE YEARS. THEREFORE, THE ISSUE IS SQUARELY COVE RED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA). SLP FIL ED BY THE REVENUE AGAINST THE DECISION OF 5 I. T. APPEAL NO. 4381 (DEL) OF 2010 HONBLE BOMBAY HIGH COURT HAS BEEN DISMISSED BY HON BLE SUPREME COURT VIDE THEIR DECISION DATED 15.11.2010 IN CC16802/2010. RESPECTFULLY, F OLLOWING THE PRECEDENT, IT IS HELD THAT THE LD. CIT (APPEALS) IS JUSTIFIED IN TREATING THE SALE OF SHARES AS CAPITAL GAINS. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. C IT (APPEALS) DELETING THE ADDITION. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 21 ST OCTOBER, 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : _21 ST OCTOBER, 2011 . *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.