The DCIT, 1(1), Indore V. Shri Devendra Singh Choudhary, Indore

ITA 540/IND/2012

• Counselvise Citation: 54022714 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHEEM KUNWAR
• Keywords: Capital asset; Business income; Cost of acquisition

Judgement Text

PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ABPRC8885M I.T.A.NO. 540 /IND/201 2 A.Y. : 2008-09 DY. CIT, 1(1), INDORE VS. SHRI DEVENDRA SINGH CHOUDHARY, 176, SAKET NAGAR, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI BHEEM KUNWAR, SR. DR RESPONDENT BY : SHRI MANISH DAFARIA, C. A. DATE OF HEARING : 30 . 10 .201 3 DATE OF PRONOUNCEMENT : 20 . 1 1 .201 3 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE CIT(A), DATED 10.07.2012 FOR THE ASSE SSMENT YEAR 2008-09 IN THE MATTER OF ORDER PASSED U/S 143( 3) OF THE INCOME-TAX ACT, 1961. DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 2 PAGE 2 OF 11 2. THE ONLY GRIEVANCE OF REVENUE RELATES TO CONFIRMING ASSESSEES STAND OF SHORT TERM CAPITAL GAIN IN PLAC E OF ASSESSING OFFICERS CONCLUSION TO TREAT THE SAME AS BUSINESS INCOME. 3. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE HAS D ISCLOSED SHORT TERM CAPITAL GAIN IN RESPECT OF TRANSACTION I N SHARES, WHICH WAS TREATED BY THE ASSESSING OFFICER AS BUSIN ESS INCOME ON THE PLEA THAT ASSESSEE HAD ENTERED INTO TRANSACT ION VERY FREQUENTLY. THE ASSESSING OFFICER ALSO OBSERVED THA T VOLUME OF TRANSACTION ALSO RUNS INTO LARGE NUMBERS AND VERY O FTEN THE SHARES HAVE BEEN SOLD BY HOLDING SAME FOR FEW DAYS ONLY. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ACCEPT THE ASSESSEES CLAIM OF SHORT TERM CAPITAL GAINS AFTER HAVING THE FOLLOWING OBSERVATIO NS :- 4.3 GROUND NO [ 4(A), 4(B), & 4(C)] : THROUGH THESE GROUNDS THE ASSESSEE HAS CHALLENGED THE AO'S DECISION OF TAXING ITS SHORT TERM CAPITAL GAIN OF RS 52,30,965/-ON SHARE DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 3 PAGE 3 OF 11 TRANSACTION AT NORMAL RATE TREATING THAT AS 'BUSINESS INCOME'. A DETAILED SUBMISSION HAS BEEN MADE ONTO THIS ISSUE. THE SAME FINDS PLACE IN PARA 3 OF THIS ORDER. IT IS NOTED THAT UNDER THE OLD PROVISIONS OF THE INCOME-TAX ACT, PROFITS OR GAINS ARISING TO AN INVESTOR FROM THE TRANSFER OF SECURITIES WERE CHARGED TO TAX EITHER AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAID SECURITIES; SHORT-TERM CAPITAL GAINS ARISING FROM TRANSFER OF SECURITIES WERE TAXED AT THE APPLICABLE RATES (NORMAL RATE) AND LONG-TERM CAPITAL GAINS WERE TAXED @ 20%, AFTER ADJUSTING FOR INFLATION BY INDEXING THE COST OF ACQUISITION. FOR LISTED SECURITIES, THE TAXPAYER HAD AN OPTION TO PAY TAX ON LONG- TERM CAPITAL GAINS @ 10% BUT WITHOUT INDEXATION. FOR FOREIGN INSTITUTIONAL DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 4 PAGE 4 OF 11 INVESTORS (FIIS), THE LONG-TERM CAPITAL GAINS AND SHORT-TERM CAPITAL GAINS WERE TAXED AT THE RATE OF 10% (WITHOUT INDEXATION) AND 30% RESPECTIVELY. IN CASE OF A TRADER IN SECURITIES, HOWEVER, THE GAINS WERE TAXED AS ANY OTHER NORMAL BUSINESS INCOME. THUS TAX LIABILITY ON THE INCOME FROM PURCHASE & SALE OF SHARES AS REGARDS TO THE STCG & BUSINESS INCOME WAS AT PAR. HOWEVER, THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS CAPITAL GAIN OR BUSINESS INCOME HAS IN-FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT - 2004 BY INSERTION OF PROVISIONS OF SECTION 111A AND 10(38) AS REGARDS TO LEVY OF TRANSACTION TAX AND EXEMPTION / CONCESSION ON CAPITAL GAIN ARISING FROM SECURITIES ENTERED IN A RECOGNIZED STOCK EXCHANGE. WITH A VIEW TO SIMPLIFY THE TAX REGIME ON DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 5 PAGE 5 OF 11 SECURITIES TRANSACTIONS, A TAX AT THE RATE OF 0.015 PER CENT. (SEE: CHANGE IN RATES ON SECURITIES TRANSACTIONS, BY FINANCE ACTS, AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE PLACE IN A RECOGNIZED STOCK EXCHANGE IN INDIA. THIS TAX IS COLLECTED BY THE STOCK EXCHANGE FROM THE PURCHASER OF SUCH SECURITIES AND PAID TO THE EXCHEQUER. THE PROVISIONS RELATING TO THE SECURITIES TRANSACTIONS TAX ARE CONTAINED IN CHAPTER VII OF THE FINANCE (NO.2) BILL, 2004, AND CAME INTO EFFECT FROM 01.10.2004. FURTHER, CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 OF THE INCOME-TAX ACT, SO AS TO PROVIDE EXEMPTION FROM LONG-TERM CAPITAL GAINS ARISING OUT OF SECURITIES SOLD ON THE STOCK EXCHANGE. A NEW SECTION 111A HAS ALSO BEEN INSERTED AND SECTION L15AD IS DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 6 PAGE 6 OF 11 AMENDED, SO AS TO PROVIDE THAT SHORT-TERM CAPITAL GAINS ARISING FROM SALE OF SUCH SECURITIES TO AN INVESTOR INCLUDING FIIS SHALL BE CHARGED AT THE RATE OF TEN PER CENT. THESE AMENDMENTS APPLY TO ASSESSMENT YEAR 2005-2006 AND SUBSEQUENT YEARS. THROUGH FINANCE ACT, 2008, SECTIONS 111A AND 115AD HAVE FURTHER BEEN AMENDED WHEREBY THE RATE OF TAX ON SUCH SHORT-TERM CAPITAL GAIN HAS BEEN RAISED TO FIFTEEN PERCENT. THUS, W.E.F. 01.10.2004; ON THE SHARE TRANSACTIONS SUBJECTED TO STT; CONCESSIONAL TAX RATE OF 10% (WHICH HAS BEEN INCREASED TO 15% FROM AY 2009-10) ARE APPLICABLE IN RESPECT OF STCG WHEREAS NO TAX IS CHARGEABLE IN RESPECT OF LTCG. IT IS ALSO NOTED THAT THE CBDT VIDE ITS CIRCULAR NO.4/2007, DATED 15.06.2007 HAS ALSO RECOGNIZED POSSIBILITY OF TWO PORTFOLIOS, I.E. DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 7 PAGE 7 OF 11 ONE 'INVESTMENT PORTFOLIO' COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE OTHER 'TRADING PORTFOLIO' COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. 4.3.1 IN THE PRESENT CASE, IT HAS BEEN PLEADED THAT THE SECURITIES WERE HELD AS AN CAPITAL INVESTMENT; THAT THE SHORT TERM INVESTMENT IS PERMITTED IN LAW AND THEREFORE PROFIT ON TRANSACTIONS [ I.E.PURCHASE & SALE] OF SUCH INVESTMENT SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN. THE ISSUE IS CONSIDERED. IT IS NOTED THAT THE AO HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS BEEN IN FULL TIME SERVICE IN INDONESIA; AND HIS MAIN SOURCE OF INCOME HAS BEEN SALARY FROM THE JOB. THE RETURN FILED IN INDIA REFLECTS HIS SAVINGS IN IDBI (NRE ACCOUNTS). IT IS PLEADED THAT A PART OF DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 8 PAGE 8 OF 11 SUCH SAVINGS WERE UTILISED IN SHORT TERM INVESTMENT IN SECURITIES; AND THAT THE AO TOOK NOTE OF OVERDRAFT TAKEN BY THE ASSESSEE IN FORMING THE VIEW THAT BORROWED FUNDS WERE UTILISED IN PURCHASE OF SUCH SECURITIES WHEREAS SUCH OVERDRAFTS WERE TAKEN AGAINST THE FIXED DEPOSITS . AS PER THE DETAILS SUBMITTED BY THE ASSESSEE, THE BANK BALANCES/FDRS IN HIS SAVINGS/NRE ACCOUNTS AT VARIOUS BANKS [IDBI, STATE BANK OF INDORE & ICICI BANK LTD] AMOUNTED TO RS 8.07 CRORES AS ON 31.03.2007 AND RS 10.60 CRORES AS ON 31.03.2008, WHEREAS % OF AMOUNT INVESTED IN SHARES WITH BANK BALANCES/ FDRS WAS MERELY 17.82%. IT HAS ALSO BEEN SUBMITTED THAT THERE WERE ONLY 80 INSTANCES OF SALE TRANSACTIONS WHICH WERE SPREAD OVER 41 DAYS ONLY; AND LIKEWISE TOTAL NO. OF PURCHASE TRANSACTIONS DONE BY DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 9 PAGE 9 OF 11 ASSESSEE DURING THE YEAR WERE ONLY 108 SPREADING OVER 64 DAYS. IT IS PLEADED THAT IN ALL, THE ASSESSEE HAS DONE SHARE TRANSACTIONS ONLY ON 82 DAYS DURING THE YEAR. AFTER HAVING CONSIDERED THE ABOVE FACTS, I AM OF THE VIEW THAT INCOME FROM SUCH TRANSACTIONS [ PURCHASE & SALE ] OF SHARES OUGHT TO HAVE BEEN TAXED ( AT CONCESSIONAL RATE AS PER S 111A) AS SHORT TERM CAPITAL GAIN AS SHOWN BY THE ASSESSEE. THE TREATMENT OF SUCH INCOME BY THE AO AS BUSINESS INCOME' CAN NOT BE APPROVED. THE AO IS ACCORDINGLY DIRECTED TO TREAT THE ENTIRE GAIN OF RS 52,30,965/- AS STCG ONLY. THE ASSESSEE'S GROUNDS STANDS ALLOWED. 5. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. FROM THE RECORD, WE FOUND THAT THE ASSESSE E WAS IN FULL TIME SERVICE IN INDONESIA AND HIS MAIN SOURCE OF INCOME DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 10 PAGE 10 OF 11 WAS FROM SALARY. THE RETURN FILED IN INDIA DULY REF LECTED HUGE SAVINGS IN HIS NRE ACCOUNT. OUT OF SUCH SAVING, PAR T OF THE FUNDS WERE UTILIZED BY THE ASSESSEE AS INVESTMENT I N SECURITY, WHICH WAS HELD AS CAPITAL INVESTMENT. PROFIT EARNED ON SALE OF SUCH SECURITIES, WHICH WERE PURELY DELIVERY BASED, PROFIT ARISING THERE FROM WAS LIABLE TO BE TAXED AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. MERELY, BECAUSE O UT OF HIS FDRS, THE ASSESSEE HAS AVAILED PART OF THE AMOUNT A S LOAN. IT CANNOT BE SAID THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR MAKING INVESTMENT IN SECURITIES. AFTER CONSIDERING THE NUMBER OF SALE INSTANCES, WHICH WERE SPREAD OVER 41 DAYS O NLY VIS-- VIS NUMBER OF PURCHASE TRANSACTIONS DONE BY THE ASS ESSEE, WHICH WERE SPREAD OVER 64 DAYS, THE LD. CIT(A) FOUN D THAT THE PROFIT EARNED ON SALE OF SUCH SECURITIES HELD AS IN VESTMENT, WAS LIABLE TO BE TAXED AS SHORT TERM CAPITAL GAIN, SECURITY TRANSACTIONS PAID THEREON WERE NOT CLAIMED BY THE A SSESSEE AS EXPENDITURE. SINCE THE PROFIT WAS EARNED ON DELIVER Y BASED TRANSACTION IN RESPECT OF SECURITIES HELD AS CAPITA L INVESTMENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DIRECTING DEVENDRA SINGH CHOUDHARY, INDORE. I.T.A.NO. 540/IND/2012 A.Y. 2008-09 11 PAGE 11 OF 11 THE ASSESSING OFFICER TO TAX THE INCOME EARNED ON S UCH SECURITIES AS CAPITAL GAIN RATHER THAN BUSINESS PRO FIT. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED :20 TH NOVEMBER, 2013. CPU* 111211