ITO 13(3)(4), MUMBAI V. JINMATI MUKESH SHAH, MUMBAI

ITA 5921/MUM/2010

• Counselvise Citation: 592119914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 28-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARTHASARTHI NAIK
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) AND SHRI VIVEK VARMA (JUDICIAL MEMBER) ITA NO.5921/MUM/2010 ASSESSMENT YEAR: 2007-08 ITO 13(3)(4), AAYAKAR BHAVAN, MUMBAI-400 020 MRS. JINMATI MUKESH SHAH, 29, 2 ND FLOOR, HANUMAN BLDG., PYDHONIE, MUMBAI-400 003 PAN-ARRPS 9869B (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI PARTHASARTHI NAIK RESPONDENT BY: SHRI REEPAL TRALSHAWALA DATE OF HEARING : 11.4.2012 DATE OF PRONOUNCEMENT: 27-04-2012. O R D E R PER VIVEK VARMA, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2006-07 AGAINST ORDER OF CIT(A)-24, MUMBAI DATE 26.05.2010 . 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO TREAT THE SHOR T TERM CAPITAL GAIN OF RS. 5,21,317/- AND LONG TERM CAPITAL GAIN O F RS. 22,46,822/- AS SHORT TERM CAPITAL GAIN AS SHORT TER M CAPITAL GAIN AND LONG TERM CAPITAL GAIN RESPECTIVELY AND N OT AS BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE VOLUME, QUANTUM AND ORGANIZED ACTIVITY IN SHARE TRADING IS A BUSINESS ACTIVITY. ITA NO. 5921/M/10 2 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS AN IN DIVIDUAL WHO IS AN INVESTOR IN SHARES FOR THE PAST MORE THAN 25 YEARS AND SHE HAS BEEN REFLECTING THE SHARES AS INVESTMENT IN THE BALANCE SHEET AT COST AND THE GAINS ARE OFFERED FOR TAX AS SHORT TERM OR LONG TERM CAPI TAL GAINS, WHICH HAS BEEN ACCEPTED ALL ALONG BY THE DEPARTMENT IN THE EARLIER YEARS. IT HAS BEEN MENTIONED IN THE ORDER OF CIT(A) VIDE SUBMISSIONS M ADE BY ASSESSEE, THE ENTIRE INVESTMENT HAS BEEN MADE BY HER OWN CAPITAL AND SHE HAS NOT BORROWED ANY FUNDS. THE INVESTMENT IN SHARES IS PR OVED BY THE INVESTMENT PORTFOLIO AS ON 31.3.2007 WHEREIN MOST OF THE SHARE S ARE COMING FROM PAST SEVERAL YEARS AND IN MANY CASES THE DURATION IS LAS T MORE THAN 10 YEARS. THE ASSESSEE FILED HER RETURN DECLARING TOTAL INCOME AT RS. 5,10,451/- WHEREIN THE ASSESSEE SHOWN THE ENTIRE SHORT TERM CAPITAL GAIN A T RS. 5,21,317/- AND LONG TERM CAPITAL GAIN OF RS. 22,46,822/-. THE ASS ESSING OFFICER REJECTED THE CONTENTION OF ASSESSEE THAT SHE WAS AN INVESTOR AND HELD THAT SHE WAS A TRADER IN STOCK IN SHARES. 4. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE PRE FERRED AN APPEAL BEFORE LD. CIT(A), WHO IN PARA 2.3 OF HIS ORDER GAV E HIS FINDING BY TAKING INTO ACCOUNT THE LEGAL AND FACTUAL ASPECT OF THE SUBMISS IONS MADE BY THE ASSESSEE AND AFTER CONSIDERING ALL THE FACTUAL ASPE CTS OF THE CASE, CIT(A) HELD THAT THE ASSESSEE WAS AN INVESTOR AND NOT A TRADER AND ACCEPTED THE CAPITAL GAINS AS SUCH. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE CONCE DED THE OBSERVATIONS OF CIT(A) IN SO FAR AS THERE WERE LONG TERM CAPITAL GAIN. SO FAR AS THE SHORT TERM CAPITAL GAINS ARE CONCERNED, THE DR TOOK US TH ROUGH THE DETAILS FILED BY THE ASSESSEE WHEREIN THE DR POINTED OUT THAT CERTAI N SHARES SUCH AS M/S. ALEMBIC LTD., M/S. GUJARAT ALKALIES & CHEMICALS LTD ., M/S. KIRLOSKAR ELECTRIC CO. LTD., AND M/S. DECCAN CHRONICLE HOLDING LTD., T HERE WERE TRANSACTIONS IN SHORT DURATION, WHICH ACCORDING TO HIM WERE LESS TH AN A FEW DAYS. IN THE CASE OF M/S. ALEMBIC LTD., IT WAS POINTED OUT THAT THE ASSESSEE PURCHASED ITA NO. 5921/M/10 3 SHARES ON 30.6.2006 AND SOLD THEM ON 3.7.2006 AND S HE AGAIN BOUGHT THE SAME SCRIP ON 20.10.2006 AND SOLD THEM ON 17.1.2007 . IN THE CASE OF M/S. GUJARAT ALKALIES & CHEMICALS, THE ASSESSEE PURCHASE D SHARES ON 3.3.2006 AND SOLD ON 3.4.2006 AND THE SAME SCRIPS WERE AGAIN BOU GHT ON 10.4.2006 AND SOLD ON 23.5.2006. IN THE CASE OF KIRLOSKAR ELECTR IC CO. LTD., THE ASSESSEE PURCHASED SHARES ON 13.3.2006 AND SOLD THEM ON 1.4. 2006 AND AGAIN PURCHASED ON 22.3.2006 AND SOLD ON 17.7.2006, BOUGH T ON 19.5.2006 AND SOLD ON 10.11.2006 AND AGAIN PURCHASED ON 15.11.200 6 AND SOLD ON 19.1.2007. IN THE CASE OF DECCAN CHRONICLE HOLDING, ASSESSEE PURCHASED THE SHARES ON 23.1.2006 AND SOLD ON 10.4.2006 AND AGAIN BOUGHT THE SCRIPS ON 27.6.2006 AND SOLD ON 3.7.2006. BASED ON THESE FRE QUENT TRANSACTIONS, THE DR PLEADED THAT THE SHORT TERM SALE AND PURCHASE SH OULD BE TREATED AS TRADING ACTIVITY, INSTEAD OF SHORT TERM CAPITAL GAI N. 7. DURING THE COURSE OF HEARING, THE AR MADE EMPHA SIS THAT THE ENTIRE SALE AND PURCHASE OF SHARES WHEREVER IT WAS DONE, I T WAS ON DELIVERY BASIS. IT IS SEEN THAT THE POSITION OF THE ASSESSEE HAS BEE N ACCEPTED BY THE DEPARTMENT IN THE PRECEDING YEAR AND IN THE SUBSEQU ENT YEAR WHEREIN THE DEPARTMENT HAS ACCEPTED THE RETURNS U/S. 143(1). IN THE PAPER BOOK FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS PLACED ON RECORD THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SH RI MAHENDRA C. SHAH VS ACIT IN ITA NO. 6289/M/08 WHEREIN THE IT HAS BEEN H ELD THAT SIMILAR SET OF FACTS AND CIRCUMSTANCES HAS ACCEPTED THE POSITION O F THE ASSESSEE AND ALLOWED THE ASSESSEES POINT OF VIEW AND REJECTED DEPARTMENTAL APPEAL. IT MAY BE POINTED OUT THAT IN THIS CASE, THE CO-ORDINA TE BENCH HAS REFERRED TO THE DECISION IN THE CASE OF CIT VS GOPAL PUROHIT RE PORTED IN 228 ITR 582 (BOM) WHEREIN THE HONBLE BOMBAY HIGH COURT HAVE AC CEPTED THAT THE ASSESSEE CAN HAVE TWO SETS OF PORTFOLIOS. IN THE C ASE AT HAND, THE ASSESSEE HAS BEEN MAINTAINING ONE PORTFOLIO I.E. INVESTMENT. THE ASSESSEE HAS ALSO PLACED ON RECORD THE DECISION IN THE CASE OF CIT VS NAISHADH V. VACHHARAJANI IN INCOME TAX APPEAL (L) NO. 1042 OF 2011 VIDE LETT ER DATE 22 ND SEPTEMBER, 2011. IN THIS CASE THE ASSESSEE WAS A MARINE CONSULT ANT WHO CARRIED ON THE ITA NO. 5921/M/10 4 BUSINESS OF TRADING IN SHARES AND HAD ALSO MADE INV ESTMENTS IN SHARES. IN THE ASSESSMENT YEAR IN QUESTION, THE ASSESSEE HAD S OLD CERTAIN SHARES HELD AS INVESTMENTS AND GAINS ARISING ON ACCOUNT OF SALE OF THESE SHARES WERE OFFERED AS LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL G AINS. THE AO HELD THAT THE INCOME WAS LIABLE TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME. THE TRIBUNAL IN ITS JUDGMENT HAS RECORDED THE FINDING T HAT THE ASSESSEE HELD THE SHARES FOR MORE THAN 10 YEARS AND WHEREVER THE ASSE SSEE HAS PURCHASED AND SOLD THE SHARES WITHIN A PERIOD OF ONE YEAR, INCOME ARISING THEREFROM HAVE BEEN OFFERED TO TAX AS SHORT TERM CAPITAL GAINS AND THE SAME WAS ASSESSED ACCORDINGLY. THE HONBLE BOMBAY HIGH COURT IN THAT CASE REFERRED THE DECISION OF CIT VS GOPAL PUROHIT (SUPRA) AND HELD T HAT IT IS OPEN TO AN ASSESSEE TO TRADE IN THE SHARES AND ALSO TO INVEST IN SHARES AND WHEREVER THE SHARES ARE HELD AS INVESTMENT WERE LIABLE TO BE ASS ESSED AS LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN. TAKING INTO CONSIDERATION THE ENTIRE FACTUAL MATRIX OF THE CASE, LEGALITY AND JUDICIAL P RONOUNCEMENTS, WE DO NOT FIND ANY REASON TO DISTURB THE FINDINGS OF CIT(A). THEREFORE, THE GROUND TAKEN BY THE REVENUE IS REJECTED . 8. WE HAVE HEARD BOTH THE PARTIES AND WE FIND T HAT THE ASSESSEE WAS AN INVESTOR FOR PAST SO MANY YEARS, THE FACT, WHICH HA S NOT BEEN DISPUTED BY AO. THE DR HAS ALREADY BEEN CONCEDED THAT OUT OF COMPLE TE LIST OF SHARES, FOR WHICH THE ASSESSEE HAS SHOWN AS LTCG, THERE IS NO D ISPUTE, BUT THE LIST OF SHARES WHICH WERE TRANSACTED AND CLAIMED AS STCG HA S BEEN TARGETED BY THE DR. THE ISSUE WHETHER THE SHARE TRANSACTIONS IN A PARTI CULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A DEBATABLE ISSUE. THERE ARE DECISIONS OF TH E TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL DEPEND ON ITS OWN FACTS A ND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME , ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PE RIOD ETC. WHICH ITA NO. 5921/M/10 5 ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSAC TIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FAC TOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE W HICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WH ILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BASIS O F THE PORTFOLIO AS SUCH, THAT IS MAINTAINED BY THE ASSESSEE. THIS V IEW IS SUPPORTED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. MADANGOPAL RADHEYLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING OF THE HOLDING PERIOD ETC . SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF D IVIDEND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER THERE MAY BE S ITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT H OLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO E NCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGE NCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN T HE TRUE NATURE OF TRANSACTIONS. IN THE CASE AT HAND, WE FIND THE DETA ILS OF SHARE TRANSACTIONS, HOLDING PERIOD-WISE AS GIVEN BY THE A SSESSEE AT PAGES 4 & 5 OF APB. A CAREFUL PERUSAL OF THE SAME SHOWS T HAT MOST OF THE SHARES HAVE BEEN SOLD WITHIN 30 DAYS AND ALL THE TR ANSACTIONS HAVE BEEN COMPLETED WITHIN A YEAR AS THE DETAILS ITSELF STATE. THE INCOME FROM THESE TRANSACTIONS HAVE BEEN DECLARED BY THE A SSESSEE A SHORT TERM CAPITAL GAIN TREATING THE SHARE PURCHASES AS I NVESTMENT BUT THE PATTERN OF TRANSACTIONS CLEARLY SHOWS THAT THE ASSESSEE IS ITA NO. 5921/M/10 6 TRADING IN SHARES AND IS NOT AN INVESTOR. AN INVES TOR WOULD LIKE TO HOLD THE SHARES FOR A LONGER TIME SO AS TO EARN DIV IDEND AND HE IS NOT TEMPTED TO SELL SHARES ON EVERY SMALL RISE IN T HE VALUE OF SHARES. THE FREQUENCY AND VOLUME IS QUITE HIGH MAK ING THE INTENTION CLEAR THAT THE ASSESSEE WAS TRADING IN SH ARES. THERE ARE ALSO REPETITIVE TRANSACTIONS IN THE SAME SCRIPS AS POINTED OUT BY THE DR. THEREFORE, WE ARE OF THE VIEW THAT THE SHORT TE RM CAPITAL GAIN DECLARED BY THE ASSESSEE IS NOTHING BUT BUSINESS IN COME. 9. THE LD. AR FOR THE ASSESSEE HAS RELIED ON THE DE CISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 171) TO ARGUE THAT INCOME FROM ALL DELIVERY BASED TRANSACTIONS HAS TO BE ASSESSED AS INCOME, BUT WE FIND THAT THERE IS NO UNIVERSAL FIND ING THAT ALL DELIVERY BASED TRANSACTIONS HAVE TO BE TREATED AS I NVESTMENT. EVEN BEFORE HONBLE HIGH COURT THERE WAS NO QUESTION RAI SED THAT ALL DELIVERY BASED TRANSACTIONS HAVE ALWAYS TO BE TREAT ED AS INVESTMENT ACTIVITY. THUS THE DECISION OF THE TRIB UNAL AS WELL AS THE HONBLE HIGH COURT IN CASE OF GOPAL PUROHIT (SUPRA) , CANNOT BE CONSIDERED AS A PRECEDENT FOR THE PROPOSITION THAT ALL DELIVERY BASED SHARES HAVE TO BE TREATED AS INVESTMENT ACTIVITY. THEREFORE, IN OUR VIEW RELIANCE PLACED BY THE LD. AR ON THE DECISION IN THE CASE OF GOPAL PUROHIT IS DISTINGUISHABLE ON FACTS. CONSIDER ING THE FACTS OF THIS CASE, WE HOLD THAT THE SHARE TRANSACTIONS FROM WHICH THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN WERE OF THE NATURE OF TRADING ACTIVITY OF THE ASSESSEE AND ACCORDINGLY WE SET ASIDE THE ITA NO. 5921/M/10 7 ORDER OF THE CIT(A) AND UPHOLD THE ORDER OF AO WITH RESPECT TO THE SHARES PURCHASED AND SOLD DURING THE YEAR, TO BE TR EATED AS BUSINESS. IN SO FAR AS THE SHARES HELD FOR MORE THE N ONE YEAR AND/OR COMING FROM THE PRECEDING YEAR AS OPENING IN VESTMENTS, THE ASSESSEES VIEW HAS TO BE ACCEPTED AND THOSE TRANSA CTIONS HAVE TO BE ACCEPTED AND TREATED AS LONG TERM CAPITAL GAIN. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2012 SD/- SD/- ( RAJENDRA SINGH) ( VIVEK VARMA) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI, DATED 27TH APRIL, 2012 P/-* ITA NO. 5921/M/10 8