DCIT (OSD) CIR 2(2), MUMBAI V. KEDIA SECURITIES P.LTD, MUMBAI

ITA 6313/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3101 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWA NI SINHA
• Assessee Lawyers: HARIOM TULSIAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU, AM AND SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO. 5816/ MUM/2009 ( / ASSESSMENT YEAR : 2006-07 ./ I.T.A. NO. 5451/ MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO. 6313/ MUM/2011 ( / ASSESSMENT YEAR : 2008-09 DY. COMMISSIONER OF INCOME TAX CIR- 2(2), AAYAKAR BHAVAN, ROOM NO. 545, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020. / VS. M/S KEDIA SECURITIES PVT. LTD., 24-B, RAJABAHADUR COMPOUND, 3 RD FLOOR, AMBALAL DOSHI MARG, MUMBAI 400 023. ./ PAN : AAACK 1834 H ( / ASSESSEE ) .. ( / RESPONDENT ) REVENUE BY : SHRI ASHWANI SINHA ASSESSEE BY : SHRI HARIOM TULSIAN / DATE OF HEARING : 24-8-2015 ! / DATE OF PRONOUNCEMENT : 30/09/2015 [ / O R D E R PER G.S.PANNU, A.M: THE CAPTIONED ARE THREE APPEALS BY THE REVENUE RE LATING TO THE SAME ASSESSEE FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09. THESE APPEALS INVOLVE A ITA 5816/M/2009, ITA 5451/M/1 0 & ITA 6313/M/11 2 COMMON ISSUE REGARDING THE CHARACTERIZATION OF THE INCOME EARNED BY THE ASSESSEE ON SALE AND PURCHASE OF SHARES. 2. IN BRIEF, THE BACKGROUND OF THE DISPUTE IS THAT RESPONDENT ASSESSEE IS A PRIVATE LIMITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS O F SHARE TRADING AND IT IS ALSO DERIVING INCOME BY WAY OF LONG-TERM AND SHORT-TERM CAPITAL GAIN ON SALE AND PURCHASE OF SHARES. IN ASSESSMENT YEAR 2006-07, THE ASSESSE E HAD DECLARED SHORT-TERM AS WELL AS LONG-TERM CAPITAL GAINS ON SALE OF SHARES AND THE A SSESSING OFFICER TREATED ONLY THE SHORT- TERM CAPITAL GAINS AS A BUSINESS INCOME AND THE LONG-TERM CAPITAL GAIN WAS ACCEPTED AS SUCH. THE CIT(A) VIDE HIS ORDER DATED 13/8/2009 DISAGREED WITH THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER UNDER S ECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30/6/2008 ON T HE ASPECT OF TREATING THE SHORT-TERM CAPITAL GAINS AS BUSINESS INCOME. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) ACCEPTING THE STAND OF THE ASSESSEE FOR TREATING TH E GAIN ON SALE OF SHARES HELD FOR LESS THAN 365 DAYS AS SHORT-TERM CAPITAL GAINS. PERTINE NTLY, THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR ASSESSMENT YEARS 2007-08 AND 2008- 09 AGAINST THE ORDERS OF THE CIT(A) DATED 20/4/2010 AND 15/6/2011 RESPECTIVELY C ONTAIN A PLEA, WHEREBY THE SHORT TERM AS WELL AS LONG-TERM CAPITAL GAINS IS CANVASSE D TO BE ASSESSABLE AS BUSINESS INCOME. PERTINENTLY, IN SO FAR AS THE ASSESSMENT Y EARS 2007-08 AND 2008-09 ARE CONCERNED, THE LONG-TERM CAPITAL GAINS DECLARED BY THE ASSESSEE WERE ACCEPTED AS SUCH BY THE ASSESSING OFFICER IN HIS ORDERS DATED 26/10/ 2009 AND 08/12/2010 RESPECTIVELY. THEREFORE, IN SO FAR AS THE PLEA RAISED BY THE RE VENUE WITH REGARD TO THE LONG TERM CAPITAL GAINS IS CONCERNED , THE SAME IS MISCONCEI VED, AS WAS ACCEPTED BY THE LD. DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REV ENUE IN THE COURSE OF THE HEARING. ITA 5816/M/2009, ITA 5451/M/1 0 & ITA 6313/M/11 3 3. BE THAT AS IT MAY, THE SOLITARY DISPUTE IN ALL T HE APPEALS RELATES TO THE CHARACTERIZATION OF GAIN ON SALE OF SHARES WHICH WE RE HELD BY THE ASSESSEE FOR LESS THAN 365 DAYS PRIOR TO SALE. THE ASSESSEE OFFERED THE GAIN AS SHORT TERM CAPITAL GAIN, WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFIC ER, WHO TREATED THE SAME AS BUSINESS INCOME. THE CIT(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE, AGAINST WHICH REVENUE IS IN APPEAL. 4. BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE HAS P RIMARILY RELIED UPON THE ORDER OF THE ASSESSING OFFICER IN SUPPORT OF THE CA SE OF THE REVENUE. ACCORDING TO HIM, HAVING REGARD TO THE FREQUENCY OF TRANSACTIONS OF SALE AND PURCHASE OF SHARES AND THAT THE ASSESSEE IS ALSO IN THE BUSINESS OF S HARE TRADING, THE PROFIT ARISING ON THE SALE OF SHARES HELD FOR LESS THAN 365 DAYS IS L IABLE TO BE TAXED AS BUSINESS INCOME AND NOT AS SHORT-TERM CAPITAL GAIN, AS ACCE PTED BY THE CIT(A). 5. BEFORE US, LD. AR OF THE ASSESSEE SUBMITTED A DE TAILED CHART COMPARING THE DATA OF THREE YEARS UNDER THE APPEAL AND ALSO THE S UBSEQUENT YEARS TILL ASSESSMENT YEAR 2012-13, AND CONTENDED THAT IN THE IMPUGNED YE ARS, THE TRANSACTIONS ARE 11, 8 AND 38 RESPECTIVELY SO THE FREQUENCY OF TRANSACTION S IS LIMITED. HE FURTHER STATED THAT LONG TERM CAPITAL GAIN HAS BEEN ACCEPTED AS SU CH BY THE REVENUE BUT ONLY THE TAXABILITY OF SHORT TERM CAPITAL GAIN IS DISPUTED, WHEREAS BOTH KIND OF TRANSACTIONS ARE COMING OUT OF THE SAME PORTFOLIO OF INVESTMENTS . HE FURTHER SUBMITTED THAT DURING THE IMPUGNED THREE YEARS, ASSESSEE HAS EARNE D SUBSTANTIAL DIVIDEND INCOME, WHICH SHOWS THAT ASSESSEE HAS DEALT WITH THE SHAR ES AS INVESTMENTS. HE FURTHER STRESSED THAT AN ASSESSEE IS ENTITLED TO MAINTAIN T WO SEPARATE PORTFOLIOS - ONE FOR INVESTMENTS AND ONE FOR TRADING, WHICH THE ASSESSEE IS DOING. REGARDING THE INCONSISTENCY IN THE STAND OF THE ASSESSING OFFICER , THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT FOR ASSESSMENT YEARS 2010-1 1 AND 2011-12, THE ASSESSING OFFICER IN ASSESSMENTS U/S 143(3) OF THE ACT HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT GAIN ON SALE OF SHARES HELD FOR LESS THAN 36 5 DAYS IS A SHORT-TERM CAPITAL GAIN ITA 5816/M/2009, ITA 5451/M/1 0 & ITA 6313/M/11 4 AND TREATED THE LOSS ON SALE OF SHARES AS A SHORT-T ERM CAPITAL LOSS. HE ALSO SUPPORTED HIS CONTENTION BY SHOWING THAT THE SHARES ARE HELD AS INVESTMENT IN THE BALANCE SHEET AND THERE ARE NO BORROWINGS FOR M AKING INVESTMENT IN SHARES. THEREFORE, HE SUBMITTED THAT CIT (A) HAS RIGHTLY TR EATED THE SALE OF SHARES AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AS WELL AS THE ORDERS OF LOWER AUTHORITIES. THE RESPONDENT ASSESSEE IS A PRI VATE LIMITED COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND, IS INTER-ALIA, ENGAGED IN THE BUSINESS OF TRADING IN SHARES. THE R ESPONDENT ASSESSEE ALSO DEPLOYED ITS FUNDS AS AN INVESTOR IN SHARES AND S ECURITIES. NOTABLY, ASSESSEE HAS DECLARED INCOME FROM DIFFERENT STREAMS, NAMELY, PRO FIT ON TRADING IN FUTURES AND OPTIONS, SHORT- TERM CAPITAL GAIN AND LONG-TERM CAP ITAL GAINS. THE INCOME/LOSS FROM FUTURES AND OPTIONS WAS OFFERED UNDER THE HEAD PRO FITS & GAINS OF BUSINESS AND PROFESSION AND THERE IS NO DISPUTE ON THIS ASPECT. THE LONG TERM CAPITAL GAINS DECLARED ON SHARES HAS ALSO BEEN ACCEPTED AS SUCH, AND THERE IS NO DISPUTE. NEVERTHELESS, IT IS IMPERATIVE TO MENTION HERE THAT FOR ASSESSMENT YEAR 2007-08 AND 2008-09, THE REVENUE IN ITS GROUNDS OF APPEAL HA S RAISED THE ISSUE OF TAXABILITY OF LONG TERM CAPITAL AS BUSINESS INCOME, BUT A PERU SAL OF THE ASSESSMENT ORDERS REVEAL THAT THE ASSESSING OFFICER HIMSELF IN BOTH THE YEARS (I.E. ASSESSMENT YEAR 2007-08 AND 2008-09 ) HAS ACCEPTED THAT SALE OF SHA RE HELD FOR MORE THAN 365 DAYS AND ON WHICH STT IS PAID IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AS LONG-TERM CAPITAL GAIN. HENCE, THE BRIEF CONTROVERS Y SURVIVING IN ALL THESE THREE APPEALS IS WHETHER SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS TO BE TAXED AS BUSINESS INCOME OR AS CAPITAL GAINS. 6.1 THE VIEW OF THE ASSESSING OFFICER THAT SUCH SHO RT-TERM CAPITAL GAINS IS ASSESSABLE AS BUSINESS INCOME IS PRIMARILY BASED ON THE GROUND THAT ASSESSEE IS OTHERWISE ALSO IN THE BUSINESS OF SHARE TRADING AND ON ACCOUNT OF FREQUENCY OF ITA 5816/M/2009, ITA 5451/M/1 0 & ITA 6313/M/11 5 TRANSACTIONS. IN THIS CONTEXT, A TABULATION HAS BE EN FURNISHED BY THE ASSESSEE WHICH IS AS UNDER:- PARTICULARS ASSESSMENT YEARS 2006-07 2007-08 2008-09 SHORT TERM CAPITAL GAIN 25,18,024 15,72,581 2,23,7 5,649 LONG TERM CAPITAL GAINS 8262397 1658245 8394744 SPECULATION / TRADING IN SHARES 5221568 7935711 3352817 DIVIDEND INCOME 262005 1345269 1353216 NUMBER OF TRANSACTIONS INVOLVING SHORT TERM CAPITAL GAIN 11 8 38 INVESTMENTS OF SHARES IN THE BALANCE SHEET AS T THE END OF THE YEAR 20409970 37162000 57501008 INVESTMENTS IN SHARES IN THE BALANCE SHEET AS AT THE BEGINNING OF THE YEAR 56585515 20409970 37162000 7. HAVING REGARD TO THE AFORESAID FACTUAL MATRIX, I T IS ABUNDANTLY CLEAR THAT THE FREQUENCY OF TRANSACTIONS IS NOT SO HIGH SO AS TO I NFER THAT ASSESSEE HAS TRADED IN AFORESAID PORTFOLIO. THE PERTINENT FINDING WHICH I S EMERGING FROM THE ORDER OF THE CIT(A) IS THAT THE ASSESSEE HAS CONSISTENTLY MAINTA INED TWO SEPARATE PORTFOLIOS - ONE FOR INVESTMENT AND THE OTHER AS A TRADING STOCK. T HE EXISTENCE OF TWO SEPARATE PORTFOLIOS I.E. ONE AS AN INVESTOR AND ANOTHER AS A TRADER IS SOMETHING WHICH IS NOT ALIEN TO THE INCOME TAX PROCEEDINGS. IN FACT, THE CBDT IN CIRCULAR NO.4 OF 2007 DATED 15/6/2007 HAS APPROVED THE POSITION THAT AN A SSESSEE CAN HOLD SHARES AND SECURITIES IN TWO SEPARATE PORTFOLIOS NAMELY, AS AN INVESTOR AND AS A TRADER ALSO. MOREOVER, IN ALL THE CAPTIONED ASSESSMENT YEARS, TH E INCOME OFFERED AS LONG TERM CAPITAL GAINS STANDS ACCEPTED, WHICH SHOWS THAT EXI STENCE OF THE PORTFOLIO OF AN INVESTOR, STANDS ACCEPTED BY THE ASSESSING OFFICE R ALSO. THEREFORE, IN SUCH A SITUATION, WHEN ASSESSEE HAS EARNED CAPITAL GAIN ON SALE OF SHARES COMING OUT OF THE SAME PORTFOLIO, THE SAME CANNOT BE VIEWED DIFFERENT LY MERELY BECAUSE THE SHARES ITA 5816/M/2009, ITA 5451/M/1 0 & ITA 6313/M/11 6 HAVE BEEN HELD FOR A PERIOD OF LESS THAN 365 DAYS P RIOR TO SALE. IN FACT, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE SCRUTINY ASSESSMENTS FOR ASSESSMENT YEARS 2010-11 AND 2011-12, THE SHORT-TER M CAPITAL GAIN OR LOSS HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AS SUCH. CO NSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ON THE BASIS OF THE PRINCIPLES OF CONSISTENCY, WE FIND THAT THE CIT(A) MADE NO MISTAKE IN ACCEPTIN G THE PLEA OF THE ASSESSEE THAT THE PROFITS EARNED ON THE SALE OF SHARES HELD FOR L ESS THAN 365 DAYS IS LIABLE TO BE TAXED AS SHORT-TERM CAPITAL GAINS AND NOT AS BUSINE SS INCOME. THUS, WE HEREBY AFFIRM THE ORDER OF THE CIT(A). 8. RESULTANTLY, THE CAPTIONED APPEALS OF THE REVENU E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 /09/2015. SD/- SD/- (SANDEEP GOSAIN) (G.S.PANNU ) JUDICIAL MUMBER ACCOUNTANT MEMBER MUMBAI ; & DATED 30 /09/2015 VM-R !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE ASSESSEE 2. / THE RESPONDENT. 3. , ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. , / CIT- CONCERNED,, MUMBAI 5. /01 2234 , 34! , / DR, ITAT, MUMBAI A BENCH 6. 167 8 / GUARD FILE. / BY ORDER, / 2 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI