ACIT, New Delhi V. M/s Nandani Kochar, New Delhi

ITA 4664/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91023 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 27-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 25-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Capital asset; Business income; Salary income; Rule of consistency

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI CM GARG, JM ITA NO.4664/DEL/2010 ASSESSMENT YEAR 200 6 - 07 ACIT, CIRCLE 42(1) VS. SH. NANDANI KO C HAR MAYUR BHAVAN, ROOM NO.621 C/O GE CAPITAL INTERNATIONAL SERVICES NEW DELHI 1 PASCHIMI MARG, VASANT VIHAR NEW DELHI (APPELLANT) (RESPONDENT) A SSESSEE BY : SHRI RAJESH JAIN, C.A. DEPARTMENT BY : SHRI P.DAMKANUNJNA, SR.D.R. O R D E R PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER DT. 7 TH JULY,2010 OF LD.CIT(APPEALS) - XXVII, NEW DELHI PERTAINING TO THE A.Y. 2006 - 07. 2. FACTS IN BRIEF : - THE ASSESSEE IS A JOURNALIST AND IS A FULL TIME EMPLOYEE OF GE CAPITAL INTERNATIONAL SERVICES. SHE FILED HER RETURN OF INCOME ON 18.8.2006 DECLARING TAXABLE INCOME OF RS.16,15,190/ - . APART FROM THE SALARY, THE ASSESSEE HAS INCOME FROM DIVIDEND, INTEREST INCOME, INCOME FROM HOUSE PROPER T Y AND INCOME FROM CAPITAL GAINS. THE ASSESSING OFFICER (AO) , FOR THE REASONS RECORDED IN HIS ORDER , CAME TO A CONCLUSION THAT THE SHORT TERM CAPITAL GAINS EARNED BY THE ASSESSEE THROUGH PURCHASE AND SALE OF SHARES, SHOULD BE ASSESSED AS BUSINESS INCOME. THE REASONS ON WHICH THE AO HAS COME TO SUCH A CONCLUSION ARE GIVEN AT PARA 4, PAGES 2 AND 3 OF THE ASSESSMENT ORDER WHICH IS EXTRACTED FOR READY REFERENCE. 2 4. THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED. IN THE REVISED COMPUTATION OF INCOME ENCLOSED WITH THE ABOVE LETTER DATED 22 - 12 - 2008, THE ASSESSEE HAS OFFERED RS.20,16,714/ - FOR TAXATION AS SHORT TERM CAPITAL GAIN. THE ASSESSEE DID NOT DECLARE ANY INCOME FROM THE TRANSACTIONS IN SHARES. THE OFFER OF THE ASSES SEE THAT INCOME FROM TRANSACTIONS IN SHARES BE TAXED @ 10% BEING SHORT TERM CAPITAL GAIN, CANNOT BE ACCEPTED. THE PROFITS EARNED BY THE ASSESSEE FROM THE T R ANSACTION IN SHARES WILL HAVE TO BE ASSESSED AS ADVENTURE I N THE NATURE OF TRA D E DUE TO THE FOLLOW ING REASONS: 1. THE ASSESSEE HAS PURCHASED AND SOLD SHARES OF ALMOST ALL MAJOR 63 COMPANIES INCLUDING BANKING COMPANIES. 2. THE ASSESSEE TRANSACTED SHARES THROUGH MORE THAN 20 BROKERS AND ALSO MADE DIRECT DEALS. 3. DURING THE YEAR UNDER CONSIDERATION 458 TRAN SACTIONS OF SHARES HAD BEEN MADE. 4. SERVICES OF PORTFOLIO MANAGER HAD BEEN TAKEN IN THIS YEAR AND EARLIER YEARS. 5 . INCOME FROM TRANSACTIONS IN SHARES IS RS.20,16,714 / - WHICH IS MORE THAN SALARY INCOME OF RS.16,38,200. THIS SHOWS THAT MAJOR SOURCE OF INCOME OF THE ASSESSEE WAS BUSINESS OF DEALING IN SHARES WHICH SHE DID NOT DISCLOSE. 6. FROM THE STATEMENTS OF TOTAL INCOME IN RESPECT OF THE EARLIER ASSESSMENT YEARS,I.E.2003 - 04, 2004 - 05 AND 2005 - 06, IT IS SEEN THAT THE ASSESSEE HAD BEEN ENG AGED IN THE TRANSACTION S IN SHARES ON REGULAR BASIS. 7. FOR EARNING INCOME FROM TRANSACTION. IN SHARE THE ASSESSEE HAS CLAIMED . EXPENDITURE WHICH AMOUNTED TO RS.63,334.60 DURING THE YEAR. 8. THE VALUE OF TOTAL TRANSACTIONS IN SH ARE IS SEVERAL CRORES OF RUPEES. 9. THE DIVIDEND EARNED ON THE SHARES TRANSACTED DURING THE YEAR IS PALTRY RS.38,872/ - AS AGAINST WHOPPING PROFITS OF RS.20,I6, 714 / - MADE ON SALE/PURCHASE OF SHARE WHICH GOES TO SHOW THAT EARNING DIVIDEND WAS NOT HER SOLE PURPOSE. RATHER HER SO LE PURPOSE WAS TRADING IN SHARES AS A REGULAR BUSINESS FROM YEAR TO YEAR, AS IN EARLIER YEARS. 10. SCHEDULE OF RESERVE AND SURPLUSES ATTACHED WITH THE AUDIT REPORT SHOWS THE OPENING BALANCE OF RS.11,26,006 AS ON 1 - 4 - 2005 WHICH SHOWS THAT THE ASSESSEE HAD FORAYED INTO THIS FULL BLOWN BUSINESS SINCE LONG. 11. THE HUGE SALES OF SECURITIES HAVE BEEN MADE IMMEDIATELY AFTER MAKING THE PURCHASES AND FAST BUCKS HAVE BEEN' MADE THEREFROM WHICH SHOWS THAT THE INTENTION OF THE ASSESSEE WAS NOT TO HOLD THE SHARES AS HER INVESTMENTS. WHEN CORNERED, THE ASSESSEE EVENTUALLY SURRENDERED THE AMOUNT OF RS.20,16,714 AS SHORT TERM CAPITAL GAIN WHICH, IN FACT, IS BUSINESS INCOME WHICH HAD BEEN KEPT UNDER WRAP AND WAS NOT AT ALL DISCLOSED IN HER RETURN OF INCOME. 3 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY GRANTED RELIEF. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(APPEALS) HAS ERRED IN DEL ETING THE FOLLOWING ADDITIONS: ( I ) IN DIRECTING THE AO TO TREAT THE PROFIT EARNED ON SALE OF SHARE AMOUNTING TO RS.20,16,714/ - AS INCOME FROM SHORT TERM CAPITAL GAIN INSTEAD OF SHARES BUSINESS INCOME AS HELD BY THE A.O. 2. THE APPELLANT CRAVES THE RIGHT TO ALTER, AMEND, ADD OR SUBSTITUTE THE GROUNDS OF APPEAL. 4. WE HAVE HEARD MR. P.DAMKANUNJNA, LD.SR.D.R. ON BEHALF OF THE REVENUE AND MR. RAJESH JAIN, THE LD.COUNSEL FOR THE ASSESSEE. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE C ASE, ON PERUSAL OF MATERIAL ON RECORD, ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. THE ASSESSEE IS AN EMPLOYEE. THE INVESTMENTS WERE MADE THROUGH PRUDENTIAL ICICI MANAGEMENT SERVICES, WHICH WAS THE PORTFOLIO MANAGER OF THE ASSESSEE. UNDER THE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE CONCLUSIONS DRAWN BY THE A.O. , AS EXTRACTED ABOVE , ARE ERRONEOUS. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.7,11,978/ - DURING THE YEAR AND HENCE IT CANNOT BE SAID THAT THE MOT IVE OF THE ASSESSEE IN PURCHASING AND SELLING OF SHARES IS TO DO BUSINESS. FOR ALL THE EARLIER AYS I.E. 2003 - 04, 2004 - 05 AND 2005 - 06 THE ASSESSEE HAD DECLARED BOTH LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS, AS THE CASE MAY BE, AND THESE HAVE BEEN ACCEPTED BY THE REVENUE. HENCE ON THE PRINCIPLE OF CONSISTENCY ALSO THE CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED. MOREOVER THE ASSESSEE HAS NO BORROWED FUNDS. SHE HAS INVESTED THROUGH PORTFOLIO MANAGEMENT SCHEME. THE ASSESSEE SUBSTANTIATED THAT TH E NUMBER OF TRANSACTIONS REFERRED TO BY THE AO ARE MISLEADING FOR THE REASON THAT IN A COMPUTER BASED TRA D I N G SYSTEM , THE PURCHASES ARE SPLIT INTO NUMEROUS TRANSACTIONS. THE HON BLE 4 DELHI HIGH COURT IN THE CASE OF CIT VS. AMIT JAIN IN ITA NO.517/2012 VIDE ORDER DT. 03 RD MARCH, 2015 HAS CONSIDERED A SIMILAR ISSUE AND AT PARA 8 HELD AS FOLLOWS. 8. T HE FACTORS WHICH COURTS AND TRIBUNALS HAVE TO TAKE INTO CONSIDERATION WHILST DECIDING WHETHER INCOME GAINED DURING A PARTICULAR PERIOD IS BUSINESS INCOME THROUGH PURCHASE AND SALE OF SHARES OR OTHER TRADABLE CAPITAL ASSETS, OR CAPITAL GAINS ON ACCOUNT OF S ALE OF SUCH ASSETS, HAS BEEN SPELT OUT AND REITERATED IN A NUMBER OF DECISIONS. THESE INCLUDE RAJA BAHADUR VISHESHWAR SINGH V. CIT ,(1961) 41 ITR 685 (SC); COMMISSIONER OF INCOME TAX, U.P V. MADAN GOP AL RADHEY LAL, [1969] 73 ITR 652 (SC); COMMISSIONER OF I NCOME TAX V ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY 82 ITR 586 (SC); P.M. MOHAMMED MEERAKHAN V. COMMISSIONER OF INCOME - TAX, KERALA, 73 ITR 735 (S.C.) AND COMMISSIONER OF INCOME TAX V NSS INVESTMENTS LTD 2007 (277) ITR 149 (MAD). IT WAS IN THE LIGHT OF T HESE DECISIONS THAT THE CBDT CIRCULAR NO. 4/2007, WAS ISSUED, INDICATING THE PRINCIPLES APPLICABLE 111 THIS REGARD. THESE CRITERIA ARE: ITAS17 - 12 PAGE 6 (1) INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE T REATMENT GIVEN TO THE PURCHASE IN THE ASSESSEE'S BOOKS OF ACCOUNT. (2) DID THE ASSESSEE BORROW MONEY TO PURCHASE THE SHARES, AND PAID INTEREST FOR IT. MONEY IS GENERALLY BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) VOLUME AND FREQUENCY OF THE PURCHASES AND SALE/DISPOSALS. IF PURCHASE AND SALES ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN AN ITEM, THAT CAN INDICATE TRADE. HABITUAL DEALING IN A PARTICULAR ITEM IS INDICATIVE OF INTENTION O F TRADE. LIKEWISE, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). ANOTHER RELA TED FACTOR IS THE DURATION FOR WHICH THE SHARES ARE HELD. (4) WAS THE PURCHASE AND SALE MADE FOR REALIZING PROFIT, OR FOR RETENTION AND APPRECIATION IN ITS VALUE. THE FORMER INDICATES THE PURCHASES BEING PART OF TRADE; AND THE LATTER IS INDICATIVE OF THE PURCHASES BEING AN INVESTMENT. FURTHERMORE, IT WOULD BE RELEVANT TO ASK WHETHER THE INTENTION BEHIND THE PURCHASE WAS TO ENJOY DIVIDEND, OR MERELY TO EARN PROFIT ON SALE OF SHARES. IMPORTANTLY, A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE IN THI S CONTEXT. (5) WHETHER THE ITEMS IN QUESTION WERE VALUED AT COST. IF SO, IT WOULD INDICATE THAT THEY WERE INVESTMENTS. WHERE THEY WERE ITAS17 - 12 PAGE 7 VALUED AT 5 COST OR MARKET VALUE OR NET REALIZABLE VALUE, WHICHEVER IS LESS, IT WILL INDICATE THAT ITEMS WERE TREATED AS STOCK - IN - TRADE. (6) FINALLY, IT WOULD BE RELEVANT TO CONSIDER HOW THE ASSESSEE IS AUTHORIZED M ITS MEMORANDUM / ARTIC LE. 7. APPLYING THE PROPOSITION LAID DOWN THEREIN TO THE FACTS OF THE CASE ON HAND, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND DISMISS THIS APPEAL BY THE REVENUE. 8 . IN THE RESULT THE APPEAL BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 8 T H MAY, 2015. S D / - S D / - [ C.M. GARG ] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE . MAY, 2015 * MANGA COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR, ITAT BY ORDER ASST. REGISTRAR // C O P Y //