ADDL CIT RG 21(2), MUMBAI V. SHEELA CHINIWALA, MUMBAI

ITA 5463/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3627 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 09-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: PRITIN KUMAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI P. M. JAGTAP, A.M I.T.A. NO.5463/MUMBAI/2009 ASSESSMENT YEAR: 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX CIR 21(2) 5 TH FLOOR, C-10, BANDRA KURLA COMPLEX, BANDRA, MUMBAI MRS. SHEELA CHINIWALA VASANT SWAMI VIVEKANAND ROAD, VILE PARLE (W), MUMBAI-400 056 PAN NO: AAJPC6627L (APPELLANT) VS. (RESPONDENT) & C.O. NO.138/MUMBAI/2010 ASSESSMENT YEAR: 2006-07 MRS. SHEELA CHINIWALA VASANT SWAMI VIVEKANAND ROAD, VILE PARLE (W), MUMBAI-400 056 PAN NO: AAJPC6627L ASSISTANT COMMISSIONER OF INCOME TAX CIR 21(2) 5 TH FLOOR, C-10, BANDRA KURLA COMPLEX, BANDRA, MUMBAI (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI S.K. SINGH RESPONDENT BY : SHRI PRITIN KUMAR & SHRI MOHIT KHANDELWAL ORDER PER P.M. JAGTAP (AM) : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER OF LEARNED CIT(APPEALS)-XXI, MUMBAI DATED 28.07.2009 A ND THE SAME IS BEING DISPOSED OF ALONG WITH THE CROSS OBJECTION FILED BY THE ASSESSEE. 2 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO T HIS APPEAL AS WELL AS CROSS OBJECTION ARE THAT THE ASSESSEE IS AN INDIVID UAL WHO FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 31.07.20 06 DECLARING TOTAL INCOME OF RS.71,04,518/-. THE SAID INCOME COMPRISED OF CAP ITAL GAINS FROM PURCHASE AND SALE OF SHARES, SPECULATION INCOME AND INCOME F ROM OTHER SOURCES. INCOME FROM CAPITAL GAINS WAS CONSISTING OF LONG TERM CAPI TAL GAIN OF RS.91,46,233/- AND SHORT TERM CAPITAL GAIN OF RS.67,82,154/-. FROM THE DETAILS OF CAPITAL GAINS FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO FOUND THAT SHORT TERM CAPITAL GAIN TO THE EXTENT OF RS.67,39,159/- WAS IN RESPECT OF SALE OF SHARES AND THE BALANCE AMOUNTING TO RS.42,995/- WAS ON ACCOUNT OF SALE OF UNITS OF MUTUAL FUNDS. IT WAS AL SO FOUND BY THE AO THAT THERE WERE SEVERAL SCRIPS IN WHICH THE ASSESSEE HAD TRANSACTED DURING THE YEAR UNDER CONSIDERATION AND EVEN THE FREQUENCY OF TRANS ACTIONS WAS ON HIGHER SIDE. HE NOTED THAT LONG TERM CAPITAL GAIN HAD ARISEN TO THE ASSESSEE FROM 98 TRANSACTIONS OF SALE OF SHARES AND THE TRANSACTIONS IN SHARES GIVING RISE TO SHORT TERM CAPITAL GAINS WERE 395. HE NOTED THAT OUT OF T HESE 395 TRANSACTIONS RESULTING INTO SHORT TERM CAPITAL GAINS, PURCHASE T RANSACTIONS WERE 182 WHEREAS SALE TRANSACTIONS WERE 213 AND TOTAL 142 SCRIPS OF DIFFERENT COMPANIES WERE INVOLVED IN THE SAID TRANSACTIONS. KEEPING IN VIEW THESE FACTS AND FIGURES OF THE ASSESSEES CASE, THE AO REQUIRED THE ASSESSEE T O EXPLAIN AS TO WHY THE TRANSACTIONS IN SHARES SHOULD NOT BE TREATED AS AN ACTIVITY IN ITSELF WHICH WAS LIKE ANY NORMAL BUSINESS ACTIVITY. IN REPLY, A DETA ILED WRITTEN SUBMISSION WAS FILED BY THE ASSESSEE THE GIST OF WHICH AS GIVEN BY THE AO IN THE ASSESSMENT ORDER, IS REPRODUCED BELOW:- (1) THE ASSESSEE DOES NOT POSSESS ANY EDUCATIONAL QUALIFICATIONS OR EXPERIENCE IN FINANCIAL OR STOCK MARKETS. (2) THE ASSESSEE IS GENERATING SURPLUS INCOMES WHICH ARE REINVESTED IN SHARES, MUTUAL FUNDS ETC. 3 (3) THE ASSESSEE HAS NOT AVAILED ANY EXTERNAL FINANCI AL FACILITIES FOR ACQUIRING THE SHARES. (4) THE INTENTION OF THE ASSESSEE FOR PURCHASE OF SHA RES IS TO HOLD THE SHARES AS INVESTMENTS AND TO EARN REGULAR INCOME IN THE FORM OF DIVIDENDS FROM THE SAME. (5) THE ASSESSEE HAS SHOWN THE INCOME FROM SPECULATI ON ACTIVITY SEPARATELY AND IS TAXED AS BUSINESS INCOM E. THE INCOME FROM THE SALE OF SHARES IS TREATED SEPARATEL Y AS CAPITAL GAINS. (6) SINCE THE MARKET CONDITIONS ARE GOOD IN THE F.Y. 2005-06, THE ASSESSEE HAS TAKEN THE ADVANTAGE OF THE OPPO RTUNITY AND SOLD THE SHARES. 3. THE ASSESSING OFFICER DID NOT FIND THE SUBMISSI ONS MADE BY THE ASSESSEE TO BE ACCEPTABLE. ACCORDING TO HIM, IT WAS NOT A NECESSARY CONDITION THAT AN INDIVIDUAL SHOULD HAVE ANY FORMAL EDUCATION AL QUALIFICATION FOR EARNING INCOME FROM FINANCIAL OR STOCK MARKETS. HE HELD THAT THE VERY FACT THAT THE ASSESSEE HAD EARNED SO MUCH INCOME FROM THE TRANSAC TIONS IN SHARES WAS SUFFICIENT TO SUBSTANTIATE HIS STAND. AS REGARDS TH E SUBMISSION OF THE ASSESSEE THAT SHE HAS MERELY REINVESTED THE SURPLUS GENERATE D FROM SALE OF SHARES FOR ACQUIRING NEW SHARES, THE ASSESSING OFFICER HELD TH AT THE SAME AT BEST DEMONSTRATED HOW THE MONEY WAS BEING MOBILIZED BY T HE ASSESSEE FOR ACQUIRING OF SHARES AND IT WAS NOT THE DETERMINING FACTOR TO DECIDE WHETHER THE TRANSACTIONS IN SHARES ARE BUSINESS LIKE OR OTHERWI SE. HE HELD THAT SIMILARLY IT WAS NOT NECESSARY THAT EVERY BUSINESS SHOULD INVARI ABLY HAVE BORROWED FUNDS. HE NOTED IN THIS CONTEXT THAT THERE ARE SEVERAL COM PANIES ACROSS THE WORLD WHO OPERATE ON A ZERO-DEBT PHILOSOPHY AND THEY ARE WE LL APPRECIATED. AS REGARDS THE CLAIM OF THE ASSESSEE RELATING TO HER INTENTION OF PURCHASING AND HOLDING THE SHARES AS INVESTMENT BASED ON EARNING OF DIVIDE ND, THE ASSESSING OFFICER FOUND THAT THERE WERE SEVERAL SCRIPS TRANSACTED BY THE ASSESSEE IN RESPECT OF 4 WHICH NO DIVIDEND INCOME WAS DISCLOSED. HE NOTED IN THIS CONTEXT THAT THE SAID COMPANIES WERE DIVIDEND PAYING COMPANIES AND IF THE INTENTION OF THE ASSESSEE WAS TO INVEST IN THE SHARES OF SAID COMPAN IES FOR EARNING DIVIDEND INCOME, THERE WAS NO REASON WHY SHE SOLD THE SAID S HARES WITHOUT RECEIVING THE DIVIDEND INCOME. HE HELD THAT THE ASSESSEE THUS WAS PRIMARILY INTENDED TO MAKE PROFITS FROM THE TRANSACTIONS IN SHARES AND IT WAS RATHER INCIDENTAL THAT SHE RECEIVED DIVIDEND ON SOME OF THE SHARES SO TRAN SACTED. AS REGARDS THE INTENTION OF THE ASSESSEE THAT THE INCOME FROM SPEC ULATION WAS SEPARATELY DECLARED BY HER AS BUSINESS INCOME, THE ASSESSING O FFICER HELD THAT THE INCOME FROM SPECULATION ACTIVITY IN ANY CASE WAS SEPARATE FROM CAPITAL GAINS AND MERELY BECAUSE THE INCOME FROM THE NON DELIVERY T RANSACTIONS WERE OFFERED BY THE ASSESSEE AS BUSINESS INCOME, IT COULD NOT FO LLOW THAT THE INCOME FROM DELIVERY BASED TRANSACTIONS HAS TO BE TREATED AS CAPITAL GAINS. AS REGARDS THE SUBMISSION OF THE ASSESSEE THAT SHE TOOK ADVANTAGE OF FAVOURABLE MARKET CONDITIONS IN THE YEAR UNDER CONSIDERATION TO REALI SE GAINS BY SELLING SOME OF HER SHARES HELD AS INVESTMENTS, THE ASSESSING OFFIC ER HELD THAT THIS SUBMISSION OF THE ASSESSEE MADE THE CASE OF THE REVENUE STRONG ER FOR TREATING THE TRANSACTIONS IN SHARES AS BUSINESS ACTIVITY IN NATU RE. HE NOTED THAT MANY SHARES WERE ACQUIRED AND SOLD BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION ITSELF WHICH CLEARLY INDICATED THAT THE ASSESSEE ESSENTIAL LY HAD A PROFIT MOTIVE AND INTENDED TO ENCASH THE FAVOURABLE MARKET CONDITIONS . ACCORDING TO THE AO, THIS WAS AN ESSENTIAL INGREDIENT OF BUSINESS TRANSA CTIONS. 4. THE ASSESSING OFFICER ALSO REFERRED TO CBDT INS TRUCTION 1827 DATED 31.08.1989 WHICH WAS FURTHER SUPPLEMENTED BY THE INSTRUCTION ISSUED ON 16.05.2006 IDENTIFYING THE FACTORS WHICH ARE REQUIR ED TO BE CONSIDERED FOR DECIDING THE INTENTION OF THE ASSESSEE TO HOLD THE SHARES WHETHER AS STOCK IN TRADE OR INVESTMENT. HE THEN PROCEEDED TO EXAMINE T HE FACTS OF THE ASSESSEES 5 CASE IN THE LIGHT OF THE SAID FACTORS INDICATED BY CBDT AND RECORDED HIS FINDINGS/OBSERVATIONS IN HIS ORDER WHICH ARE EXTRAC TED BELOW :- (I) WHETHER THE PURCHASE AND SALE OF SECURITIES WA S ALLIED TO HIS USUAL TRADE OR BUSINESS ? THE PURCHASE AND SALE OF SHARES IS THE MAIN ACTIVIT Y OF THE ASSESSEE. APART FROM THIS, THE ASSESSEE IS INVOLVED IN SPECULATION IN SHARES. (II) WHETHER THE PURCHASE IS MADE SOLELY WITH THE I NTENTION OF RESALE AT A PROFIT OR FOR LONG TERM APPRECIATION AND/OR FOR EARNING DIVIDEND & INTEREST? IN THE CASE OF THE ASSESSEE, IT WAS SOLELY WITH TH E INTENTION OF SELLING AT PROFIT. IN THOSE CASES WHERE THE LOSS WAS BOOKED, IT WAS BECAUSE THE FURTHER RISK OF HOLDING THE SCRIP IS BEYOND THE RISK APPETITE. FROM THE VERY SHORT PERIOD OF HOLDING SHARES (IN SOME CASES HELD ONLY FOR FEW DAYS), THERE SEEMS ABSOLUTELY NO INTENTION OF HOLDING ON F OR LONG TERM APPRECIATION OR FOR EARNING DIVIDENDS ETC. IT IS ALREADY DISCUSSED IN THE EARLIER PART OF THE ORDER THAT IN ALMOST 35-40% OF THE SHARES THAT THE ASSESSEE TRANS ACTED IN, NO DIVIDEND WAS DECLARED FOR TAXATION. (III) WHETHER THE SCALE OF ACTIVITY IS SUBSTANTIAL. IT IS ALREADY MENTIONED EARLIER THAT THE SCALE OF ACTIVITY AND THE AMOUNTS INVOLVED ARE SUBSTANTIAL. THE ASSESSEE TRADED IN MORE THAN 140 SCRIPS AND THE NUMBER OF TRANSACTI ONS IS ALMOST 500 WHICH INCLUDE 93 SALE TRANSACTIONS OF LO NG TERM CAPITAL GAIN. (IV) WHETHER THE TRANSACTIONS WERE ENTERED INTO CONTINUO USLY AND REGULARLY DURING THE ASSESSMENT YEAR. IN THE INSTANT CASE, THE ASSESSEE TRANSACTED IN THE MARKETS ALMOST EVERYDAY ON AN AVERAGE. (V) HOLDING PERIOD IT IS ALREADY ILLUSTRATED THAT THE HOLDING PERIOD I S VERY LESS. IN MOST OF THE CASES, IT IS LESS THAN ONE MONTH. 6 (VI) RATIO OF SALES TO PURCHASES AND HOLDING. VERY LESS. ALMOST 70% OF THE SHARES PURCHASED DURIN G THE YEAR HAVE BEEN DISPOSED OFF DURING THE YEAR ITSELF. (VII) THE TIME DEVOTED TO THE ACTIVITY AND THE EXTENT TO WHICH IT IS THE MEANS OF LIVELIHOOD. THE ASSESSEE HAS DISCLOSED TAXABLE INCOMES OF RS.71 .04 LACS OUT OF WHICH RS.67.82 LACS ARE OUT OF SHORT TE RM CAPITAL GAIN. THE EXEMPTED INCOMES INCLUDE DIVIDEND FROM SHARES. THE ASSESSEE IS ALSO IN RECEIPT OF A SHARE OF DIVIDEND OF RS.76.98 LACS UNDER THE TRUST CREATED A S PER THE WILL OF LATE MRS. JASODA NAROTTAM. IT MAY BE SEEN T HAT NONE OF THESE EXEMPTED INCOMES CALL FOR ANY DIRECT INVOL VEMENT OF THE ASSESSEE. HENCE IT CAN BE SAFELY CONCLUDED T HAT HER ENTIRE PREOCCUPATION IS WITH PURCHASE AND SALE OF S HARES. (VIII) WHETHER THE SECURITIES PURCHASED AND SOLD ARE LISTE D OR UNLISTED. ALL THE TRADING IS IN LISTED SHARES. PURCHASE OF UN LISTED SHARES (GENERALLY DONE WITH INVESTMENT MOTIVE) WOUL D HAVE GIVEN A BENEFIT OF DOUBT TO THE ASSESSEE. (IX) WHETHER INVESTMENT IS IN SISTER/RELATED COMPANIES. THE DIVIDEND RECEIVED AS A PART OF THE TRUST CREATE D AS PER THE WILL OF LATE MRS. JASODA NAROTTAM IS FROM THE S HARES OF PARLE PRODUCTS PVT. LTD. THE ASSESSEE IS A MEMBER O F THE FAMILY OWNING THE SAID COMPANY. (X) TOTAL NUMBER OF STOCKS DEALT IN: MORE THAN 14 0 (X) WHETHER MONEY HAS BEEN PAID OR RECEIVED OR WHETHER THESE ARE ONLY BOOK ENTRIES. THE ASSESSEE IS INVOLVED IN BOTH DELIVERY BASED TRANSACTIONS AND ALSO NON-DELIVERY BASED TRANSACTIO NS WHICH ARE SPECULATIVE IN NATURE. 7 ON THE BASIS OF THE ABOVE FINDINGS/ OBSERVATIONS RE CORDED BY HIM AS WELL AS OTHER REASONS GIVEN WHILE REJECTING THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE BEFORE HIM, THE ASSESSING OFFICER HELD THA T THE SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ON WHICH SHORT TERM CA PITAL GAIN WAS DISCLOSED WERE IN THE NATURE OF BUSINESS ACTIVITY AND THE ENT IRE INCOME EARNED FROM THE SAID TRANSACTIONS WAS HER BUSINESS INCOME. ACCORDIN GLY, THE SAID INCOME WHICH WAS DECLARED BY THE ASSESSEE AS SHORT TERM CA PITAL GAINS WAS TREATED BY HIM AS BUSINESS INCOME OF THE ASSESSEE IN THE ASSES SMENT COMPLETED U/S.143(3) VIDE AN ORDER DATED 16.12.2008. 5. AGAINST THE ORDER PASSED BY THE AO U/S.143(3), AN APPEAL WAS PREFERRED BY THE ASSESSES BEFORE THE LEARNED CIT (A PPEALS) CHALLENGING THE TREATMENT GIVEN BY THE AO TO INCOME FROM SHARE TRAN SACTIONS AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN. DURING T HE COURSE OF APPELLATE PROCEEDINGS BEFORE THE CIT(APPEAL), THE SUBMISSIONS MADE BEFORE THE AO WERE REITERATED ON BEHALF OF THE ASSESSEE COMPANY. RELIANCE WAS ALSO PLACED ON BEHALF OF THE ASSESSEE ON THE VARIOUS JUDICIAL P RONOUNCEMENTS TO CONTEND THAT ONLY AN ORGANISED, CONTINUOUS AND SYSTEMATIC A CTIVITY CARRIED ON EXCLUSIVELY WITH A MOTIVE TO EARN PROFITS FROM RESA LE COULD BE REGARDED AS A BUSINESS ACTIVITY. IT WAS ALSO CONTENTED THAT THE I NTENTION OF THE ASSESSEE BEHIND THE PURCHASE OF SHARES AND HOLDING THE SAME IS A VITAL FACTOR WHICH HAS TO BE CONSIDERED FOR DECIDING WHETHER THE TRANSACTI ONS IN SHARES ARE AN INVESTMENT ACTIVITY OR BUSINESS ACTIVITY. RELIANCE IN THIS REGARD WAS PLACED ON CBDT CIRCULAR NO.4 OF 2007 DATED 15.06.2007 TO POIN T OUT THAT GUIDELINES HAVE BEEN LAID DOWN BY THE BOARD IN THE SAID CIRCULAR TO DISTINGUISH BETWEEN THE SHARES HELD AS STOCK IN TRADE AND SHARES HELD AS IN VESTMENT. THE FOLLOWING SUBMISSIONS WERE ALSO MADE BY THE ASSESSEE TO CONTE ND THAT IF THE SAID GUIDELINES LAID DOWN IN THE BOARD CIRCULAR ARE APPL IED TO THE FACTS OF HER CASE, 8 IT WOULD BECOME CLEAR THAT THE INTENTION OF THE ASS ESSEE WAS TO PURCHASE AND HOLD THE SHARES AS INVESTMENT AND NOT AS STOCK IN S HARE: 1. INTENTION SUPPORTED BY FACTS : THE INTENTION OF THE APPELLANT WAS ALWAYS TO INVEST HIS SURPLUS POST TAX INCOME IN SHARES AND SECURITIES AND TO EARN DIVIDEND INCOME AND ALSO FUTURE CAPITAL ACCRETION. THIS FACT IS CLEARLY UNDERLINED BY DIVIDEND INCOME OF RS.62,58,348/- EARNED BY THE APP ELLANT DURING THE YEAR UNDER CONSIDERATION. ALSO THE SUBST ANTIAL AVERAGE HOLDING PERIOD (IN CASE OF STCG FOUR TO F IVE MONTHS) STATES THAT THE APPELLANT HAS HELD THE SHAR ES FOR A LONG PERIOD OF TIME IRRESPECTIVE OF SUBSTANTIAL INC REASE IN THE MARKET VALUE OF THE INVESTMENT. THIS IS CLEARLY CONTRARY TO THE ACT OF A PERSON DEALING IN SHARES AS HE WOUL D LIQUIDATE HIS HOLDING AS SOON AS HE EARNS A SUBSTAN TIAL AMOUNT OF PROFIT. 2. SUBSTANTIAL HOLDING PERIOD : THE SHARES ARE NOT PURCHASED FOR IMMEDIATE SELL-OFF BUT WITH THE INTENTION TO IN VEST. THE SAME IS PURCHASED AND KEPT FOR REASONABLY LONG PERI OD TILL THE TIME THE OBJECTIVE IS ACHIEVED. 3. SUBSTANTIAL DIVIDEND INCOME : SUBSTANTIAL DIVIDEND IS ALSO EARNED CONSISTENTLY EVERY YEAR. DURING THE YEAR, DI VIDEND OF RS.62,58,348/- WAS EARNED. 4. TREATMENT IN BOOKS : PURCHASE OF SHARES HAS BEEN ACCOUNT IN THE BOOKS OF ACCOUNT AS INVESTMENTS AND HAS BEEN CONSISTENTLY SHOWN AS INVESTMENT IN THE BOOKS OF ACCOUNT FOR EVERY YEAR AND THIS POSITION IS ACCEPTED BY THE INCOME TAX DEPARTMENT. IT WAS THUS CONTENTED ON BEHALF OF THE ASSESSEE BEF ORE THE LEARNED CIT (APPEALS) THAT THE PROFIT ARISING FROM SALE OF SHAR ES HELD AS INVESTMENT WAS CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN AND NO T AS BUSINESS INCOME. 6. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHAL F OF THE ASSESSEE COMPANY BEFORE HIM AS WELL AS THE MATERIAL AVAILABL E ON RECORD INCLUDING THE 9 ORDER OF THE AO, THE LEARNED CIT (APPEALS) WAS OF T HE OPINION THAT BOTH THE ASSESSEE AND AO HAVE TAKEN EXTREME VIEWS ON THE ISS UE UNDER CONSIDERATION. ACCORDING TO HIM, THE TRANSACTIONS IN SHARES UNDER- TAKEN BY THE ASSESSEE COMPANY WAS SUFFICIENT TO SHOW THAT THE ASSESSEE WA S THE INVESTOR CUM TRADER. HE HELD THAT THE ASSESSEE WAS AN INVESTOR WHO ALSO AT TIMES TRIED HER HAND IN TRADING IN SHARES. HE NOTED THAT VARIOUS FACTORS WH ICH MAKE THE ASSESSEE AN INVESTOR IN SHARES WERE IN EXISTENCE. HE HELD THAT THERE WAS ALSO A FACTOR LIKE SALE OF SHARES IN LESS THAN 30 DAYS IN RESPECT OF S ECONDARY MARKET TRANSACTIONS WHICH WAS SUFFICIENT TO ESTABLISH THAT THE ASSESSEE WAS ALSO A TRADER IN SHARES. IN THIS REGARD, HE NOTED THAT PROFIT OF RS.5,67,565 /- WAS EARNED BY THE ASSESSEE ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS WHEREA S PROFIT EARNED BY THE ASSESSEE ON SALE ON SHARE HELD FOR MORE THAN 30 DAY S WAS TO THE TUNE OF RS.54,68,231/-. ACCORDINGLY, HE HELD THAT THE PROFI T OF RS.54,68,231/- ARISING FROM SALE OF SHARES HELD FOR MORE THAN 30 DAYS WAS CHARGEABLE TO TAX IN HER HANDS AS SHORT TERM CAPITAL GAIN AND THE PROFIT OF RS.5,67,565/- ARISING FROM SALE OF SHARES HELD FOR LESS THAN 30 DAYS WAS CHARG EABLE TO TAX AS BUSINESS INCOME. AGGRIEVED BY THE ORDER OF THE LEARNED CIT ( APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL AND THE A SSESSEE HAS ALSO FILED HER CROSS OBJECTION. 7. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL AND BY THE ASSESSEE IN HER CROSS OBJECTION READ AS UNDER :- GROUNDS RAISED BY REVENUE : 1. (I) THE LD. CIT(A) ERRED IN TREATING THE BUSINES S INCOME ON ACCOUNT OF TRADING IN SHARES AS SHORT TERM CAPIT AL GAIN BY APPLYING THE SHARE HOLDING PERIOD FOR SHORT TERM CAPITAL GAIN AS MORE THAN 30 DAYS BUT LESS THAN 1 YEAR. (II) THE LTD. CIT(A) WHILE PROVIDING RELIEF TO THE ASSESSEE HAS TAKEN 30 DAYS AS HOLDING PERIOD OF SHA RES TO 10 DISTINGUISH BETWEEN TRADING AND INVESTMENT WHICH IS ARBITRARY AND NOT IN CONSONANCE WITH THE CBDT CIRCU LAR 1827 DATED 31.08.89 SUPPLEMENTED WITH CBDT CIRCULAR NO.4 OF 2007 DATED 15.06.2007. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR TO ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. GROUNDS OF CROSS-OBJECTIONS: 1. THE LEARNED CIT(A) ERRED IN PARTLY CONFIRMING THE A CTION OF THE ASSESSING OFFICER OF TREATING THE SHORT TERM CA PITAL GAIN FROM SALE OF SHARES AS BUSINESS INCOME. HE ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SURPLU S/LOSS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS AS BUSINE SS INCOME/LOSS. HE ERRED IN HOLDING THAT THE ASSESSEE IS BOTH AN IN VESTOR AS WELL AS TRADER IN SHARES 2. EACH ONE OF ABOVE GROUNDS OF APPEAL IS WITHOUT PREJ UDICE TO THE OTHER. 3. 4. THE RESPONDENT RESERVES THE RIGHT TO AMEND, ALTER O R ADD TO THE ABOVE GROUNDS OF APPEAL 8. THE LEARNED DR AT THE OUTSET INVITED OUR ATTENT ION TO THE REASONS GIVEN BY THE AO ON PAGE 17 TO 19 OF HIS ORDER TO HO LD THAT PROFIT EARNED BY THE ASSESSEE FROM THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES CONSTITUTED HER BUSINESS INCOME AND NOT SHORT TERM CAPITAL GAIN. HE STRONGLY RELIED ON THE SAID DECISION IN SUPPORT OF THE REVENUES CASE THAT THE S HARES WERE PURCHASED AND HELD BY THE ASSESSEE AS STOCK IN TRADE AND THE PROF IT ARISING FROM SALE THEREOF WAS BUSINESS INCOME. HE CONTENTED THAT THE LEARNED CIT (APPEALS), HOWEVER, ALLOWED SUBSTANTIAL RELIEF TO THE ASSESSEE BY HOLDI NG THAT THE PROFIT ARISING FROM SALE OF SHARES HELD BY THE ASSESSEE FOR MORE THAN 3 0 DAYS WAS CHARGEABLE TO TAX 11 AS SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCO ME. HE CONTENTED THAT WHILE ALLOWING THIS RELIEF TO THE ASSESSEE BASED MERELY O N PERIOD OF HOLDING, THE LEARNED CIT(APPEAL) HAS OVERLOOKED ALL THE FINDINGS /OBSERVATIONS RECORDED BY THE AO TO JUSTIFY THE TREATMENT GIVEN BY HIM TO THE PROFIT EARNED BY THE ASSESSEE FROM PURCHASES AND SALES OF SHARES AS HER BUSINESS INCOME. HE SUBMITTED THAT AS CLEARLY MADE OUT BY THE AO REFERR ING TO THE RELEVANT FACTS OF THE ASSESSEES CASE, THE PRIMARY MOTIVE OF THE ASSE SSEE TO UNDERTAKE THE TRANSACTIONS IN SHARE WAS TO MAKE PROFIT. HE CONTEN TED THAT THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH SUCH A MOTIVE THUS CONSTITUTED HER BUSINESS ACTIVITY AND THE PROFIT ARISING FROM THE SAID TRANS ACTIONS WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME. 9. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, SUBMITTED THAT THE ASSESSEE IS A HOUSEWIFE OF 60 YE ARS AGE AND THE SHARES WERE PURCHASED AND HELD BY HER AS INVESTMENT OUT OF SURP LUS FUNDS AVAILABLE. HE CONTENTED THAT THE INTENTION OF THE ASSESSEE THUS W AS TO PURCHASE AND HOLD THE SHARES AS INVESTMENT AND THE PROFIT ARISING FROM SA LE OF SUCH SHARES WAS CHARGEABLE TO TAX AS CAPITAL GAINS. HE CONTENTED TH AT VARIOUS GUIDELINES HAVE BEEN LAID DOWN BY THE CBDT IN THE CIRCULAR ISSUED F ROM TIME TO TIME AS WELL AS BY THE TRIBUNAL IN ITS VARIOUS DECISIONS TO ASCE RTAIN WHETHER THE ASSESSEE IN A PARTICULAR CASE HAS DEALT IN THE SHARES AS INVEST OR OR TRADER. IN THIS REGARD, HE FURNISHED A STATEMENT GIVING THE RELEVANT FACTS OF THE ASSESSEES CASE WITH REFERENCE TO SUCH GUIDELINES IN ORDER TO SHOW THAT THE ASSESSEE HAD UNDERTAKEN THE TRANSACTIONS IN SHARES AS INVESTOR AND NOT AS T RADER. HE CONTENTED THAT EVEN IN THE EARLIER YEARS INVOLVING SIMILAR FACTS, THE A SSESSEE WAS TREATED BY THE AO AS INVESTOR IN SHARES AND THE PROFIT ARISING FROM T HE TRANSACTIONS IN SHARES WAS ASSESSED IN HER HANDS UNDER THE HEAD CAPITAL GAINS. HE SUBMITTED THAT EVEN IN THE YEAR UNDER CONSIDERATION, THE AO HAS ACCEPTED T HE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAIN ARISING FROM THE SALE OF SHARES WHICH WERE HELD FOR A 12 PERIOD OF MORE THAN ONE YEAR. HE POINTED OUT THAT S OME OF THE SHARES PURCHASED BY THE ASSESSEE IN LOTS IN THE EARLIER YE ARS WERE PARTLY SOLD IN THE YEAR UNDER CONSIDERATION WITHIN A PERIOD OF ONE YEA R AND THE REMAINING SHARES OF THE SAME LOT WERE SOLD AFTER A PERIOD OF ONE YEA R. HE SUBMITTED THAT THE PROFIT ARISING FROM SALE OF THE SAID SHARES WITHIN A PERIOD OF ONE YEAR WAS HELD BY THE AO AS BUSINESS INCOME OF THE ASSESSEE WHEREA S THE PROFIT ARISING FROM SALE OF SHARES FROM THE SAME LOT AFTER A PERIOD OF ONE YEAR WAS ACCEPTED BY HIM AS LONG TERM CAPITAL GAIN AS CLAIMED BY THE ASS ESSEE. HE CONTENTED THAT THE AO THUS HAS TAKEN DIFFERENT STAND AS REGARDS THE IN TENTION OF THE ASSESSEE BY TREATING SOME SHARES OF THE SAME LOT PURCHASED BY H ER AS STOCK IN TRADE AND THE REMAINING SHARES AS INVESTMENT. HE CONTENTED THAT T HE ASSESSEE CANNOT HAVE A DIFFERENT INTENTION TO BUY ONE LOT OF SHARES AND HE R STAND THAT THE TRANSACTIONS IN SHARES WERE UNDERTAKEN AS INVESTOR SHOULD BE ACC EPTED IN RESPECT OF ALL THE SHARES AS CLAIMED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE SHARES SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE PURCHASED AND HELD BY HER AS INVESTMENT OR STO CK IN TRADE. IF THEY WERE PURCHASED AND HELD BY THE ASSESSEE AS INVESTMENT, T HE PROFIT ARISING FROM SALE THEREOF WOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS WHEREAS IF THE SAME WERE HELD BY HER AS STOCK IN TRADE, THE PROFIT ARISING FROM THE SALE THERE OF WOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION. IT IS THEREFORE NECESSARY TO DECIDE WHETHER THE SHARES WE RE PURCHASED AND HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE AND TH IS WILL DEPEND UPON THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F RELEVANT SHARES. IT IS WELL SETTLED THAT SUCH INTENTION IS TO BE GATHERED FROM THE RELEVANT FACTS OF EACH CASE AND AS AGREED BY THE LEARNED REPRESENTATIVES OF BOT H THE SIDES, THERE ARE CERTAIN 13 GUIDELINES LAID DOWN IN THE CIRCULARS/INSTRUCTIONS ISSUED BY THE CBDT FROM TIME TO TIME. THE CO-ORDINATE BENCHES OF THE TRIBUN AL HAVE ALSO SUMMARISED SOME OF THE IMPORTANT FACTOR WHICH ARE RELEVANT TO ASCERTAIN THE INTENTION OF THE ASSESSEE SO AS TO DECIDE WHETHER THE TRANSACTIO NS IN SHARES ARE UNDER TAKEN BY THE ASSESSEE AS INVESTOR OR AS TRADER. AT THE TI ME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE ARGU ED THEIR RESPECTIVE CASES IN THE LIGHT OF THESE GUIDELINES. HOWEVER, BEFORE WE E XAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE SAID GUIDELINES, T HERE IS ONE PECULIAR FACT INVOLVED IN THE PRESENT CASE WHICH, IN OUR OPINION, HAS A MATERIAL BEARING ON THE ISSUE INVOLVED IN THE PRESENT APPEAL. 11. IT IS OBSERVED THAT THE CLAIM OF THE ASSESSEE RIGHT FROM THE BEGINNING WAS THAT ALL THE SHARES WERE BEING PURCHA SED AND HELD BY HER AS INVESTMENT AND THERE WAS NO INTENTION ON HER PART T O TRADE IN THE DELIVERY BASED SHARES. ACCORDINGLY, THE PROFIT ARISING FROM SALE OF SHARES WAS OFFERED BY HER AS CAPITAL GAINS, EITHER SHORT TERM OR LONG TERM, DEPENDING UPON THE PERIOD FOR WHICH THE SAID SHARES WERE HELD BY HER. IN SO FAR AS THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAINS IS CONCERNED, THE AO HIMSELF HAS ACCEPTED THE SAME AND THIS IS A PECULIAR FACT INVOLVED IN TH E PRESENT CASE HAVING MATERIAL AND DIRECT BEARING ON THE ISSUE UNDER CONS IDERATION. THIS IS BECAUSE IF THE AO HIMSELF HAS ACCEPTED THAT SOME OF THE SHARES WERE PURCHASED AND HELD BY THE ASSESSEE AS INVESTMENT WHILE ALLOWING THE CL AIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAIN ARISING FROM THE SALE THEREOF, TH ERE IS NO JUSTIFICATION FOR HIM TO SAY THAT THE ASSESSEE HAD PURCHASED AND HELD OTH ER SHARES AS STOCK IN TRADE MERELY BECAUSE THEY WERE SOLD WITHIN A PERIOD OF ON E YEAR ESPECIALLY WHEN OTHER FACTS RELEVANT THERETO WERE ALMOST SIMILAR. A S RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD, IF ONE LOT OF SAY 1000 SHARES OF A PARTICULAR COMPANY WAS PURCHASED BY THE ASSESSEE IN THE EARLIER YEAR AND 500 SHARES OF THE SAID LOT WERE SOLD BY HER IN THE YEAR UNDER CONSIDERATION BEFORE A 14 PERIOD OF ONE YEAR AND THE BALANCE 500 SHARES WERE SOLD AGAIN IN THE YEAR UNDER CONSIDERATION BUT AFTER THE PERIOD OF ONE YEA R, IT CANNOT BE SAID THAT THERE WERE TWO INTENTIONS OF THE ASSESSEE BEHIND PURCHASE OF THE SAME LOT OF SHARES. THE INTENTION OF THE ASSESSEE CANNOT BE DIFFERENT A ND THE SAME IN ANY CASE CANNOT BE DECIDED MERELY ON THE BASIS OF PERIOD OF HOLDING AS DONE BY THE ASSESSING OFFICER ESPECIALLY WHEN OTHER MATERIAL FA CTS RELEVANT TO THE ISSUE WERE SIMILAR. IN OUR OPINION, EVEN THE LEARNED CIT (APPEALS) ALSO APPEARS TO HAVE COMMITTED THE SAME MISTAKE WHILE TREATING THE PROFIT ARISING FROM SALE OF SHARES WITHIN A PERIOD OF 30 DAYS AS BUSINESS INCOM E OF THE ASSESSEE AND THE PROFIT ARISING FROM SALE OF SHARES AFTER 30 DAYS AS SHORT TERM CAPITAL GAIN. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE PROFIT EARNED BY THE ASSESSEE FROM SALE OF SHARES WITHIN A PERIOD OF ONE YEAR AS SHORT TERM CAPITAL GAINS SINC E THE SHARES PURCHASED IN THE SIMILAR MANNER AND SOLD AFTER A PERIOD OF ONE YEAR WERE TREATED BY HIM AS INVESTMENT OF THE ASSESSEE GIVING RISE TO LONG TERM CAPITAL GAIN. 12. BEFORE PARTING, WE MAY CLARIFY AND REITERATE T HAT THE DECISION IN THIS CASE HAS BEEN RENDERED BY US KEEPING IN VIEW T HE PECULIAR FACTS AND CIRCUMSTANCES INVOLVED THEREIN. AS ALREADY NOTED IN THIS CONTEXT, PROFIT FROM SALE OF SHARES WHICH WERE PURCHASED IN A SIMILAR MA NNER AND HELD FOR MORE THAN ONE YEAR WAS SHOWN BY THE ASSESSEE AS LONG TER M CAPITAL GAIN AND THE SAME AMOUNTING TO RS.91,46,233/- WAS CLAIMED TO BE EXEMPT U/S. 10(38) AS PER PAGE NO. 8 OF STATEMENT OF TOTAL INCOME FILED B Y THE ASSESSEE ALONG WITH HER RETURN OF INCOME. THE DETAILS OF SUCH TRANSACTIONS GIVING RISE TO LONG TERM CAPITAL GAIN WERE ALSO FURNISHED BY THE ASSESSEE BE FORE THE AO AND AS MENTIONED BY THE AO ON PAGE 2 OF HIS ORDER, IT WAS NOTED BY HIM FROM THE SAID DETAILS THAT THE FREQUENCY OF SUCH TRANSACTIONS WAS ALSO ON HIGHER SIDE IN AS MUCH AS THERE WERE 98 TRANSACTIONS OF SALE MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION GIVING RISE TO LONG TERM C APITAL GAIN. HE ALSO NOTED 15 THAT THE BIFURCATION BETWEEN THE LONG TERM AND SHOR T TERM CAPITAL GAIN WAS MADE BY THE ASSESSEE ON THE BASIS OF ONE YEAR TIME PERIOD AS PROVIDED IN THE ACT. AFTER TAKING NOTE OF THESE DETAILS, THE AO PRO CEEDED TO CONSIDER THE CLAIM OF THE ASSESSEE RELATING TO SHORT TERM CAPITAL GAIN ONLY AND AFTER EXAMINING THE TRANSACTIONS GIVING RISE TO THE SHORT TERM CAPITAL GAIN IN THE LIGHT OF VARIOUS GUIDELINES, HE TREATED THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE AS HER BUSINESS INCOME. HE HOWEVER, DID NOT MAKE ANY A DVERSE COMMENT ON THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAIN TH EREBY ACCEPTING THE SAID CLAIM BY IMPLICATION. THE ASSESSING OFFICER THUS TR EATED THE SHARES DEALT IN BY THE ASSESSEE PARTLY AS INVESTMENT AND PARTLY AS STO CK IN TRADE MERELY ON THE BASIS OF PERIOD OF HOLDING OF THE SAID SHARES IGNOR ING THE FACT THAT THE SAME WERE PURCHASED BY THE ASSESSEE IN A SIMILAR MANNER AND TREATED AS INVESTMENT. THE ORDER OF THE AO ON THIS ISSUE THUS IS SELF CONT RADICTORY WHICH BECOMES MORE EVIDENT FROM ONE INSTANCE POINTED OUT BY THE L EARNED COUNSEL FOR THE ASSESSEE INVOLVING THE SHARES OF M/S. BANSWARA CENT EX LTD. THE SAID SHARES WERE PURCHASED BY THE ASSESSEE IN THE LOT OF 5000 O N 11.11.2004 OUT OF WHICH 3000 SHARES WERE SOLD WITHIN A PERIOD OF ONE YEAR W HEREAS THE REMAINING 2000 SHARES WERE SOLD AFTER A PERIOD OF ONE YEAR. ALL TH ESE SHARES WERE TREATED BY THE ASSESSEE AS INVESTMENT AND THE PROFIT ARISING F ROM SALE THEREOF WAS OFFERED TO TAX AS SHORT TERM GAIN AND LONG TERM CAPITAL GAI N DEPENDING ON THE PERIOD OF HOLDING. IN SO FAR AS THE SHARES WHICH WERE SOLD BY THE ASSESSEE AFTER A PERIOD OF ONE YEAR, THE AO ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAID SHARES AS INVESTMENT BY ALLOWING THE CLAIM OF THE A SSESSEE THAT THE PROFIT ARISING FROM THE SALE THEREOF WAS LONG TERM CAPITAL GAIN. HE, HOWEVER, DID NOT ACCEPT THE TREATMENT GIVEN BY THE ASSESSEE FOR THE REMAINING 2000 SHARES AS INVESTMENT AND TREATED THE SAME AS STOCK IN TRADE M ERELY ON THE BASIS OF PERIOD OF HOLDING OVERLOOKING COMPLETELY THE FACT THAT ALL THESE SHARES WERE PURCHASED BY THE ASSESSEE IN ONE LOT IN A SIMILAR M ANNER. THE AO THUS HAS TAKEN SELF CONTRADICTORY STAND WHILE DECIDING THE I SSUE INVOLVED IN THIS CASE 16 WHICH IS NOT JUSTIFIED. EVEN THE LEARNED CIT (APPEA LS) HAS ALSO COMMITTED A SIMILAR MISTAKE BY DECIDING THE ISSUE MERELY ON THE BASIS OF PERIOD OF HOLDING OF SHARES BY THE ASSESSEE AND KEEPING IN VIEW THESE PECULIAR FACTS INVOLVED IN THE PRESENT CASE, THE DECISION HAS BEEN RENDERED BY US WHICH CANNOT BE APPLIED IN OTHER CASES UNLESS SUCH PECULIAR FACTS ARE FOUND TO BE INVOLVED THEREIN ALSO. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF DECEMBER, 2010. SD/- SD/- ( D. MANMOHAN ) ( P.M. JAGTAP ) VICE PRESIDENT ACCOUNTA NT MEMBER MUMBAI, DATED: 15/12/2010 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, I - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI