APNA FOODS PVT. LTD. (FORMERLY SHASHIDHAR INVST & FIN. SER. P.LTD.), MUMBAI V. ITO- 5(1)(1), MUMBAI

ITA 5658/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56110 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M V SUBRAMANIAN
• Keywords: Business income
• Section: 234B

Judgement Text

1 APNA FOODS PVT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA , AM & SHRI VIJAY PAL RAO, JM ITA NO. 5658/MUM/2009 (ASST YEAR 2005-06 ) APNA FOODS PVT LTD (FORMERLY SHASHIDHAR INVST & FIN SER PVT LTD) 8 ARAB BUNGALOW 12 KHETWADI LANE GRANT ROAD (E) MUMBAI 4 VS THE INCOME TAX OFFICER WARD 5(1)(1), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAICS1219G ASSESSEE BY SH M V SUBRAMANIAN REVENUE BY SH R K SAHU DT.OF HEARING 1 ST DEC 2011 DT OF PRONOUNCEMENT 9 TH , DEC 2011 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 13.8.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.1.T(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING AND ASSESSING THE CAPITAL GAINS INCOME OF RS.7,43,978/- AS BUSINESS INCOME 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE INTEREST LEVIED U/S 234B OF THE IT ACT IS INVALID A ND BAD IN1LAW. 3 THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IN THE BUSINESS OF FINANCIAL CONSULTANTS, INVESTMENT CONSULTANTS ETC. THE ASSES SEE HAS DECLARED SHORT TERM 2 APNA FOODS PVT LTD CAPITAL GAINS OF RS. 7,43,978/- FROM THE PURCHASE A ND SALE OF MUTUAL FUNDS. THE ASSESSING OFFICER HAS TREATED THE SAID INCOME AS BU SINESS INCOME OF THE ASSESSEE. 3.1 ON APPEAL, THE CIT(A) CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AND CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF TREATING THE INCOME ARISING FROM PURCHASE AND SALE OF UNITS OF M UTUAL FUNDS AS BUSINESS INCOME. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSEE HAS DEALT WITH ONLY IN THE UNITS OF MUTUAL FUNDS AND NOT IN S HARES; THEREFORE, THE ACTIVITY OF THE ASSESSEE CANNOT BE TREATED AS BUSINESS IN NATURE. H E HAS REFERRED THE DETAILS OF MUTUAL FUNDS UNITS AND SUBMITTED THAT THE AVERAGE H OLDING PERIOD OF THE UNITS IS 4 TO 6 MONTHS. THE MINIMUM HOLDING PERIOD IS ALSO NOT LE SS THAN TWO MONTHS, WHICH CLEARLY SHOWS THAT THE INTENTION OF THE ASSESSEE WA S TO HOLD THE MUTUAL FUND UNITS AS INVESTMENT AND NOT AS STOCK-IN-TRADE FOR BUSINESS P URPOSES. HE HAS FURTHER SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDER ED AND ADJUDICATED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S GULMARG HOLDINGS PVT LTD IN ITA NO.5587/MUM/08 VIDE ORDER DATED 6.11.2009 AND DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THE REVENU E HAS ACCEPTED THE SHORT TERM CAPITAL GAINS ARISING FROM THE SALE OF MUTUAL FUND UNITS FOR THE AYS 2007-08; 2008-09 AND 2009-10. 4.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR THE PURPOSE OF PURCHASE OF MUTUA L FUNDS UNITS. THEREFORE, THE PURCHASE OF MUTUAL FUNDS UNITS IS NOT FOR THE INVES TMENT OF THE ASSESSEE; BUT IS 3 APNA FOODS PVT LTD TRADING IN NATURE AS THE ASSESSEE HAS USED THE BORR OWED FUNDS. HE HAS REFERRED THE BALANCE SHEET OF THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE IS HAVING UNSECURED LOANS OF RS. 78 LACS AND THE MAJOR PART OF THE INVE STMENTS SHOWN BY THE ASSESSEE IS USED BORROWED FUNDS. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. FROM THE DETAILS FILED BY THE ASSESSEE, IT IS CLEAR THAT THE ASSESSEE HAS DONE ONLY 34 TRANSACTIONS OF PURCHASE AND SALE DURING TH E YEAR. THEREFORE, FROM THE NUMBER OF TRANSACTIONS, IT IS CLEAR THAT THE FREQUE NCY OF THE TRANSACTIONS IS NOT HIGH. FURTHER, WE NOTE THAT THE HOLDING PERIOD OF THE UNI TS IS RANGING FROM 271 DAYS TO 50 DAYS. IT IS TO BE NOTED THAT IN THE MAJORITY OF TH E CASES, THE HOLDING PERIOD IS MORE THAN 3 MONTHS; THEREFORE, IT IS NOT THE CASE WHERE IT CAN BE SAID THAT THE ASSESSEE HAS PURCHASED AND SOLD THE MUTUAL FUND UNITS FOR IMMEDI ATE PROFIT. THE AVERAGE HOLDING PERIOD IS 4 TO 6 MONTHS SHOWS THAT THE INTENTION OF THE ASSESSEE WAS NOT TO RETAIN AND HOLD THE UNITS FOR APPRECIATION IN VALUE AND NO T TO EARN PROFIT AT THE SHORTEST PERIOD AND ON THE FIRST OCCASION OF INCREASE IN THE MARKET PRICE. IT IS PERTINENT TO NOTE THAT WHEN THE MUTUAL FUND IS NOT FREELY TRANSF ERABLE BUT THE UNITS CAN BE REDEEMED BY FUND ITSELF. THEREFORE, UNTIL AND UNLE SS THE TRANSACTION IS CONDUCTED FREQUENTLY, IT CANNOT BE SAID THAT THE ACTIVITY OF THE ASSESSEE IS TRADE IN NATURE; THOUGH THE ASSESSEE HAS USED THE BORROWED FUND FOR INVESTING IN THE MUTUAL FUND UNITS; BUT SOLELY BECAUSE OF THE BORROWED FUND USED BY THE ASSESSEE, THE INVESTMENT CANNOT CHANGE OR CONVERT INTO TRADING TRANSACTION. 4 APNA FOODS PVT LTD 5.1 MOREOVER, WHEN THE REVENUE HAS ACCEPTED THE PUR CHASE AND SALE OF MUTUAL FUND UNITS FOR THE SUBSEQUENT THREE ASSESSMENT YEAR S; THOUGH U/S 143(1), THEN IT IS NOT JUSTIFIED TO TREAT THE SAME TRANSACTION AS TRAD ING FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE COORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF M/S GULMARG HOLDINGS PVT LTD (SUPRA) HAS ALSO TAKEN SIMILAR VIE W IN PARA 12 AS UNDER: 12.WE FIND THE TRIBUNAL IN THE CASE OF BOMBAY GYMKH ANA LTD. VS. ITO (SUPRA) HAS HELD THAT PURCHASE OF MUTUAL FUND U NITS BY THE ASSESSEE HAVING BEEN ACCEPTED BY THE REVENUE AS INV ESTMENT, THE RECEIPT FROM SALE THEREOF HAS TO BE ASSESSED AS CAP ITAL GAIN AND NOT AS BUSINESS INCOME ON THE GROUND OF MAGNITUDE AND F REQUENCY OF SALES. SIMILARLY, THE TRIBUNAL IN THE CASE OF JAN AK S. RANGWALA (SUPRA) HAS HELD THAT MERE VOLUME OR MAGNITUDE OF T RANSACTION DOES NOT ALTER THE NATURE OF TRANSACTIONS WHICH ARE BEIN G ASSESSED AS INCOME FROM CAPITAL GAIN IN PAST SEVERAL YEARS. WH ERE THE ASSESSEE WAS HOLDING LARGE MAGNITUDE OF SHARES AS INVESTMENT FROM YEAR TO YEAR AND TRANSACTIONS OF SALE AND PURCHASE OF SHARE S IN THE PRECEDING YEARS HAS BEEN HELD TO BE INCOME FROM CAP ITAL GAIN BOTH ON LONG TERM AND SHORT TERM BASIS, THERE WAS NO BAS IS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES IN THE YEAR UNDE R CONSIDERATION WHEN ITS INTENTION WAS TO HOLD SHARES IN AN INDIAN COMPANY AS INVESTMENT AND NOT AS STOCK IN TRADE. WE FIND THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RAM AMRITAM REPOR TED IN 217 CTR 206 (MAD) AND AS RELIED ON BY THE LEARNED COUNSEL F OR THE ASSESSEE HAS HELD THAT THE INTENTION OF THE ASSESSEE IS RELE VANT TO DETERMINE WHETHER HE IS CARRYING ON THE BUSINESS IN SHARES OR INVESTMENT. WHEN THE ASSESSEE HAS BEEN HOLDING SHARES FOR A LON G TIME AND HAS BEEN UTILISING SURPLUS FUNDS ONLY FOR THE INVESTMEN T AND MAINTAINED SEPARATE BOOKS OF ACCOUNT, THE RECEIPTS FROM SALE O F SHARES IN QUESTION WAS ASSESSABLE UNDER THE HEAD CAPITAL GAIN . THE OTHER VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE ISSUE IN FAVOUR OF THE ASSESSEE. WE ALSO FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT THE SHORT TERM CAPITAL GAIN TRANSACTIONS ATTRACT 30% TA X AND THERE IS NO PREFERENTIAL TAX TREATMENT GIVEN TO THE ASSESSEE. IN THIS VIEW OF THE MATTER WE SET ASIDE THE ORDER OF THE CIT(A) AND DIR ECT THE ASSESSING OFFICER TO TREAT THE PROFIT ON REDEMPTION OF MUTUAL FUNDS AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS CLAI MED BY THE ASSESSEE AND NOT AS BUSINESS INCOME AS DETERMINED B Y THE ASSESSING OFFICER AND UPHELD BY THE CIT(A). GROUND S OF APPEAL NO. 1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 6 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS IN VIE W OF THE ORDER OF THE CO- 5 APNA FOODS PVT LTD ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S G ULMARG HOLDINGS PVT LTD (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 9 TH DAY OF DEC 2011. SD/ SD/ ( R K PANDA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 9 TH , DEC 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI