Maina Devi Karnani, New Delhi V. ACIT, New Delhi

ITA 5408/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4016 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Assessee Lawyers: AMIT GOEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI SHAMIM YAHYA ITA NO. 5408/DEL/2010 ASSESSMENT YEAR: 2007-08 MAINA DEVI KARNANI, VS. ASS ISTANT CIT, 103 ENGINEERS ENCLAVE, CIRCLE 25(1), PITAMPURA, NEW DELHI. NEW DELHI-1100 34 (PAN AAGPK5729A) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AMIT GOEL, C A RESPONDENT BY: SMT. SRUJAN I MOHANTY, SR.DR ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 17.09.2010 PASSED FOR ASSESSMENT YEAR 2007-08. THE HAS TAKEN TWO GROUNDS OF APPEAL WHICH ARE INTER-CON NECTED TO EACH OTHER. HER GRIEVANCE IS THAT LEARNED CIT(APPEALS) HAS ERRE D IN TREATING THE INVESTMENT MADE BY THE ASSESSEE IN SHARES AND EARNI NG OF A CAPITAL GAIN AS BUSINESS ACTIVITY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL. SHE HAS FILED HER RETURN OF INCOME ON 04 TH OF OCTOBER 2007 DECLARING TOTAL INCOME AT RS.79,65,790. A NOTICE UNDER SEC. 143(2) OF THE ACT WAS SERVED UPON THE 2 ASSESSEE ON 26 TH SEPTEMBER 2008. IN RESPONSE TO THE NOTICE, SHRI O P KARNANI, CA ( AUTHORIZED REPRESENTATIVE ) OF THE AS SESSEE APPEARED ON BEHALF OF THE ASSESSEE AND SUBMITTED REQUISITE DETA ILS. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAD DECLARED SHORT-TERM CAPITAL GAIN UNDER SECTION 111 A (ST PAID) AT RS.57,54,446. SHE PAID A TAX @ 10% A S PER THE PROVISIONS OF SECTION 111A OF THE ACT. SHE HAS ALSO DECLARED SHO RT TERM CAPITAL GAIN (STT UNPAID) AT RS.2,48,975. THE INCOME FROM OTHER SOURC ES HAS BEEN SHOWN AT RS.22,15,219. ASSESSING OFFICER HAS OBSERVED THAT A SSESSEE HAD PURCHASED 31,073 SHARES OF M/S. MEFORM AGRO ON 27.10.2006. SH E PAID SECURITY TRANSACTION TAX. THESE SHARES WERE SOLD IN THREE LO TS ON 9. 10. AND 11 TH JANUARY. THERE IS A PROFIT OF RS.55,05,471. HE DIRE CTED THE ASSESSEE TO EXPLAIN AS TO WHY SHARE TRANSACTION UNDERTAKEN BY H ER SHOULD NOT BE CONSIDERED AS ADVENTURE IN THE NATURE IN TRADE WITH IN THE MEANING OF SEC. 2(13) OF THE ACT. THE ASSESSEE HAS SUBMITTED FOLLOW ING REPLY IN RESPONSE TO THE QUERIES OF THE ASSESSING OFFICER: 1, THE ASSESSEE HAD MADE THE PURCHASES WITH THE MO TIVE OF INVESTMENTS AND PAID THE FULL AMOUNT OF PURCHASES CONSIDERATION. THE CAPITAL MARKET IS UNCERTAIN & TH E ASSESSEE WAS GETTING VERY GOOD RETURN ON SUCH INVESTMENT & T HEREFORE IT WAS SOLD DURING THE YEAR. 3 2. THAT THE ASSESSEE MADE THE INVESTMENTS IN HER PERSO NAL NAME IN INDIVIDUAL CAPACITY & NOT ANY TRADE NAME AS SHE IS NOT ENGAGED IN ANY BUSINESS OR ADVENTURE IN THE NATURE OF GRADE, H AD SHE BEEN ENGAGED IN BUSINESS THE PURCHASES WOULD HAVE BEEN I N A TRADE NAME. 3. THAT THE ASSESSEE HAS CARRIED INVESTMENTS ACTIVITIE S FROM HER RESIDENCE & HAD NOT EMPLOYED ANY STAFF FOR SUCH INV ESTMENTS. HAD SHE BEEN ENGAGED IN BUSINESS OF TRADE SHE DEFINITEL Y HIRED SOME BUSINESS PLACE ON RENT & ALSO WOULD HAVE EMPLOYED S TAFF & PAID SALARY TO CARRY ON THAT BUSINESS. IT IS AMPLY CLEAR THAT SHE HAD NOT ENGAGED IN NAY BUSINESS OR TRADE ACTIVITY AS FAR AS INVESTMENT IN SHARES FOR SHORT TERM CAPITAL GAIN IS CONCERNED. 4. THAT THE ASSESSEE HAD NOT ENGAGED IN PURCHASE OR SA LE OF SHARES ON REGULAR BASIS & THEREFORE SHE HAD NOT MADE ANY TRAD ING ON A REGULAR BASIS SO AS TO TREAT HER TRANSACTION ON ACCOUNT OF INVESTMENT AS BUSINESS OR TRADE. 5. THAT THE ASSESSEE AS ALREADY STATED ABOVE HAD VERY FEW TRANSACTIONS. 6. THAT THE ASSESSEE HAD NOT BORROWED FUNDS FROM A BAN K OR A COMMERCIAL LENDER FOR BUYING SHARES WHICH IS NORMAL LY DONE WHEN ONE IS ENGAGED IN BUSINESS OF TRADE. THE ASSESSEE C ERTAINLY NOT ENGAGED IN BUSINESS OR TRADE. 7. THAT THE ASSESSEE HAS NOT UNDERTAKEN SEVERAL TYPES OF TRANSACTIONS THROUGH THE SAME BROKER I.E. DAY TRADING, TRADING I N FUTURE & DELIVERY BASED TRANSACTIONS & HAS MADE THE PAYMENT AS PER BILL & NOT SETTLED THE ACCOUNTS WITH THE BROKER PERIODICAL LY. 4 8. THAT THE ASSESSEE IN HER BALANCE SHEET HAS SHOWN & CLASSIFIED THE SHARES AS INVESTMENT & NOT STOCK IN TRADE. AND IT I S FOR THE ASSESSEE TO DECIDE WHETHER THE PURCHASE IS IN THE NATURE OF INVESTMENTS OR STOCK IN TRADE & HER SUCH DECISION IS CLEARLY CONVE YED BY CLASSIFYING THE SAME AS INVESTMENTS IN THE FINANCIA L STATEMENTS. 3. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE. HE MADE A REFERENCE TO PARA NO.9 OF THE BOARDS CIRCUL AR BEARING NO.4/2007 WHICH ACCORDING TO HIM, THE CBDT HAS APPRAISED THE ASSESSING OFFICER, AS TO HOW A SHARE TRANSACTION HAS TO BE APPRECIATED. A SSESSING OFFICER MADE A REFERENCE TO THE DECISION RENDERED IN THE CASE OF C IT, CALCUTTA VS. ASSOCIATED INDUSTRIAL DEV. COMPANY REPORTED IN 82 I TR 586 AS WELL AS DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE O F CIT VS. NSS INVESTMENTS REPORTED IN 277 ITR 149. HE ALSO MADE A REFERENCE TO THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF PARIMANGALDASS GIRDHARIDASS VS. CIT (1977) CTR 647. HOWEVER, ASSES SING OFFICER HAS ACCEPTED THE SHORT TERM CAPITAL GAIN DISCLOSED BY T HE ASSESSEE AT RS.2,48,975 WHICH ARE WITHOUT SECURITY TRANSACTION TAX PAID. 4. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5 5. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF THE REVENUE AUTHORITIES BELOW SUBMITTED THAT IN THE PAST ASSESSEE HAS ONLY MADE A MARGINAL INVESTMENT IN THE SHARES. THIS ASPE CT HAS NEVER BEEN DISPUTED BY THE ASSESSING OFFICER. SHE HAS NO INCOM E FROM TRADING ACTIVITY IN SHARES. HE DREW OUR ATTENTIONS TOWARDS THE COMPU TATION OF INCOME AS WELL AS COPIES OF THE RETURN FOR ASSESSMENT YEARS 2005-0 6 AND 2006-07 ETC. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE BASIC REASON FOR BRANDING THE INVESTMENT ACTIVITY IN THE SHARES CARR IED OUT BY THE ASSESSEE AS ADVENTURE IN TRADE IS THE DIFFERENCE OF TAX RATE. A SSESSEE HAD PAID STT, THEREFORE, SHORT-TERM CAPITAL GAIN TAX IS TO BE LEV IED AT 10%. HAD THE ASSESSEE NOT PAID STT AS REQUIRED BY THE LAW THEN THERE WOUL D NOT BE ANY DIFFERENCE IN THE RATE OF TAX PAYABLE ON SHORT-TERM CAPITAL GA IN AS WELL AS PROFIT RESULTED IN TRADING SHARES. HE POINTED OUT THAT ASSESSEE HAS DISCLOSED SHORT-TERM CAPITAL GAIN OF RS.2,48,975 ON WHICH NO STT WAS PAI D. THERE WAS NO DIFFERENCE IN THE RATE OF TAX LEVIABLE ON THIS AMOU NT UNDER THE HEAD SHORT- TERM CAPITAL GAIN AS WELL AS ON THE PROFIT RESULTE D TO THE ASSESSEE IN TRADING OF THE SHARES THAT IS WHY ASSESSING OFFICER HAS ACC EPTED THE SHORT-TERM CAPITAL GAIN AND DID NOT DISTURB THIS TRANSACTION. THOUGH LEARNED CIT(APPEALS) HAS CHANGED THE CHARACTER AND TREATED THIS GAIN ALSO ARISEN OUT OF TRADING ACTIVITY. HE REITERATED HIS CONTENTIONS AS WERE RAISED BEFORE THE 6 ASSESSING OFFICER. HE RELIED UPON THE DECISION OF I TAT, AHMEDABAD IN THE CASE OF SARNATH INFRA-STRUCTURE PVT. LTD. VS. ACIT REPORTED IN 124 ITD 71. HE POINTED OUT THAT IN THIS DECISION, THE ITAT HAS CONSIDERED ALMOST ALL THE MAJOR DECISIONS OF THE HON'BLE SUPREME COURT AS WEL L AS OF HON'BLE HIGH COURTS. THE ITAT HAS ALSO CONSIDERED IN DETAIL THE CIRCULAR OF THE BOARD WHICH HAS BEEN RELIED UPON BY THE ASSESSING OFFICER ALSO. AS FAR AS THE DECISIONS REFERRED BY THE ASSESSING OFFICER ARE CON CERNED, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THEY ARE NOT DIREC TLY APPLICABLE ON THE FACTS OF THE PRESENT CASE. 6. LEARNED DR ON THE OTHER HAND RELIED UPON THE ORD ER OF THE LEARNED CIT(APPEALS). SHE POINTED OUT THAT THE PREDOMINANT INTENTION OF THE ASSESSEE WAS TO SELL THE SHARES AS EARLY AS POSSIBLE. LEARNE D FIRST APPELLATE AUTHORITY HAS CONSIDERED THIS ASPECT ELABORATELY IN THE ORDER . ACCORDING TO THE LEARNED CIT(APPEALS), THE ASSESSEE HAS NOT MERELY REALIZED THE FRUITS OF INVESTMENT RATHER SHE HAS CARRIED OUT AN ACTIVITY IN THE TRADI NG OF SHARES. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN OUR OPINION, IT IS ALWAYS DIFF ICULT TO DRAW A LINE, WHETHER AN ASSESSEE MADE INVESTMENT IN SHARES OR HE VENTURE D IN THE BUSINESS. 7 DIFFICULTY ARISES BECAUSE TO ARRIVE AT PROPER CONCL USION, ONE HAS TO EVALUATE THE EVIDENCE AND GATHERED THE INTENTION OF AN ASSES SEE. INTENSION AS DESCRIBED BY THE WEBSTERS COMPREHENSIVE DICTIONARY , IS SETTLED DIRECTIONS OF THE MIND TOWARDS THE DOING OF CERTAIN ACTS. MORE OFTEN THEN NOT, THE MATERIAL ON RECORD AND THE CIRCUMSTANCES DO NOT REF LECT THE TRUE INTENTION AND IT IS NOT POSSIBLE TO ENTER INTO THE RECESSES OF TH E MIND OF AN ASSESSEE TO KNOW THE TRUE INTENTION THAT GIVES RISE A DIFFICULTY. HO N'BLE SUPREME COURT IN THE CASE OF SUTLAJ COTTON REPORTED IN 100 ITR 706 HAD O BSERVED THAT WHERE THE PURCHASE OF ANY ARTICLE OR OF ANY CAPITAL INVESTMEN T, FOR INSTANCE, SHARES, IS MADE WITHOUT THE INTENTION TO RESELL AT A PROFIT, A RESALE UNDER CHANGED CIRCUMSTANCE WOULD ONLY BE REALIZATION OF CAPITAL A ND WOULD NOT STAMP THE TRANSACTION WITH BUSINESS CHARACTER. HON'BLE COURT HAS ALSO OBSERVED THAT WHERE PURCHASE IS MADE WITH THE INTENTION OF RESALE , IT DEPENDS UPON THE CONDUCT OF THE ASSESSEE AND THE CIRCUMSTANCE OF THE CASE WHETHER THE VENTURE IS ON THE CAPITAL ACCOUNT OR IN THE NATURE OF TRADE . A TRANSACTION IS NOT NECESSARILY IN THE NATURE OF TRADE, BECAUSE THE PUR CHASE MADE WITH THE INTENTION OF RESALE. ACCORDING TO THE DECISION, AN INVESTMENT AND RESALE DO NOT LOSE THEIR CAPITAL NATURE MERELY BECAUSE THE RE SALE WAS FORESEEN AND CONTEMPLATED WHEN THE INVESTMENT WAS MADE AND THE P OSSIBILITY OF ENHANCED VALUE MOTIVATED THE INVESTMENT. HON'BLE SUPREME COU RT IN THE CASE OF 8 G.VENKATASWAMY NAIDY VS. CIT REPORTED IN 35 ITR 594 AS WELL AS IN THE CASE OF DALHOUSIE INVESTMENT TRUST VS. CIT REPORTED IN 68 ITR 486 HAS PROPOUNDED THE VARIOUS FACTORS WHICH ARE REQUIRED T O BE LOOKED INTO BY THE ADJUDICATING AUTHORITY FOR DECIDING ANY DEALING IN SHARES, WHETHER INVESTMENT OR TRADING. THE FOLLOWING FACTORS ARE IM PORTANT FACTORS WHICH CAN HELP THE ADJUDICATING AUTHORITY TO APPLY ON THE FAC TS OF A GIVEN CASE FOR DECIDING THE NATURE OF THE ACTIVITY: I) WHETHER THE PURCHASE IS MADE SOLELY WITH THE INTENT ION OF RESALE AT A PROFIT I.E. INTENTION TO EARN PROFIT OR FOR LONG TERM APPRECIATION AND/OR FOR EARNING DIVIDENDS AND INTEREST? II) WHETHER TRANSACTIONS ARE ENTERED INTO CONTINUOUSLY AND REGULARLY? III) WHETHER PURCHASES ARE MADE OUT OF OWN FUNDS OR BORROWINGS? IV) WHAT IS THE TYPICAL HOLDING PERIOD FOR SECURITIES B OUGHT AND SOLD? V) WHAT IS THE RATIO OF SALES TO PURCHASES AND HOLDING ? VI) WHETHER AN ELEMENT OF RISK OR UNCERTAINTY IS INVOLV ED? VII) WHAT IS THE MOTIVE OR OBJECT OF THE ASSESSEE? 8. ASSESSING OFFICER HAS TREATED THE INVESTMENT OF THE ASSESSEE IN THE SHARES AS VENTURE IN THE TRADE UNDER SEC. 2(13) OF THE ACT. THIS SECTION 9 PROVIDES THE DEFINITION OF EXPRESSION BUSINESS AC CORDING TO WHICH BUSINESS INCLUDES ANY TRADE, COMMERCE, MANUFACTURE OR ANY AD VENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURER. VARI OUS AUTHORITATIVE PRONOUNCEMENTS, HON'BLE SUPREME COURT AND HON'BLE H IGH COURTS HAD EXPLAINED THE MEANING AND SCOPE OF EXPRESSION BUSI NESS. IT IS NOT NECESSARY TO RECITE AND RECAPITULATE OF THOSE DECIS IONS, ON THE STRENGTH OF THEM, IT WOULD BE SUFFICE TO SAY WORD BUSINESS HA S A WIDE IMPORT AND IT MEANS AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTE MATICALLY BY A PERSON BY THE APPLICATION OF HIS LABOUR AND SKILL WITH A VIEW TO EARN INCOME. LET US EXAMINE THE FACTS OF THE ASSESSEES CASE IN THE LIG HT OF THE NUMBER OF DECISIONS PROPOUNDED BY THE HONBLE COURT AS WELL A S WITHIN THE MEANING OF EXPRESSION PROVIDED IN SECTION 2(13) OF THE ACT. IT EMERGES OUT THAT ASSESSEE HAS NOT CARRIED OUT TRADING IN THE SHARES CONTINUOU SLY AND SYSTEMATICALLY. SHE HAS NOT CONDUCTED A NUMBER OF TRANSACTIONS. SHE MAD E INVESTMENT IN ONE SHARES AND THAT WAS SOLD AFTER TWO AND HALF MONTHS. SHE HAS NOT BORROWED THE CAPITAL FOR THIS PURPOSE. SHE DID NOT TAKE SPECIAL ADVISE OR EMPLOYED STAFF AND PAID SALARY TO CARRY OUT THIS ACTIVITY. WE HAVE CONSIDERED THE EXPLANATION OF THE ASSESSEE EXTRACTED SUPRA. ON AN ANALYSIS OF ALL THESE FACTORS WITHIN THE LIGHT OF DISCUSSIONS MADE BY THE LEARNED REVENUE AU THORITIES, WE ARE OF THE VIEW THAT ASSESSING OFFICER HAS APPROACHED THIS CON TROVERSY WITH THIS ANGLE 10 ONLY BECAUSE RATE OF TAX APPLICABLE ON THE CAPITAL GAIN ARISEN TO THE ASSESSEE AFTER PAYMENT OF STT IS 10%. HAD THERE WAS NO STT P AYMENT AND THE RATE OF TAX WAS 30% THEN PROBABLY ASSESSING OFFICER WOULD N OT DISTURB THE DECLARATION MADE BY THE ASSESSEE. LEARNED CIT(APPEA LS) HAS RECTIFIED THIS ANAMOLLY AND CONTRADICTORY STAND OF THE ASSESSING O FFICER BUT THAT WOULD NOT OBLITERATE TO EXHIBIT THE APPROACH OF THE AUTHORITY . IT IS APTLY SAID THAT THE ONE MUST AVOID BEING CAUGHT IN THE MAZE OF JUDICIAL DEC ISION RENDERED ON AN ISSUE, WHICH ALWAYS PRESENT DISTINGUISHING FEATURE FOR A COMPARISON. IT WOULD BE CONDUCIVE FOR CLARITY OR REACHING LOGICAL RESULT, THAT ONE SHOULD CONCENTRATE ON FACTS OF THE DECIDED CASE WITH VIEW TO MATCH THE COLOUR OF THAT CASE WITH THAT OF THE CASE WHICH REQUIRE DETER MINATION. THE SURER WAY OF ARRIVING AT A JUST CONCLUSION WOULD BE TO FIRST ASC ERTAIN THE NATURE OF TRANSACTION BY REFERENCE OF DOCUMENT AND THEN TO AP PLY THE PRINCIPLE EMBALMED IN THE DECISION OF THOSE FACTS. FROM REA DING OF LEARNED CIT(APPEALS)S ORDER, IT APPEARS THAT LEARNED FIRST APPELLATE AUTHORITY FIRST ASCERTAIN THE PRINCIPLE EMBALMED IN THE DECISION AN D TRIED TO FIT THE FACTS OF ASSESSEES CASE. 10. THERE IS NO MATERIAL ON RECORD WHICH INDICATE T HAT ASSESSEE HAS CARRIED BUSINESS ACTIVITY IN SHARES. 11 11. IN VIEW OF THE ABOVE DECISION, WE SET ASIDE THE ORDER OF THE LEARNED REVENUE AUTHORITIES AND DIRECT THE ASSESSING OFFICE R TO ACCEPT THE CLAIM OF ASSESSEE FOR SHORT-TERM CAPITAL GAIN. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 20.05.201 1 SD/- SD/- ( SHAMIM YAHYA ) ( RAJPA L YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20/05/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR