ACIT 21(1), MUMBAI V. NAILESH P. DALAL, MUMBAI

ITA 6169/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3945 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJGURUDR
• Assessee Lawyers: DEEPAK N KAN ABAR
• Keywords: Capital asset; Business income; Salary income; Rule of consistency; Source of fund
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6169/MUM/2014 ASSESSMENT YEAR: 2008-09 ACIT-21(1), 6 TH FLOOR, C-10, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST) MUMBAI-400051 / VS. SHRI NAILESH DALAL, 5-6, VIRAM, 62, HATKESH SOCIETY, N. S. ROAD NO.8, JVPD SCHEME, MUMBAI-400049 ( / REVENUE ) ( !' # /ASSESSEE) PAN. NO . AACPD9844N CROSS OBJECTION NO.49/MUM/2016 (ARISING OUT OF ITA NO.6169/MUM/2014) ASSESSMENT YEAR: 2008-09 SHRI NAILESH DALAL, 5-6, VIRAM, 62, HATKESH SOCIETY, N. S. ROAD NO.8, JVPD SCHEME, MUMBAI-400049 / VS. ACIT-21(1), 6 TH FLOOR, C-10, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST) MUMBAI-400051 ( !' # /ASSESSEE) ( / REVENUE ) PAN. NO.AACPD9844N / REVENUE BY SHRI RAJGURU-DR !' # / ASSESSEE BY SHRI DEEPAK N. KANABAR ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 2 $ % & # ' / DATE OF HEARING : 28/04/2016 & # ' / DATE OF ORDER: 03/05/2016 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 24/07/2014 OF THE FIRST APPELLATE AUTHORITY, MUMBAI , WHEREAS, THE ASSESSEE HAS PREFERRED CROSS OBJECTION . 2 FIRST WE SHALL TAKE UP APPEAL OF THE REVENUE, WH EREIN THE ONLY GROUND RAISED PERTAINS TO NOT CONSIDERING BY THE LEARNED CIT(A) THAT THE ASSESSEE WAS ENGAGED IN ONL Y ACTIVITY OF EARNING PROFIT THROUGH PURCHASE AND SALE OF SHAR ES, BE IT DERIVATIVES, INTRA-DAY PURCHASE AND SALE WITHIN A S HORT PERIOD/LONG PERIOD AND FURTHER ERRED IN TREATING PR OFIT ON SHARE TRANSACTIONS AS CAPITAL GAINS IGNORING THAT T HE INTENTION OF THE ASSESSEE WAS TO MAKE PROFIT AND NO T INVESTMENTS. 3. DURING HEARING, AT THE OUTSET, THE LEARNED COUNS EL FOR THE ASSESSEE SHRI DEEPAK N KANABAR CONTENDED THAT T HE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE FOR ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 3 A.Y.2006-2007 (ITA NO. 3337/MUM/2009). IT WAS ALSO EXPLAINED THAT NO BORROWED FUNDS WERE UTILIZED BY T HE ASSESSEE FOR MAKING THE INVESTMENT AND LONG TERM CA PITAL GAIN WAS ACCEPTED BY THE DEPARTMENT AND ONLY DISPUT E IS WITH RESPECT TO SHORT TERM CAPITAL GAIN. THIS FACT UAL MATRIX WAS NOT CONTROVERTED BY THE LEARNED DR. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AB OVE, WE ARE REPRODUCING HERE UNDER THE RELEVANT PORTION FROM TH E AFORESAID ORDER FOR A.Y. 2006-07. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) - XXI, MUMBAI DATED 20-03-2009 FOR ASSESSMEN T YEAR 2006-07 AND THE SAME IS BEING DISPOSED OF ALONG WITH THE CR OSS OBJECTION FILED BY THE ASSESSEE. 2. THE SOLITARY COMMON ISSUE ARISING OUT OF THE APP EAL OF THE REVENUE AND THE C.O. OF THE ASSESSEE RELATES TO THE DETERMI NATION OF HEAD OF INCOME UNDER WHICH THE PROFIT EARNED BY THE ASSESSE E FROM THE TRANSACTIONS ON SHARES IS CHARGEABLE TO TAX. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION O N 30-10-2006 DECLARING TOTAL INCOME OF RS. 58,04,003/- WHICH COM PRISED OF INCOME FROM BUSINESS, SHORT TERM CAPITAL GAINS AND OTHER S OURCES. THE SHORT TERM CAPITAL GAINS WAS EARNED BY THE ASSESSEE FROM THE TRANSACTIONS IN SHARES AND THE DETAILS OF THE SAME AS FURNISHED BY THE ASSESSEE BEFORE THE A.O. WERE AS UNDER:- ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 4 SHORT TERM CAPITAL GAINS FROM 01-04-2004 TO 30-09-2005 NO OF SHARES BOUGHT AND SOLD 2,51,604 PURCHASE AMOUNT 1,06,04,746 SALES AMOUNT 1,63,73,121 NO. OF SCRIPS 31 TOTAL GAINS 57,68,375 SHORT TERM CAPITAL GAINS FROM 01-10-2005 TO 31-03-2 006 NO OF SHARES BOUGHT AND SOLD 1,72,608 PURCHASE AMOUNT 1,90,72,340 SALES AMOUNT 2,16,52,571 NO. OF SCRIPS 18 TOTAL GAINS 25,80,231 TOTAL SUMMARY OF SHORT TERM CAPITAL GAINS FROM 01-04-2005 TO 31-03-2006 NO OF SHARES BOUGHT AND SOLD 4,24,212 PURCHASE AMOUNT 2,96,77,086 SALES AMOUNT 3,80,25,692 NO. OF SCRIPS 49 TOTAL GAINS 83,48,606 ON PERUSAL OF THE ABOVE DETAILS FURNISHED BY THE AS SESSEE, THE A.O. WAS OF THE VIEW THAT KEEPING IN VIEW THE BACK GROUN D OF THE ASSESSEE, REGULARITY, VOLUME, TURNOVER OF THE TRANSACTIONS AN D THE PERIOD OF HOLDING OF SHARES, THE PROFIT EARNED BY THE ASSESSE E FROM THE TRANSACTIONS IN SHARES CONSTITUTED BUSINESS INCOME OF THE ASSESSEE AND NOT THE CAPITAL GAINS AS CLAIMED IN THE RETURN OF I NCOME. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER HIS EXPLANATION IN T HE MATTER WHICH THE ASSESSEE FURNISHED VIDE HIS LETTER DATED 6-10-2008 AS UNDER:- I HAVE BEEN AN INVESTOR FOR THE LAST 30 YEARS AND HAVE BEEN FILING MY RETURNS REGULARLY AS AN INVESTOR. SINCE THE VERY FI RST RETURN I HAVE BEEN DECLARING ALL THE INVESTMENTS IN DETAIL INCLUD ING PURCHASES, SALES AND HOLDINGS AS AT THE BEGINNING AS WELL AS AT THE END OF THE FINANCIAL YEAR. I HAVE TAKEN ALL THE SHARES AT ORIGINAL RATES AND HAVE NEVER ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 5 CLAIMED ANY MARK TO MARKET PROFITS OR LOSSES AGAINS T MY INVESTMENT SHOWN UNDER STCG AND LTCG. I HAVE MADE THIS INVESTM ENT OUT OF MY OWN FUNDS AND I HAVE NOT AVAILED OF ANY CREDIT FACI LITIES FROM ANY BANKS. I HAVE TAKEN DELIVERY OF ALL THE SHARES FOR WHICH I HAVE BOOKED SHORT TERM CAPITAL GAINS. THIS CAN BE VERIFIED FROM THE COPIES OF THE ENCLOSED DEMAT STATEMENTS. THERE WERE TRANSACTIONS IN ONLY 51 SCRIPS DECLARED UNDER STCG. THESE WERE CARRIED OUT THROUGH RECOGNIZED STOCK EXCHANGES. THE SECURITIES TRANSACTION TAX HAS BEEN DULY PAID ON ALL THE TRANSACTIONS. IT WAS FURTHER SUBMITTED BEF ORE THE A.O. THAT THE ASSESSEE WAS WORKING AS FULL TIME DIRECTOR OF M/S D ALAL BROACHA STOCK BROKING PVT. LTD. EARNING A SALARY OF RS. 52 LACS AND HE WAS NOT IN A POSITION TO DEVOTE ANY TIME TO CARRY ON THE BU SINESS OF TRADING IN SHARES. IT WAS SUBMITTED THAT THE TRANSACTIONS IN P URCHASE AND SALE OF SHARES WERE BEING DONE BY THE ASSESSEE AS AN INVEST OR AND THE PROFIT EARNED FROM SUCH TRANSACTIONS OFFERED TO TAX UNDER CAPITAL GAIN WAS ACCEPTED BY THE DEPARTMENT IN THE PAST. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD MADE THE ENTIRE INVESTMENT IN SHARES O UT OF HIS OWN FUNDS AND THERE WAS NO AMOUNT BORROWED FOR THE PURP OSE OF MAKING THE SAID INVESTMENT. IT WAS POINTED OUT THAT THE AS SESSEE HAD ENTERED IN TO PURCHASE AND SALE TRANSACTIONS IN ONLY 39 SCR IPS OUT OF WHICH 16 SCRIPS WERE HELD IN THE FORM OF OPENING INVESTMENT. IT WAS CONTENDED THAT THE SCALE OF THIS ACTIVITY COULD NOT BE SAID T O BE SUBSTANTIAL AND THE TRANSACTIONS WERE ALSO NOT ENTERED INTO CONTINU OUSLY AND REGULARLY DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO PO INTED OUT THAT THE TYPICAL HOLDING PERIOD OF THE SHARES AS GIVEN IN TH E STATEMENT OF LONG TERM CAPITAL GAIN WAS BETWEEN TWO TO TEN YEARS WHIL E THE SAID IN THE CASE OF SHORT TERM CAPITAL GAIN WAS MORE THAN SIX M ONTHS. IT WAS CONTENDED THAT THE INTENTION OF THE ASSESSEE THUS W AS ALWAYS TO STAY INVESTED AND EARN DIVIDEND INCOME OVER A PERIOD. RE LYING ON THE VARIOUS JUDICIAL PRONOUNCEMENTS CITED BEFORE THE A. O. AS WELL AS REFERRING TO THE CBDT CIRCULAR NO. 4/2007 ISSUED ON 15-6-2007, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ALL TH E RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE SHOULD BE TAKEN INTO CONS IDERATION TO DECIDE THE INTENTION OF THE ASSESSEE TO ACQUIRE AND HOLD T HE SHARES AND IF SUCH INTENTION IS FOUND TO BE THAT OF MAKING INVESTMENT IN SHARES RATHER THAN TRADING IN SHARES, THE PROFITS ARISING FROM TH E TRANSACTIONS IN SHARES SHOULD BE ASSESSED AS CAPITAL GAIN. 4. THE S UBMISSIONS MADE BY THE ASSESSEE WERE CONSIDERED BY THE A.O. IN THE LIGHT OF CERTAIN TESTS LAID DOWN IN VARIOUS JUDICIAL PRONOUNCEMENTS AS WELL AS IN THE CIRCULAR ISSUED BY THE CBDT IN ORDER TO DISTINGUISH BETWEEN SHARES ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 6 HELD AS STOCK-IN- TRADE AND SHARES HELD AS INVESTME NT. IN THIS REGARD, HE RECORDED HIS FINDINGS/OBSERVATIONS AS UNDER:- (1) WHETHER THE PURCHASE AND SALE OF SECURITIES WA S ALLIED TO HIS USUAL TRADE OR BUSINESS/ WAS INCIDENTAL TO IT OR WA S AN OCCASIONAL INDEPENDENT ACTIVITY. THE ASSESSEE IS HAVING PREDOM INANT ACTIVITY OF BUYING AND SELLING OF SHARES WHERE THE TRANSACTIONS WERE ENTERED INTO CONTINUOUSLY, REGULARLY AND SYSTEMATICALLY DURING T HE ASSESSMENT YEAR UNDER CONSIDERATION. (II) TIME DEVOTED TO THE ACTIVITY AND THE EXTENT TO WHICH IT IS THE MEANS OF LIVELIHOOD. IN THE GIVEN CASE THE SHARE TRADING ACTIVITY IS THE ONLY ACTIVITY BEING UNDERTAKEN B THE ASSESSEE AND IS A W HOLE TIME OCCUPATION FOR THE ASSESSEE. THIS IS STRENGTHENED B Y THE FACT THAT THE SALARY INCOME FROM THE COMPANY IS IN LIEU OF THE SH ARE TRADING ACTIVITY OF THE COMPANY. THE NATURE OF THE BUSINESS OF COMPA NY AND INDIVIDUAL IS THE SAME. (III) WHETHER SCALE OF ACTIVITY IS SUBSTANTIAL. THE SCALE OF ACTIVITY IS DEFINITELY SUBSTANTIAL IN THE CASE OF THE ASSESSEE. THE NUMBER OF TRANSACTIONS AND THE QUANTUM OF SALE AND PURCHASE O F SHARES HAVE BEEN ELABORATED IN THE EARLIER PARAS OF THIS ASSESS MENT ORDER FROM WHERE IT IS CLEAR THAT BOTH THE NUMBER AND QUANTUM OF TRANSACTIONS ARE SUBSTANTIAL. HOLDING PERIOD OF SECURITIES BOUGH T AND SOLD AND FREQUENCY OF TRANSACTIONS. IT WILL NOT BE OUT OF PL ACE TO MENTION EVEN AT THE COST OF REPETITION THAT TAXABILITY OF TRANSA CTIONS WILL NOT DEPEND ON PRESENTATION OF ACCOUNTS OR BY SHOWING THE SHARE S AS INVESTMENT. IT WILL DEPEND ON THE FACTS OF THE CASE. THE VOLUME, F REQUENCY AND REGULARITY OF SHARE TRANSACTIONS DONE IN ORGANIZED MANNER INDICATE BUSINESS ACTIVITY. ON THE BASIS OF ABOVE FINDINGS/OBSERVATIONS RECORDE D BY HIM AS WELL AS RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS EXPLA INING THE MEANING OF THE WORD BUSINESS, THE A.O. HELD THAT THE ASSESSEE WAS MAINLY ENGAGED IN THE ACTIVITY OF EARNING PROFIT TH ROUGH PURCHASE AND SALE OF SHARES AND SUCH PROFITS THEREFORE WAS CHARG EABLE TO TAX IN HIS HANDS AS BUSINESS INCOME AND NOT CAPITAL GAIN. ACCO RDINGLY, SUCH PROFIT DECLARED BY THE ASSESSEE AS SHORT TERM CAPIT AL GAINS AND LONG TERM CAPITAL GAINS WAS ENTIRELY BROUGHT TO TAX BY T HE A.O. IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME IN THE ASSESSMEN T COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 VIDE AN ORDER DA TED 21-11- 2008. ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 7 AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEF ORE THE LD. CIT(A) IN SUPPORT OF HIS CASE THAT THE TRANSACTIONS IN SHA RES WERE ENTERED INTO AS INVESTOR AND NOT AS TRADER AND THE PROFIT ARISIN G FROM SHARES WAS CHARGEABLE TO TAX AS CAPITAL GAIN AND NOT BUSINESS INCOME:- THAT THE GENERAL PRINCIPLES OF LAW APPLICABLE, FOR DETERMINING WHEN CERTAIN ACTIVITIES CONSTITUTE A BUSINESS OR ARE ON CAPITAL OR INVESTMENT ACCOUNT, WOULD HAVE TO BE APPLIED TO THE ACTIVITIES OF SHARE INVESTING IN ORDER TO DETERMINE WHETHER THE TRANSACTIONS RESU LT IN A BUSINESS INCOME OR CAPITAL GAINS. THERE IS NO EXPRESS PROVIS ION IN THE LAW TO DETERMINE WHEN AN ACTIVITY IS ONE OF INVESTMENT AND WHEN IT CONSTITUTES A BUSINESS. THE GUIDANCE THAT IS AVAILA BLE IN THE INCOME TAX ACT IS BASICALLY IN THE FORM OF THE INCLUSIVE D EFINITION OF THE TERM BUSINESS UNDER SECTION 2(13). THIS DEFINITION DOE S NOT PROVIDE MUCH GUIDANCE SO FAR AS DETERMINING WHETHER SHARE TRANSA CTIONS CONSTITUTE A BUSINESS OR NOT, SINCE THE DEFINITION IS INCLUSIV E DEFINITION AND THEREFORE MERELY ILLUSTRATIVE AND NOT ALL-EMBRACING . (II) THAT THE APPELLANT IS THE DIRECTOR OF M/S DALA L & BROACHA STOCK BROKING PVT LTD., SINCE MORE THAN 10 YEARS. THE APP ELLANT HAS RECEIVED RS,52,00,000/- AS SALARIES FROM THIS COMPA NY. FOR THIS PURPOSE THE APPELLANT IS REQUIRED TO DEVOTE HIS FUL L TIME AND ENERGY TOWARDS THE ACTIVITY OF THE COMPANY. THEREFORE, THE RE CANNOT BE ANY OTHER SYSTEMATIC BUSINESS ACTIVITIES CARRIED BY THE APPELLANT EXCEPT AS THE EMPLOYEE OF THE COMPANY. THE APPELLANT IS REQUI RED TO ATTEND TO THE CLIENTS OF THE COMPANY BETWEEN 9.00 AM TO 4.00 PM RELATED TO SECURITIES TRANSACTION OF BSE & NSE. THEREAFTER, HE IS REQUIRED T LOOK INTO THE COLLECTION OF DUES FROM HE CLIENTS AND SET TLEMENT OF ACCOUNT WITH THE STOCK EXCHANGES THE NEXT DAY. A TYPICAL WO RKING DAY EXTENDS FROM 8.00 AM TO 8 PM DEVOTED WHOLLY TO THE AFFAIRS OF THE COMPANY. THEREFORE, THE APPELLANT CANNOT CARRY OUT THIS ACTI VITY AS A PRIMARY OCCUPATION. (III) THAT THE LIVELIHOOD OF THE APPELLANT DOES NET DEPEND UPON THE RETURNS ON INVESTMENT AS INCOME FROM SALARY IS MUCH HIGHER THAN THE RETURNS OF THE INVESTMENT IN MOST NUMBER OF YEARS. THEREFORE IT CANNOT ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 8 BE SAID THAT THE APPELLANT S IN THE BUSINESS OF TRA DING OF SHARES / SECURITIES. (IV) THAT, AS THE COMPANY IN WHICH THE APPELLANT I S AN EMPLOYEE IS IN THE BUSINESS OF BROKERAGE ON BSE OR NSE, THE APPELL ANT CARRIES OUT OCCASIONAL TRANSACTION ON PERSONAL ACCOUNT. THU INV ESTMENTS IN ITA SHARES, UNITS OF MUTUAL FUNDS, GOVERNMENT SECURITIE S, DEBENTURES, UNLISTED COMPANIES AND LISTED EQUITY SHARES ARE IND EPENDENT OF ACTIVITIES OF THE COMPANY. IF A COMPANY CAN BE BOTH A TRADER AS WELL AN INVESTOR, THEN WHY AN INDIVIDUAL CANNOT BE ATTAC HED TO A BROKING FIRM AND STILL HE AN INVESTOR IN INDIVIDUAL CAPACIT Y. V) THAT THE APPELLANT HAS BEEN FILLING HIS RETURN O F INCOME FROM YEAR TO YEAR FOR THE PAST MORE THAN 25 YEARS ALONG WITH COMPUTATION OF INCOME WHEREIN SIMILAR TRANSACTION IN SALE AND PURC HASE OF SHARES ON BOTH LONG TERM AND SHORT TERM BASIS HAVE BEEN DULY ACCEPTED BY THE DEPARTMENT AS AN INVESTOR. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AS EACH YEAR IS INDEPENDENT YEAR OF ASSESSMENT, HOWEVER, IN ORDER TO MAINTAIN THE CO NSISTENCY, IT IS JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD HE ADOPTED FOR THE SUBSEQUENT YEAR, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. THIS PRINCIPLE HAS BEEN FOLLOWED BY MUMBAI ITAT IN JANAK S RANGWALA V ACIT 2007 - 11 SOT 627 (MUM.) (PG.58-60 OF APB). VI ) THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BY THE BOMBAY BENCH OF ITAT BOMBAY GYMKHANA VS. ITO (IT APPEAL NO. 249 OF 2005 PRONOUNCED ON 31.10.2007). IT WAS HELD THAT IN THE INSTANT CAS E, THE REAL QUESTION THAT CAME UP FOR CONSIDERATION WAS AS TO WHETHER TH E FIRST STEP, I.E. PURCHASE OF SHARES WAS IN THE COURSE OF TRADING TRA NSACTION OR IN THE COURSE OF INVESTMENT. IT WAS SEEN THAT THE PURCHASE OF UNITS WAS MADE AS INVESTMENT AND THE SAME WAS SHOWN BY THE APPELLA NT IN ITS BOOKS OF ACCOUNT AS INVESTMENT AND IN EARLIER YEARS, SAID ST AND OF THE APPELLANT WAS ACCEPTED BY THE DEPARTMENT. IF THE PURCHASE OF UNITS WAS ACCEPTED AS PURCHASE IN COURSE OF INVESTMENT, AT THE TIME OF SALE THEREOF, INCOME ARISING ON SALE HAD TO BE ASSESSED AS CAPITA L GAIN AND IT COULD NOT BE ASSESSED AS BUSINESS INCOME MERELY FOR THE R EASON THAT QUANTUM WAS HIGH OR THE NUMBER OF TRANSACTIONS WAS HIGH. FOLLOWING MORE JUDGMENTS ALONG WITH COPIES OF THE ORDERS WERE FURNISHED BY THE LD. A.R. OF THE APPELLANT. ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 9 A) CIT VS. LAGAN KALA UPAVAN : (2003) 259 ITR 489( DEL) PG 70-71 B) CIT VS. A.R.J.SECURITY PRINTERS : (2003) 264 ITR 276 (DEL) PG72-73 C) DIT VS. LOVELY BAL SHIKSHA : (2004) 236 ITR(DEL) PG 74-75 D) CIT VS. H.P.COTTON TEXTILE MILLS LTD : IT APPEA L NO. 264 OF 2007 PG 76.77 E) DIT VS. ESCORTS CARDIAC DISEASES HOSPITAL SOCIET Y IT APPEAL NO.28/2006 PG 78-79 F) CIT VS. DALMIA PROMOTERS DEVELOPERS: ITAPPEAL.NO .755 OF 2005 PG 8041 G) CWT VS: ALLIED FINANCE (P) LTD. (2007) 289 ITR 318(DEL) PG 82- 83 H) CIT VS. SOOD HARVESTER (2008) 304 ITR 279 PG 84- 85 I) PUKHRAJ RIKHABDASS VS. CWT: (1995) 203 ITR 770 ( RAJ) PG 86-87 J) CIT V INDIA FORGE & DROP STAMPING LTD. (1999) 2 40 ITR (MAD) PG 88-89 VI) THAT THE APPELLANT HAS BEEN ASSESSED TO TAX U/S 143(3) IN THE PROCEEDING ASSESSMENT YEAR I.E. ASSESSMENT YEARS 20 04-05 WHEREIN THE SHARES /MF UNITS SOLD DURING THE PREVIOUS YEAR HAVE BEEN ACCEPTED AS CAPITAL GAINS / LOSS FURTHER THE APPELL ANT HAS BEEN FILLING INCOME TAX RETURNS SINCE LAST 25 YEARS ALO NG WITH BALANCE SHEET AND DETAIL GROUPINGS OF CAPITAL ACCOUNT, CASH AND BANK BALANCES, INVESTMENTS, OTHER ASSETS IN LIABILITIES. THE I.T DEPARTMENT HAS ACCEPTED THE CLASSIFICATION OF ASSETS AS WELL A S THE HEADS OF INCOME IN THE COMPUTATION FILED WITH THE RETURN OF INCOME. IT APPEARS THAT JUST BECAUSE THE APPELLANT HAS EARNED RELATIVE LY HIGH AMOUNT OF PROFIT ON SALE OF SHARES DURING THE YEAR, THE A.O. HAS OVERTURNED THE CLASSIFICATION OF ASSETS ACCEPTED ALL THROUGH THE P AST 25 YEARS, WHICH SHOULD NOT BE PERMITTED. VII) THAT THE APPELLANT HAS MADE ALL THE INVESTMENT OUT OF HIS OWN FUNDS/ CAPITAL AND THAT NOT BORROWED ANY AMOUNT FOR THE PURPOSE OF INVESTMENT IN SHARES/SECURITIES. THIS INDICATES THA T THE APPELLANT NEVER ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 10 INTENDED TO LEVERAGE HIS ASSETS BY OBTAINING LOANS BASED AN THE ASSETS AND MAKING INVESTMENTS IN SHARES BASED ON LOAN FUND S, WHICH EVEN THE APPELLANT UNDERSTANDS THAT IT WOULD BE LIABLE TO BE TREATED AS BUSINESS AS THE DIVIDENDS ARE MUCH SMALLER COMPARED TO THE I NTEREST LIABILITY THAT MAY BE INCURRED. VIII) THAT THE APPELLANT HAS ENTERED INTO PURCHASE/ SHARES TRANSACTION RESULTING INTO CAPITAL GAINS IN 39 SCRIPS, OF WHICH PURCHASES PERTAINING TO 16 SCRIPS WERE IN THE FORM OF OPENING INVESTMENTS. THE PURCHASES RELATING TO THESE INVESTMENTS WERE SHOWR3 AS CLOSING INVESTMENT IN PRECEDING PREVIOUS YEAR AND SAME HAS BEEN ACCEPTED AS INVESTMENT. THEREFORE TOTAL NUMBER OF STOCK DEALT I N BY THE APPELLANT CAN NOT BE CALLED SUBSTANTIAL NUMBER OF STOCK AS TH E NUMBER OF SCRIPS LISTED ON BOTH THE STOCK EXCHANGES ARE IN EXCESS OF 10,000 COMPANIES THEREFORE, THE SCALE OF ACTIVITY CANNOT BE SAID TO BE SUBSTANTIAL AND THE TRANSACTIONS ARE ALSO NOT ENTERED INTO CONTINUO USLY AND REGULARLY DURING THE PREVIOUS YEAR. ON THE BASIS OF THE DECIS ION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF BOMBAY GYMKH ANA V ITO (ITA NO. 249 OF 2005) DATED 31.10.2007, IT MUST BE HELD THAT WHATEVER HAS ALREADY BEEN SHOWN AND ACCEPTED PURCHASE IN COURSE OF INVESTMENT IN THE EARLIER YEAR CANNOT BE TREATED AS BUSINESS / TR ADING ACTIVITY AT THE TIME OF SALE EVEN IF QUANTUM AND/ OR THE FREQUENCY OF TRANSACTION IS HIGH. IX) THAT, AS REGARDS THE RATIO OF SALES TO PURCHAS ES AND HOLDING, IT IS STATED THAT THE APPELLANT HAS SOLD INVESTMENT WORTH RS.529 AS AGAINST OPENING STOCK AND PURCHASE WORTH RS. 818 LACS. THIS WORKS OUT TO SALE PURCHASE RATIO OF 0.64 1. IN A TYPICAL TRADING SITU ATION THIS WOULD BE MUCH HIGHER AS THE TRADER MAXIMIZES HIS RETURNS AS HIS TURNOVER INCREASES. X) THAT TYPICAL HOLDING PERIOD OF THE INVESTMENT B Y THE APPELLANT IS NORMALLY BETWEEN 2-10 YEARS. THIS IS EVIDENT FROM T HE STATEMENT OF LONG TERM CAPITAL GAIN AMOUNTING TO 31,18,439 SUBMI TTED HEREIN. EVEN IN THE SHORT TERM CAPITAL GAIN THE AVERAGE PERIOD E XCEEDS 6 MONTHS. THE INTENTION OF 1IE APPELLANT HAS ALWAYS, BEEN TO STAY INVESTED AND EARN DIVIDENDS OVER A SUBSTANTIAL PERIOD OF TIME. H OWEVER, DURING THE PREVIOUS YEAR THERE WAS UNPRECEDENTED BOOM ON THE S TOCK MARKET WHICH LED TO AMENDMENT IN THE HOLDING PERIOD OF THE APPELLANT. FURTHER, THE APPELLANT HAS EARNED DIVIDENDS OF RS. 3.50 LACS DURING ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 11 THE YEAR WHICH INDICATES THAT THE PREDOMINANT MOTIV E WAS TO EARN DIVIDENDS AND NOT TO TRADE IN THE SECURITIES. XI) THAT THE TRANSACTIONS HAVE ALL BEEN PAID OR RE CEIVED FOR AND IS NOT MERELY REFLECTED BY BOOK ENTRIES. THE ASSESSEE HAS TAKEN DELIVERY IN CASE OF PURCHASES AND GIVE DELIVERY FOR SALES. THES E ARE NOT MERELY BOOK ENTRIES. EVEN THE PAYMENTS HAVE BEEN MADE OUT OF OWN FUNDS AT EVERY STAGE. XII) THAT THE DOMINANT OBJECT OF THE APPELLANT WAS TO GET OUT OF THE VOLATILE EQUITY INVESTMENT TO MORE STABLE MUTUAL FU NDS / RBI RELIEF BONDS INVESTMENTS. THIS IS EVIDENT FROM THE FACT TH AT OUT OF PROCEEDS OF SALE OF EQUITY, THE APPELLANT HAS BOUGHT MF UNIT S WORTH 74,96,000 AND RBI RELIEF BONDS WORTH RS. 14,46,000 THEREBY HA NDING OVER THE INVESTMENTS TO PROFESSIONAL FINANCIAL ADVISORS AND THE RBI FOT EARNING DIVIDENDS / TAX FREE INTEREST RATHER THAN THE EQUIT Y MARKETS WHERE THE RISK TO RETURNS ARE VERY HIGH. 6. THE LD. CIT(A) FOUND SUBSTANCE IN THE SUBMISSIO NS MADE ON BEHALF OF THE ASSESSEE. ACCORDING TO HIM, THE FOLLOWING SU BMISSIONS MADE BY THE ASSESSEE WERE SUFFICIENT TO SUCCESSFULLY REBUT ALL THE OBJECTIONS RAISED BY THE A.O. IN HIS IMPUGNED ORDER THE APPELLANTS ACTIVITY MAY BE CALLED REGULAR, B UT NOT SYSTEMATIC. FURTHER, THE LARGE NUMBER OF TRANSACTION ARE SMALL IN QUANTUM AND VALUE AND SCALE OF ACTIVITY DOES NOT JUSTIFY SUCH C ONCLUSION. FURTHER, THE APPEL1ANT WOULD NOT REQUIRE MUCH INFRASTRUCTURE TO CARRY OUT THESE LITANY TRANSACTIONS AS IN PRESENT TIMES THE T RAISACTION3 ARE MADE EITHER ONLINE THROUGH WEB OR ON TELEPHONE LINES WHI CH INVOICES MEAGER INVESTMENT. II) THE APPELLANT IS A FULL TIME EMPLOYEE DRAWING A SALARY OF RS.51,90,000 AND EXPECTED TO DEVOTE FULL TIME AND E NERGY TO THE BUSINESS OF COMPANY. HENCE, THE AOS CONTENTION THA T THE APPELLANT IS IN FULL TIME ACTIVITY OF TRADING IS NOT TENABLE. IN ANY CASE, IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES AND CBDTS CIR CULAR NO.4.2007 THAT A PERSON CAN HAVE BOTH ACTIVITIES I.E TRADING AS WELL AS INVESTMENTS. THEREFORE, A PERSON WORKING IN A SHARE MARKET RELATED FIRM CAN ALSO BE AN INVEST IN HIS PERSONAL CAPACITY . ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 12 III) THE APPELLANT HAS BEEN HELD TO BE AN INVESTOR IN THE PAST MANY YEARS AND AN ASSESSMENT ORDER FOR A/Y 2004-05 PASSE D U/S 143(3) CLEARLY INDICATES THAT HE HAS BEEN ACCEPTED AS AN I NVESTOR THROUGHOUT THE PERIOD. THE APPELLANT HAS ALSO BEEN FILING A DE TAILED BALANCE SHEET ALONGWITH THE RETURN OF INCOME CLEARLY SHOWIN G THE SHARES AS INVESTMENT AND AS NOT AS INVENTORY. IV) THAT THE APPELLANTS FINANCIAL POSITION IS NOT AT LEVERAGED AND THE ENTIRE INVESTMENT IS COMING OUT OF HIS OWN FUNDS. T HIS KIND OF SITUATION IS VERY RARE IN CASE OF BUSINESS ACTIVITY US THE BU SINESS IS ALWAYS LOOKING TO INCREASE ITS TURNOVER WITH SOMEONE ELSE S MONEY. V) CIRCULAR NO. 4/2007 DATED 15.06.2001, WHILE DEA LING WITH THE RATIOS LAID DOWN BY THE HONBLE SUPREME COURT, LAYS DOWN THREE PRINCIPLES WHICH ARE REQUIRED TO BE ASCERTAINED. FI RST PRINCIPLE IS REGARDING MEMORANDUM & ARTICLES OF ASSOCIATION, WHI CH IS NOT APPLICABLE TO THE APPELLANT, BEING AN INDIVIDUAL. T HE SECOND PART OF THIS PRINCIPLE REQUIRES THAT A VERIFICATION BE DONE WHETHER THE SHARES WERE SHOWN AS STOCK-IN- TRADE OR WERE SHOWN AS INVE STMENT IN CAPITAL ASSETS. THE APPELLANT CLEARLY FULFILLS THIS REQUIRE MENT AS HE HAS OVER NUMBER OF YEARS BEEN SHOWING HIS SHARES / SECURITIE S AS INVESTMENTS WHICH IS NOT EVEN DISPUTED BY THE AO. SECOND PRINCI PLE IS O ASCERTAIN THAT NATURE OF TRANSACTIONS, ITS MAGNITUDE AND RATI O BETWEEN PURCHASE AND SALES AND THE HOLDING. THE APPELLANT HAS BROUGH T THE FACT THAT THE MAGNITUDE OF THE TRANSACTION IS NOT LARGE BY ANY ST ANDARD AS THERE ARE ONLY 64 SCRIPS IN THE WHOLE YEAR. FURTHER, EVEN THE RATIOS OF PURCHASE TO SALE (COST) IS APPROXIMATELY 0. 90 : 1 I.E. PURC HASE ARE ALMOST AS MUCH AS THAT OF SALES ANOTHER RATIO ON OPENING STOC K + PURCHASES TO SALES 1.97: THEREFORE, THIS PRINCIPLE ALSO IS MET. THIRD PRINCIPLE IS ABOUT THE MOTIVE. TO THIS THE APPELLANT HAS PROVIDE D A DETAILED ANALYSIS OF VARIOUS SOURCES OF INCOME FOR PAST 5 YE ARS AND CONTENDS THAT DIVIDENDS AND INTEREST FROM BONDS CONSTITUTES A MAJOR SOURCE OF INS INCOME AND IT IS HIGHER THAN EVEN CAPITAL GAINS IN 2 OUT OF 5 YEARS. DURING THE YEAR ALSO THE APPELLANT HAS EARNED RS. 9 ,93,438/- AS DIVIDENDS. IN ADDITION TO THE ABOVE THE APPELLANT C ONTENDS THAT EVEN FOR SALE OF SHARES THE DOMINANT OBJECTIVE WAS TO GE T OUT OF THE VOLATILE SHARE INVESTMENTS AND GET INTO DEBT / EQUITY MUTUAL FUND WHICH ARE MUCH MORE STABLE AND MANAGED BY PROFESSIONAL FUND M ANAGERS. THIS IS EVIDENT FROM THE FACT THAT HE HAS PURCHASED MF U NITS WORTH RS.89.42 LACS OUT OF TOE TOTAL PURCHASE OF RS.217.3 6 LACS. THIS ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 13 SUFFICIENTLY EXPLAINS THE MOTIVE OF INVESTMENTS AS WELL AS THE SALE OF SHARE DURING THE PREVIOUS YEAR. VI). THE CIRCULAR FURTHER STATES THAT IT IS POSSIB LE FOR AN ASSESSEE TO HAVE BOTH TRADING AS WELL AS INVESTMENT PORTFOLIO. IT GOES ON TO SAY THAT ASSESSING OFFICER ARE ADVISE THAT NO SINGLE PR INCIPLE WOULD BE DECISIVE AND TOTAL EFFECT OF ALL THE PRINCIPLE SHOU LD BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE THE SHARES HELD B Y THE ASSESSEE ARE INVESTMENT OR STOCK IN TRADE. THIS MEANS THAT THE A O SHOULD NOT BASE HIS ASSESSMENT ON ONE SINGLE CRITERIA BUT MUST BRIN G OUT TOTALITY OF FACTS BEFORE MAKING AN ASSESSMENT CONTRARY TO THE C LAIM OF THE ASSESSEE. VII) LAST BUT NOT THE LEAST, THE APPELLAN T CONTENDED THAT HIS AVERAGE HOLDING PERIOD FOR LTCG HAS BEEN 2 TO 10 YE ARS AND THAT OF STCG IS 6 MONTHS. ON THE BASIS OF THE ABOVE DISCUSSION, THE LD. CIT( A) HELD THAT THE TRANSACTIONS IN SHARES ENTERED INTO BY THE ASSESSEE GIVING RISE TO LONG TERM CAPITAL GAINS WERE ENTIRELY MADE AS INVESTOR. ACCORDINGLY, HE DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSE E FOR LONG TERM CAPITAL GAINS OF RS. 31,18,439/-. AS REGARDS THE CL AIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAINS, THE LD. CIT(A) HELD T HAT THE SAME WAS ACCEPTABLE TO THE EXTENT IT WAS RELATING TO THE TRA NSACTIONS IN SHARES HELD BY THE ASSESSEE FOR MORE THAN ONE MONTH AND TH E BALANCE PROFIT EARNED BY THE ASSESSEE ON SALE OF SHARES HELD FOR M ORE THAN ONE MONTH WAS CHARGEABLE TO TAX AS BUSINESS INCOME OF THE ASS ESSEE. ACCORDINGLY, HE DIRECTED THE A.O. TO ACCEPT THE CLA IM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN TO THE EXTENT OF RS. 76 ,34,570/- OUT OF SHORT TERM CAPITAL GAIN OF RS. 83,60,088/- OFFERED BY THE ASSESSEE. THE ACTION OF THE A.O. IN TREATING THE BALANCE SHORT TE RM CAPITAL GAIN OF RS. 7,25,518/- AS BUSINESS INCOME OF THE ASSESSEE W AS UPHELD BY THE LD. CIT(A). 7. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ACCEPTI NG THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUN AL WHILE THE ASSESSEE HAS ALSO FILED HIS C.O. CHALLENGING THE OR DER OF THE LD. CIT(A) CONFIRMING THE ACTION OF THE A.O. IN TREATIN G THE SHORT TERM CAPITAL GAINS TO THE EXTENT OF RS. 7,25,518/- AS BU SINESS INCOME. 8. THE LD. D.R. STRONGLY RELIED ON THE ORDER OF THE A.O. IN SUPPORT OF THE REVENUES CASE ON THE ISSUE. HE SUBMITTED THAT ALTHOUGH THE ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 14 ASSESSEE WAS A FULL TIME DIRECTOR OF M/S DALAL BROA CHA STOCK BROKING PVT. LTD., THE SAID COMPANY WAS ALSO ENGAGED MAINLY IN THE BUSINESS OF TRADING IN SHARES. HE CONTENDED THAT THE PRIME A CTIVITY OF THE ASSESSEE THUS WAS BUYING AND SELLING OF SHARES WHIC H WAS CLEARLY EVIDENT FROM THE CONTINUOUS, REGULAR AND SYSTEMATIC TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN SHARES ON PERSONAL ACCOUNT TOO. HE SUBMITTED THAT THE MOTIVE OF THE ASSESSEE, AS CLEAR LY POINTED OUT BY THE A.O., BEHIND PURCHASE OF SHARES WAS TO SELL THEM SU BSEQUENTLY AFTER LAPSE OF SOME TIME TO MAKE PROFIT AND THIS MOTIVE W AS SUFFICIENT TO ESTABLISH THAT THE TRANSACTIONS IN SHARES WERE MADE BY THE ASSESSEE AS TRADER AND NOT AS INVESTOR. HE CONTENDED THAT THE P ROFIT EARNED BY THE ASSESSEE ON THE TRANSACTIONS IN SHARES THUS WAS CHA RGEABLE TO TAX AS BUSINESS INCOME AS RIGHTLY HELD BY THE A.O. AND THE LD. CIT(A) WAS NOT JUSTIFIED IN TREATING THE SAME AS CAPITAL GAIN. 9. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A) TO T HE EXTENT THE CLAIM OF THE ASSESSEE FOR CAPITAL GAIN WAS ACCEPTED BY HI M. HE POINTED OUT FROM THE COPIES OF RELEVANT DOCUMENTS PLACED IN THE PAPER BOOK THAT THERE WERE NO BORROWED FUNDS UTILIZED BY THE ASSESS EE FOR MAKING INVESTMENT IN SHARES AND THE SAID INVESTMENT WAS EN TIRELY MADE OUT OF ASSESSEES OWN FUNDS. HE ALSO POINTED OUT THAT THE SHARES WERE CONSISTENTLY TREATED BY THE ASSESSEE AS INVESTMENT IN HIS BOOKS OF ACCOUNT IN THE EARLIER YEARS AS WELL AS IN THE PREC EDING YEARS. HE SUBMITTED THAT THE INVESTMENT IN SHARES OF THE ASSE SSEE WAS TO THE EXTENT OF RS. 4.23 CRORES WHEREAS THE TOTAL SALE OF SHARES DURING THE YEAR UNDER CONSIDERATION WAS ONLY RS. 1.63 CRORES W HICH CLEARLY SHOWS THAT THE ASSESSEE WAS INVESTOR IN SHARES AND NOT A TRADER. HE INVITED OUR ATTENTION TO THE DETAILS OF INVESTMENT OF THE ASSESSEE PLACED AT PAGE 39 OF HIS PAPER BOOK TO POINT OUT THAT THE INVESTMENT PORTFOLIO HELD BY THE ASSESSEE WAS COMPRISING OF MUTUAL FUNDS AS WELL AS UNLISTED COMPANIES ETC. HE CONTENDED THAT THIS COMP OSITION OF THE PORTFOLIO OF THE ASSESSEE AS WELL AS THE FACT THAT INVESTMENT WAS VALUED BY THE ASSESSEE AT COST WAS SUFFICIENT TO SHOW THAT THE SHARES WERE HELD BY THE ASSESSEE AS INVESTMENT AND NOT STOCK-IN -TRADE. HE INVITED OUR ATTENTION TO THE COPY OF THE ASSESSMENT ORDER P ASSED IN ASSESSEES OWN CASE FOR A.Y. 2004-05 U/S 143(3) OF THE ACT PLA CED AT PAGE 42 AND 43 OF HIS PAPER BOOK TO SHOW THAT THE PROFIT ARISIN G FROM SALE OF SHARES DECLARED BY THE ASSESSEE IN THE SAID YEAR UN DER THE HEAD CAPITAL GAIN WAS ACCEPTED BY THE A.O. HE ALSO INVIT ED OUR ATTENTION TO THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE AT P AGE 57 OF HIS PAPER ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 15 BOOK TO SHOW THAT THE AVERAGE PERIOD OF HOLDING IN THE CASE OF SHARES GIVING LONG TERM CAPITAL GAIN WAS 1214 DAYS WHILE I T WAS 129 DAYS IN THE CASE OF SHORT TERM CAPITAL GAIN. HE ALSO INVITE D OUR ATTENTION TO THE DETAILS OF TOTAL INCOME EARNED BY THE ASSESSEE DURI NG THE IMMEDIATELY PRECEDING FIVE YEARS GIVEN AT PAGE 51 OF HIS PAPER BOOK TO SHOW THAT THE MAJOR SOURCE OF INCOME OF THE ASSESSEE WAS NOT CAPITAL GAIN. HE CONTENDED THAT THE ASSESSEE WAS TREATED AS INVESTOR IN SHARES IN ALL THE EARLIER YEARS BY THE DEPARTMENT AND THERE WAS NO JU STIFIABLE REASON FOR THE A.O. TO CHANGE THE SAID TREATMENT. HE CONTE NDED THAT THE LD. CIT(A), ON THE OTHER HAND, HAS RIGHTLY CONSIDERED A LL THE RELEVANT FACTS OF THE ASSESSEES CASE TO TREAT HIM AS INVEST OR IN HIS ORDER. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECIS ION OF THE TRIBUNAL IN THE CASE OF ASSESSEES SON HRIDAY NAILE SH DALAL RENDERED VIDE ORDER DATED 30-4-2010 PASSED IN ITA NO. 3469/M UM/09 WHEREIN THE ORDER OF THE LD. CIT(A) TREATING THE PROFIT ARI SING FROM THE TRANSACTIONS IN SHARES AS CAPITAL GAIN WAS UPHELD B Y THE TRIBUNAL IN THE SIMILAR FACTS AND CIRCUMSTANCES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE AS TO WHETHE R THE PROFITS ON SALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE A SSESSEE OR LONG TERM CAPITAL GAINS DEPENDS ON WHETHER THE SAID SHARES WE RE PURCHASED BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. IN OR DER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASED BY THE ASSESSE E AS INVESTMENT OR STOCK-IN-TRADE, THE MOST RELEVANT ASPECT WHICH I S TO BE SEEN IS THE INTENTION OF THE ASSESSEE BEHIND THE PURCHASE OF SH ARES AND SUCH INTENTION HAS TO BE GATHERED FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE. IN THE CASE OF SARNATH INF RASTRUCTURE P. LTD. 313 ITR (AT) 13, THE COORDINATE BENCH OF THIS TRIBU NAL AT LUCKNOW HAS LAID DOWN CERTAIN PRINCIPLES/CRITERIAS WHICH CA N BE APPLIED TO THE FACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER TRANSA CTIONS IN SHARES ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSE. WHILE LAYING DOWN THE SAID GUIDELINES/PRINCIPLES, THE TRI BUNAL HAS TAKEN INTO CONSIDERATION THE VARIOUS JUDICIAL PRONOUNCEME NTS ON THIS ISSUE AS WELL AS THE CIRCULAR ISSUED BY THE CBDT. THE GUI DELINES/PRINCIPLES LAID DOWN BY THE TRIBUNAL ARE ENUMERATED BELOW : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMEN T IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TRE ATED AS STOCK-IN- ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 16 TRADE OR INVESTMENT? WHETHER SHOWN IN OPENING/CLOSI NG STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET ? (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. NORMALLY, MONEY IS BORROWED TO PU RCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT): (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE. F ORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLE OF ASSOCIATION? WHETHER FOR TRA DE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHET HER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SH OW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 17 PARTICULAR ITEM IS HELD AS INVESTMENT FOR SAY, STOC K-IN-TRADE), THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES FOR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIME D THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTEN TION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM SINCE BEGINNING OR WH EN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT MAINTAINING SE PARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (1 1) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO CO ME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FAC TORS HAS TO BE SEEN. 11. IF THE ABOVE PRINCIPLES/GUIDELINES ARE APPLIED TO THE FACTS OF THE PRESENT CASE, WE FIND OURSELVES IN AGREEMENT WITH T HE LEARNED CIT(APPEALS) THAT THE TRANSACTIONS IN SHARES WERE C ARRIED OUT BY THE ASSESSEE AS AN INVESTOR AND NOT AS A TRADER AND THE PROFIT EARNED FROM THE SAID TRANSACTION WAS CHARGEABLE TO TAX IN ITS H ANDS UNDER THE HEAD CAPITAL GAINS. IT IS OBSERVED IN THIS REGARD THAT THE SHARES WERE CONSISTENTLY TREATED BY THE ASSESSEE AS INVESTMENT IN HIS BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION AS WELL AS IN THE IN THE EARLIER YEARS AND THE TREATMENT SO GIVEN WAS ACCEPTED BY TH E DEPARTMENT IN THE EARLIER YEARS. THERE WERE NO BORROWED FUNDS UTI LIZED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES AND THE EN TIRE INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE OUT OF HIS OWN FUND S. THE TOTAL INVESTMENT OF THE ASSESSEE IN SHARES DURING THE YEA R UNDER CONSIDERATION WAS TO THE EXTENT OF RS. 4.23 CRORES WHILE THE TOTAL SALE OF SHARES WAS ONLY TO THE EXTENT OF RS. 1.63 CRORES SHOWING A VERY LOW ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 18 TURNOVER WHICH COULD HAPPEN ONLY IN THE CASE OF AN INVESTOR AND NOT IN THE CASE OF TRADER IN SHARES. THE AVERAGE PERIOD OF HOLDING OF SHARES GIVING RISE TO LONG TERM CAPITAL GAIN WAS 12 14 DAYS WHILE THE SAME WAS 129 DAYS IN THE CASE OF SHARES GIVING RISE OF SHORT TERM CAPITAL GAIN WHICH AGAIN GOES TO SHOW THAT THE SHAR ES WERE HELD BY THE ASSESSEE FOR A CONSIDERABLY LONG PERIOD BEFORE THE SALE SHOWING LOW FREQUENCY. THE INVESTMENT PORTFOLIO OF THE ASSE SSEE WAS COMPRISING OF MUTUAL FUNDS, SHARES OF UNLISTED COMP ANIES ETC. AND THIS PATTERN OF INVESTMENT FURTHER SHOWS THAT THE ASSESS EE WAS INVESTOR IN SHARES AND SECURITIES AND NOT A TRADER. ALL THE INV ESTMENTS MADE BY THE ASSESSEE IN SHARES AND SECURITIES WERE CONSISTE NTLY VALUED AT COST WHICH FURTHER SHOWS THAT THE SHARES WERE TREATED BY THE ASSESSEE AS INVESTMENT AND NOT STOCK-IN-TRADE. THE ASSESSEE WAS A WORKING DIRECTOR IN M/S DALAL BROACHA STOCK BROKING PVT. LT D. EARNING A REMUNERATION OF RS. 52 LACS AND ALTHOUGH THE SAID C OMPANY WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, THE F ACT THAT HE WAS IN FULL EMPLOYMENT OF THAT COMPANY SHOWS THAT HE WAS N OT LEFT WITH SUFFICIENT TIME TO CARRY ON THE BUSINESS OF TRADING ON SHARES ON HIS PERSONAL ACCOUNT. IN OUR OPINION, IF ALL THESE RELE VANT FACTS OF THE ASSESSEES CASE ARE TAKEN INTO CONSIDERATION IN TOT ALITY, IT BECOMES ABUNDANTLY CLEAR THAT THE TRANSACTIONS IN SHARES WE RE MADE BY THE ASSESSEE AS IN INVESTOR AND NOT AS A TRADER AND THE PROFIT EARNED BY HIM FROM THE SAID TRANSACTIONS WAS CAPITAL GAINS AN D NOT BUSINESS INCOME AS RIGHTLY HELD BY THE LD. CIT(A). WE, THERE FORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) D IRECTING THE A.O. TO TREAT THE PROFIT EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS CAPITAL GAINS AND UPHOLDING THE SAME, WE DISMISS TH IS APPEAL FILED BY THE REVENUE. 5. THE TRIBUNAL IN THE AFORESAID ORDER HAS MADE AN ELABORATE DISCUSSION ON THE ISSUE IN HAND AND AFTER CONSIDERING THE FACTUAL MATRIX ALONGWITH VARIOUS CA SE LAWS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE D EPARTMENT NEITHER BROUGHT ON RECORD ANY CONTRARY FACTS/ISSUES /CASE LAWS THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL AND THE DECISION FROM HONBLE JURISDICTION AL HIGH ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 19 COURT IN CIT VS. GOPAL PUROHIT (2010) 188 TAXMAN 14 0 (BOM.), CIT VS. MERLIN HOLDINGS PVT. LTD. (2015) IT A NO. 101 OF 2011 (CAL.), GOPAL PUROHIT VS. JCIT 29 SOT 117 (MUM BAI ITAT); JANAK S RANGWALA VS. ACIT (2007) 11 SOT 627 (MUM) AND VARIOUS OTHER DECISIONS ALREADY DELIBERATED UPO N IN THE AFORESAID ORDER, WE FIND NO INFIRMITY IN THE CONCLU SION OF THE LEARNED CIT(A). THEREFORE, THE APPEAL OF THE REVEN UE IS DISMISSED. 6. SO FAR AS CROSS-OBJECTION OF THE ASSESSEE WITH R ESPECT TO UPHOLDING RS.12,39,705/- AS BUSINESS INCOME BEING INVESTMENT HELD FOR A PERIOD OF THIRTY DAYS OR LESS IS CONCERNED, THIS ISSUE HAS ALSO BEEN DELIBERATED UPO N IN THE AFORESAID ORDER. THE RELEVANT PORTION FROM THE ORD ER IS REPRODUCED HERE UNDER FOR READY REFERENCE:- 12. IN HIS C.O., THE ASSESSEE HAS CHALLENGED THE O RDER OF THE LD. CIT(A) UPHOLDING THE ACTION OF THE A.O. IN TREATING THE PROFIT EARNED ON SALE OF SHARES HELD FOR LESS THAN ONE MONTH AS B USINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAINS 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN OUR OPINION, TH E LD. CIT(A) HAVING ACCEPTED THAT THE SHARES PURCHASED AND HELD BY THE ASSESSEE FOR MORE THAN ONE MONTH WERE HIS INVESTMENT WHILE ALLOWING T HE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAINS ARISING FROM SALE THEREOF, THERE WAS NO JUSTIFICATION FOR HIM TO HOLD THAT THE OTHER SHARES PURCHASED AND HELD BY THE ASSESSEE WERE HIS STOCK-IN-TRADE ME RELY BECAUSE THE SAID SHARES WERE SOLD WITHIN A PERIOD OF ONE MONTH ESPECIALLY WHEN THE OTHER FACTS RELEVANT THERETO WERE SIMILAR. FOR INSTANCE, IF ONE LOT OF 1000 SHARES OF A PARTICULAR COMPANY WAS PURCHASE D BY THE ASSESSEE AND 500 SHARES OF THE SAID LOT WERE SOLD B Y HIM WITHIN A PERIOD OF ONE MONTH AND THE BALANCE 500 SHARES WERE SOLD AFTER A ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 20 PERIOD OF ONE MONTH, IT CANNOT BE SAID THAT THERE W ERE TWO DIFFERENT INTENTIONS OF THE ASSESSEE BEHIND THE PURCHASE OF T HE SAME LOT. THE INTENTION OF THE ASSESSEE IN SUCH CASE CANNOT BE DI FFERENT AND THE SAME, IN ANY CASE, CANNOT BE DECIDED MERELY ON THE BASIS OF PERIOD OF HOLDING ESPECIALLY WHEN OTHER MATERIAL FACTS RELEVA NT IN THE ISSUE ARE SIMILAR. MOREOVER, THE ASSESSEE WAS CONSISTENTLY TR EATED AS INVESTOR IN SHARES BY THE DEPARTMENT IN THE EARLIER YEARS AND T HERE WAS NO REASON TO CHANGE THE SAID TREATMENT IN THE YEAR UND ER CONSIDERATION AS PER THE RULE OF CONSISTENCY WHEN THERE WAS NO CH ANGE IN THE RELEVANT FACTS. WE, THEREFORE, ALLOW THE C.O. FILED BY THE ASSESSEE AND DIRECT THE A.O. TO TREAT THE PROFIT EARNED ON SALE OF SHARES HELD FOR LESS THAN ONE MONTH AMOUNTING TO RS. 7,25,518/- AS SHORT TERM CAPITAL GAINS. 7. FOLLOWING THE AFORESAID ORDER IN CROSS OBJECTION AL SO, THE CROSS OBJECTION RAISED BY THE ASSESSEE IS ALSO ALLO WED AS THERE IS NO CHANGE IN THE RELEVANT FACTS. THEREFORE, DIR ECT THE ASSESSING OFFICER TO TREAT THE PROFIT EARNED ON SAL E OF SHARES, HELD FOR LESS THAN ONE MONTH, AS SHORT TERM CAPITAL GAIN. 8. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 28/04/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ( DATED : 03/05/2016 SA . ITA NO.6169/MUM/2014 & CO NO.46/MUM/2014 NAILESH P DALAL 21 %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 $ 1# ( *+ ) / THE CIT, MUMBAI. 4. 0 0 $ 1# / CIT(A)- , MUMBAI 5. 23 .# , 0 *+' * 4 , $ % / DR, ITAT, MUMBAI 6. 5! 6% / GUARD FILE. / BY ORDER, /2+# .# //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI