Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 7330 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 10 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
13-06-2016
Assessment Year
2008-2009
Appeal Filed On
19-10-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D: NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AN D SHRI L.P. SAHU, ACCOUNTANT MEMBER , ITA NO. 5362/DEL/2012 [A.YS : 2008-2009] SHRI KAMAL SHIV KUMAR VS. THE DY. D.I.T. C/O M/S TIWARI & ASSOCIATES NEW DELHI T 8, IIND FLOOR, GREEN PARK EXTN. NEW DELHI PAN : AQQPK 3330 F ITA NO. 6067/DEL/2012 [A.YS : 2008-2009] SMT. LEA ANN KUMAR VS. THE DY. D.I.T. C/O M/S TIWARI & ASSOCIATES NEW DELHI T 8, IIND FLOOR, GREEN PARK EXTN. NEW DELHI PAN : ARZPK 1402 G [APPELLANT] [RESPO NDENT] DATE OF HEARING : 13.06.2016 DATE OF PRONOUNCEMENT : 26.08.2016 APPELLANT BY : SHRI A.B. DIAL, SR. A DV MS. ANANYA DATTA MAJUMDAR, ADV SHRI KAMAL ANAND, ADV RESPONDENT BY : SHRI YOGESH KUMAR SHARMA , SR. DR ORDER PER CHANDRA MOHAN GARG, JM:- BOTH THE ABOVE CAPTIONED APPEALS HAVE BEEN FILED BY THE ASSESSEE AND HIS WIFE DIRECTED AGAINST THE SEPARATE ORDERS OF THE 2 ITA NOS. 5362 & 6067/DEL/2012 2 CIT(A)-XXIX, NEW DELHI, DATED 03/08/2012 AND 04.10. 2012 RESPECTIVELY FOR AY 2008-09. SINCE THE APPEALS PE RTAIN TO SAME GROUP OF ASSESSEES AND WERE HEARD TOGETHER, WE ARE DISPOSING THEM OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 2. BOTH THE ASSESSEES HAVE RAISED SIMILAR SOLITARY GROUND OF APPEAL IN BOTH THE APPEALS. AT THE OUTSET, WE MAY MENTION THAT BOTH THE PARTIES AGREED THAT THE FACTS AND CIRCUMSTANCES OF BOTH THE APPEALS ARE SAME AND SIMILAR. WE FIRST TAKE UP ITA NO. 5362 /DEL/2012 PERTAINING TO SHRI KAMAL SHIV KUMAR, THE HUSBAND. SHRI KAMAL SHIV KUMAR [ITA NO. 5362/DEL/2012] 3. THE LD. AR SUBMITTED THAT THE CIT(A) HAS GROSSL Y ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE AO WHO HAS W RONGLY TREATED THE SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 26,63,803 /- AS BUSINESS INCOME BY COMPLETELY IGNORING THE FACTS AND DOCUMEN TS PLACED ON RECORD. 4. THE LD. AR DREW OUR ATTENTION TOWARDS PAGES 24 A ND 25 AND SUBMITTED THAT THE AVERAGE HOLDING PERIOD OF SHARES FOR THE ENTIRE PORTFOLIO IS 6.86 MONTHS, I.E. 205 DAYS AND, THEREF ORE, THE INTENTION OF THE ASSESSEE WAS TO MAKE INVESTMENT AND TO EARN CAP ITAL GAINS AND THERE WAS NO ELEMENT OF BUSINESS INCOME THEREFROM. THE LD. AR, ELABORATING THE FACTS OF THE CASE, SUBMITTED THAT T HE TOTAL NUMBERS OF 3 ITA NOS. 5362 & 6067/DEL/2012 3 TRANSACTIONS WERE 160 AND THE NUMBER OF TRANSACTION S WHERE SHARES HELD FOR LESS THAN THREE MONTHS WAS ONLY 55 AND THE NUMBER OF TRANSACTIONS WHERE SHARES WERE HOLD FOR ABOVE THREE MONTHS WERE 155 DAYS AND THE AVERAGE HOLDING PERIOD OF LONG TERM PO RTION WAS 15.81 MONTHS I.E. 474 DAYS. THEREFORE, THE INTENTION OF THE ASSESSEE WAS VERY CLEAR TO MAKE INVESTMENTS AND NOT TO DO BUSINE SS OF THE SHARES. 5. THE LD. AR DREW OUR ATTENTION TOWARDS CIRCULAR N O. 6/2016 DATED 29 TH FEBRUARY 2016 OF THE CENTRAL BOARD OF DIRECT TAXES AND SUBMITTED THAT 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 FROM SUCH SHARES/S ECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME. THE LD. AR PLACIN G RELIANCE ON THE DECISION OF THE ITAT, SPECIAL BENCH, DELHI IN THE C ASE OF SURAJ OVERSEAS (P) LTD DATED 14.10.2015 SUBMITTED THAT RE FERRING TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT O F DELHI IN THE CASE OF RADIALS INTERNATIONAL VS. ACIT REPORTED AT [201 4] 367 ITR 1[DELHI], THE HON'BLE HIGH COURT HELD THAT BUSINESS IS OF ADV ENTURE IN THE NATURE OF TRADE, PURCHASE AND SHARES WITH OWN FUNDS AND IN VESTMENT OF SHARES UNDER PORTFOLIO MANAGEMENT AGREEMENT IS NOT DISCLOSING INTENTION TO MAKE PROFIT AND IF SHARES ARE HELD FOR LONG TIME, THEN PROFIT FROM SALE OF SHARES IS NOT ASSESSABLE AS BUS INESS INCOME AND THE SAME SHOULD BE TERMED AS EITHER LONG TERM CAPITAL G AIN OR SHORT TERM 4 ITA NOS. 5362 & 6067/DEL/2012 4 CAPITAL GAIN. THEREFORE, THE LD. AR PRAYED THAT THE CONCLUSION OF THE AUTHORITIES BELOW MAY KINDLY BE DISMISSED AND THE A O MAY BE DIRECTED TO TREAT THE INCOME AS SHORT TERM CAPITAL GAIN IN STEAD OF BUSINESS INCOME. 6. REPLYING TO THE ABOVE, THE LD. DR DREW OUR ATTEN TION TOWARDS PARA 2.2 OF THE IMPUGNED ORDER AND SUBMITTED THAT T HE ACTION OF THE AO WAS QUITE CORRECT AND JUSTIFIED IN TREATING THE INCOME OF THE ASSESSEE AS BUSINESS INCOME BECAUSE THE INTENTION O F THE ASSESSEE WAS TO EARN PROFIT FROM PURCHASE AND SALE OF SHARES AS ADVENTURE IN THE NATURE OF TRADE. HOWEVER, THE LD. DR COULD NOT CON TROVERT THIS SITUATION THAT THE CIRCULAR NO. 6/2016 DATED 29 TH FEBRUARY 2016 OF THE CENTRAL BOARD OF DIRECT TAXES SUPPORTS THE CASE OF THE ASSESSEE. 7. IN REJOINDER TO THE ABOVE CONTENTION OF THE LD. DR, THE LD. AR SUBMITTED THAT IN PARA 3 OF THE APPELLATE ORDER, TH E CIT(A) NOTED THAT THE APPELLANT IS A NON-RESIDENT AND HAS FILED HIS R ETURN OF INCOME ELECTRONICALLY ON 31.3.2009 DECLARING AN INCOME OF RS. 26,63,803/- AS SHORT TERM CAPITAL GAIN FROM INVESTMENT IN SHARES / MUTUAL FUNDS. THE CIT(A) FURTHER NOTED THAT THE APPELLANT IS A CITIZE N OF USA AND A PERSON OF INDIAN ORIGIN WORKING AS IT CONSULTANT IN USA AND FOR MAKING INVESTMENT IN SHARES IN INDIA, THE ASSESSEE GAVE PO WER OF ATTORNEY TO ING VYASA BANK TO ACT AS PORTFOLIO INVESTMENT BANKE R. THE LD. AR CONTENDED THAT THEREFORE, IN VIEW OF THE PROPOSITIO N LAID DOWN BY THE 5 ITA NOS. 5362 & 6067/DEL/2012 5 HON'BLE HIGH COURT OF DELHI IN THE CASE OF RADIALS INTERNATIONAL [SUPRA], THE INCOME ACCRUED TO THE ASSESSEE FROM TH ESE INVESTMENTS CANNOT BE TREATED AS BUSINESS INCOME AND THE SAME H AS TO BE TAXED UNDER THE HEAD LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. 8. WE HAVE HEARD THE RIVAL SUBMISSION AND HAVE PERU SED THE RELEVANT MATERIAL ON RECORD. ON CAREFUL CONSIDERAT ION OF THE ABOVE RIVAL SUBMISSIONS, AT THE VERY OUTSET, WE MAY POINT OUT THAT AS PER THE ABOVE MENTION CIRCULAR DATED 6/2016 OF CBDT, THE AS SESSEE HAS AN OPTION TO OPT WHETHER THE LISTED SHARES/SECURITIES ARE STOCK IN TRADE OR INVESTMENTS, IRRESPECTIVE OF THE PERIOD OF HOLDI NG OF SHARES/SECURITIES. AS PER PARA 3 OF THIS CIRCULAR, IT IS PREROGATIVE OF THE ASSESSEE TO TREAT THE LISTED SHARES AND SECURIT IES AS STOCK IN TRADE AS INVESTMENT AND IF THE ASSESSEE IS TREATING THE S AME AS STOCK IN TRADE, THEN THE INCOME ARISING FROM TRANSFER FROM S UCH SHARES/SECURITIES HAS TO BE TREATED AS LONG TERM OR SHORT TERM CAPITAL GAINS. IN THE PRESENT CASE, ADMITTEDLY, AND UNDISP UTEDLY, THE ASSESSEE IS A NON-RESIDENT INDIAN WORKING AS I.T. C ONSULTANT IN USA. THE AO HAS NOT CONTROVERTED THIS FACT THAT THE ASSE SSEE USED HIS SURPLUS MONEY FOR MAKING INVESTMENT IN SHARES IN IN DIA AND POWER OF ATTORNEY WAS GIVEN TO ING VYSA BANK TO ACT AS PORTF OLIO INVESTMENT BANKER OF THE ASSESSEE. THE PROPOSITION LAID DOWN BY THE HON'BLE DELHI COURT IN THE CASE OF RADIALS INTERNATIONAL [S UPRA] COMES TO 6 ITA NOS. 5362 & 6067/DEL/2012 6 SUPPORT THE CASE OF THE ASSESSEE WHEREIN IT HAS BEE N HELD THAT WHEN THE ASSESSEE PURCHASES SHARES WITH ITS OWN FUNDS AN D INVESTMENT OF SHARES HAS BEEN MADE UNDER PORTFOLIO MANAGEMENT AGR EEMENT AND AGREEMENT IS NOT DISCLOSING INTENTION OF INVESTOR T O MAKE PROFIT AND SHARES HAVE BEEN HELD FOR LONG TIME, THEN PROFIT FR OM SALE OF SHARES IS NOT ASSESSABLE AS BUSINESS INCOME. THE RELEVANT OP ERATIVE PART OF THIS ORDER IN PARAS 8 TO 12 AT PAGES 8 TO 11 READS AS UN DER: 8. THIS COURT HAS CONSIDERED THE SUBMISSIONS OF BOTH PARTIES. AT THE OUTSET, IT WOULD BE PERTINENT TO NOTE SOME OF T HE RELEVANT TERMS OF THE PMS AGREEMENT. CLAUSES 7(B) AND 7 (C) OF THE PMS AGREEMENT BETWEEN RADIAL AND KOTAK SECURITIES LTD. INDICATE T HAT ONLY IN A DISCRETIONARY PORTFOLIO, UNLIKE IN A NON-DISCRETION ARY PORTFOLIO, THE MANAGER HAS FULL DISCRETION TO INVEST IN RESPECT OF THE CLIENT'S ACCOUNT IN ANY TYPE OF SECURITY, AND MAKE SUCH CHANGES IN T HE INVESTMENTS AS HE DEEMS FIT. CLAUSE 18 (B) OF THE AGREEMENT STATES THAT THE MANAGER SHALL 'NOT BE RESPONSIBLE FOR ANY LOSS OR EXPENSES RESULTING TO ONE PERSON AS CLIENT, FROM THE INSUFFICIENT OR DEFICIEN CY OF VALUE OF OR TITLE TO ANY PROPERTY OR SECURITY ACQUIRED OR TAKEN ON BEHALF OF THE CLIENT'. WHILE THE AGREEMENT ENTERED INTO BETWEEN RADIAL AND RELIANCE APPEARS TO BE A DISCRETIONARY PORTFOLIO, AS INDICAT ED IN CLAUSE 9 (BY WHICH CLIENT 'UNCONDITIONALLY AND IRREVOCABLY' GRAN TS POWER OF ATTORNEY TO THE PORTFOLIO MANAGER TO MAKE DECISIONS ON THE INVESTMENTS), CLAUSE 10 STATES THAT THE PORTFOLIO M ANAGER PROVIDES NO WARRANTY AS TO THE APPRECIATION OF THE SECURITIES I N WHICH HE APPLIES THE CLIENT'S FUNDS. THEREFORE, IT IS CLEAR THAT A P MS AGREEMENT CAN BE AN INSTRUMENT BY COMPLETE AUTHORITY AND DISCRETION OVER THE 7 ITA NOS. 5362 & 6067/DEL/2012 7 TRANSACTIONS TO BE ENTERED INTO, IS SURRENDERED TO THE PORTFOLIO MANAGER BY THE INVESTOR. 9. FROM THE TERMS OF THE AGREEMENT IT DOES NOT EMER GE THAT THE INTENTION OF THE INVESTORS TO MAKE PROFITS. THE TER MS ON THE OTHER HAND, INDICATE THAT REGARDLESS OF THE LEVEL OF DISC RETION HANDED OVER TO THE PORTFOLIO MANAGER, THERE IS NEITHER ANY GUAR ANTEE THAT THE SECURITIES INVESTED IN WILL APPRECIATE NOR IS THE P ORTFOLIO MANAGER RESPONSIBLE TO THE CLIENT FOR ANY LOSS FROM THE DEF ICIENCY OF VALUE OF THE SECURITIES. THUS, THE PMS AGREEMENT AT BEST, EM BODIES THE INTENTION TO APPOINT AN AGENT WITH LIMITED LIABILIT Y, WHO WILL INVEST ON BEHALF OF THE INVESTOR AND NOTHING MORE. 10. THE LD. ITAT REASONS THAT 'AT THE TIME OF DEPOS IT OF AMOUNT, THE INTENTION OF THE ASSESSEE WAS TO MAXIMIZE THE PROFI T' BECAUSE FIRST, WHILE THE ASSESSEE ENTERS THE PMS AS INVESTMENTS IN THE BOOKS OF ACCOUNT AT THE TIME OF DEPOSITING THE MONEY, THE AS SESSEE DOES NOT KNOW WHAT SPECIFIC TRANSACTIONS WILL BE ENTERED INT O BY THE MANAGER, SECOND, THAT THE ASSESSEE FINDS OUT THE DETAILS OF THE TRANSACTIONS ONLY AFTER THREE MONTHS HAVE EXPIRED AND, ONLY AT T HE END OF THE YEAR CAN THE SHARES IN THE DEMAT ACCOUNT BE ENTERED INTO THE BOOKS OF ACCOUNT, THIRD, THE ASSESSEE HAS NO CONTROL OVER TH E SHARES BOUGHT OR SOLD UNDER THE PMS AND THUS THE PORTFOLIO MANAGER E NTERS INTO TRANSACTIONS ON BEHALF OF HIS CLIENTS TO MAXIMIZE P ROFITS. FROM THIS, THE ITAT INFERS THAT 'IT CANNOT BE SAID THAT THE AS SESSEE HAD INVESTED MONEY UNDER PMS WITH INTENTION TO HOLD SHARES AS IN VESTMENT'. THE REASONING OF THE LD. ITAT DOES NOT FIND FAVOUR WITH THIS COURT FOR THREE REASONS. 11. FIRST, THE THREE REASONS PROVIDED BY THE ITAT M ERELY CONVEY THAT INTENTION TO HOLD SHARES AS INVESTMENT CANNOT BE IN FERRED FROM THE AGREEMENT. HOWEVER, THE FACT THAT NO INFERENCE OF A N INTENTION TO 8 ITA NOS. 5362 & 6067/DEL/2012 8 INVEST CAN BE MADE FROM THE AGREEMENT DOES NOT TRAN SLATE TO THE INTENTION TO TRADE IN SHARES FOR PROFIT EITHER. AS WAS NOTED IN RAJA BAHADUR KAMAKHYA NARAIN SINGH V. CIT-BIHAR , (1969)3SCC791 = (1970) 77 ITR 253 (SC) : 'THE SURPLUS REALISED ON THE SALE OF SHARES, FOR IN STANCE, WOULD BE CAPITAL IF THE ASSESSEE IS AN ORDINARY INVESTOR REA LISING HIS HOLDING; BUT IT WOULD BE REVENUE, IF HE DEALS WITH THEM AS A N ADVENTURE IN THE NATURE OF TRADE. THE FACT THAT THE ORIGINAL PURCHAS E WAS MADE WITH THE INTENTION TO RESELL IF AN ENHANCED PRICE COULD BE OBTAINED IS BY ITSELF NOT ENOUGH BUT, IN CONJUNCTION WITH THE COND UCT OF THE ASSESSEE AND OTHER CIRCUMSTANCES, IT MAY POINT TO THE TRADIN G CHARACTER OF THE TRANSACTION. FOR INSTANCE, AN ASSESSEE MAY INVEST H IS CAPITAL IN SHARES WITH THE INTENTION TO RE-SELL THEM IF IN FUTURE THE IR SALE MAY BRING IN HIGHER PRICE. SUCH AN INVESTMENT, THOUGH MOTIVATED BY A POSSIBILITY OF ENHANCED VALUE, DOES NOT RENDER THE INVESTMENT A TR ANSACTION IN THE NATURE OF TRADE. 12. AS INDICATED HERE, WHILE A TRANSACTION MAY BE M OTIVATED BY THE INTENTION TO RESELL AT AN ENHANCED VALUE, IT WOULD NOT BE POSSIBLE TO EVALUATE WHETHER THE TRANSACTION WAS ACTUALLY IN TH E NATURE OF TRADE, UNTIL THE SECURITIES ARE ACTUALLY RESOLD. MOREOVER, IN A DISCRETIONARY PMS, IT BECOMES ALL THE MORE RELEVANT AND NECESSARY TO EVALUATE THE INTENTION OF THE ASSESSEE IN CONJUNCTION WITH HIS C ONDUCT AND OTHER CIRCUMSTANCES, SINCE THE INTENTION OF THE ASSESSEE CANNOT BE ASCERTAINED AT THE TIME OF DEPOSITING THE MONEY IN THE INVESTMENT, BECAUSE THE ACTUAL SALE AND PURCHASE OF SECURITIES HAPPENS AT THE HANDS OF THE PORTFOLIO MANAGER, A MERE AGENT. 9 ITA NOS. 5362 & 6067/DEL/2012 9 9. REVERTING TO THE FACTS OF THE CASE IN HAND, IT I S NOT CONTESTED BY THE AO OR THE LD. DR THAT THE SOURCE OF THE FUNDS O F THE ASSESSEE WERE ITS OWN SURPLUS FUNDS AND THUS WE MAY SAFELY PRESUM E THAT THE ASSESSEE MADE INVESTMENTS FROM HIS OWN SURPLUS FUND S. THE AO AND THE LD. DR HAVE NOT CONTROVERTED THIS FACT THAT THE ASSESSEE MADE INVESTMENTS IN SHARES/SECURITIES IN ING VYASA BANK TO ACT AS PORTFOLIO INVESTMENT BANKER AND NO INVESTMENT HAS BEEN MADE D IRECTLY BY THE ASSESSEE IN THE NATURE OF BUSINESS ADVENTURE IN THE NATURE OF TRADE. WE MAY ALSO POINT OUT THAT AS PER THE RATIO OF THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF RADIALS INTERNATIONAL [SUPRA] THE INTENTION OF THE ASSESSEE MUST BE INFERRED HOLI STICALLY FROM THE CONDUCT OF THE ASSESSEE, CIRCUMSTANCES OF THE TRANS ACTIONS AND NOT JUST FROM SEEMING MOTIVE AT THE TIME OF DEPOSITING MONEY. THEIR LORDSHIPS HELD THAT INTENTION OF THE ASSESSEE, OTHE R CRUCIAL FACTORS LIKE THE SUBSTANTIAL NATURE OF THE TRANSACTIONS, FR EQUENCY, VOLUME ETC. MUST BE TAKEN INTO ACCOUNT TO EVALUATE WHETHER THE TRANSACTIONS ARE ADVENTURE IN THE NATURE OF TRADE. LASTLY, THEIR LO RDSHIPS HELD THAT THE BLOCK OF TRANSACTIONS ENTERED INTO BY THE PORTFOLIO MANAGER MUST BE TESTED AGAINST THE PRINCIPLES LAID DOWN, IN ORDER T O EVALUATE WHETHER THEY ARE INVESTMENTS OR ADVENTURES IN THE NATURE OF TRADE AND IF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ARE THROU GH PORTFOLIO BANKER ARE NOT ADVENTURE IN THE NATURE OF TRADE, THEN THE SAME SHOULD BE TREATED AS INVESTMENT AND INCOME ACCRUED THEREFROM HAS TO BE TAXED 10 ITA NOS. 5362 & 6067/DEL/2012 10 EITHER AS LONG TERM OR SHORT TERM CAPITAL GAINS. A CCORDINGLY, THE SOLE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE AO IS DIRECTED TO TREAT THE INCOME ACCRUED TO THE ASSESSEE FROM SALE OF SHARES THROUGH PORTFOLIO MANAGER AS INCOME FROM LONG TERM /SHORT T ERM CAPITAL GAIN. SMT. LEA ANN KUMAR [ITA NO. 6067/DEL/2012] 10. SINCE FACTS AND CIRCUMSTANCES OF THIS ASSESSEE ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES IN THE CASE OF SHRI KAMAL SHIV KUMAR, THE HUSBAND OF THE ASSESSEE, ON SIMILAR ISSU E, THEREFORE, OUR CONCLUSION ARRIVED AT BY US IN THE CASE OF THE HUSBAND SHRI KAMAL SHIV KUMAR WOULD APPLY MUTATIS MUTANDIS TO TH E CASE OF SMT. LEA ANN KUMAR. CONSEQUENTLY, GROUND NO 1 IS AL LOWED IN THE CASE OF THIS ASSESSEE ALSO. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S STAND ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 26.08. 2016. SD/- SD/- (L.P. SAHU) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26 TH AUGUST, 2016 VL/ 11 ITA NOS. 5362 & 6067/DEL/2012 11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI
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