ACIT I17(2), MUMBAI V. NANCY B. MODY, MUMBAI

ITA 6334/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5189 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 6334/MUM/2011 (ASSESSMENT YEAR: 2008-09) D C I T - 17(2) MRS. NANCY B. MODY ROOM NO. 217, 2ND FLOOR 6-B CHETAN, NEXT TO AURORA CINEMA PIRAMAL CHAMBERS, PAREL VS. MATUNGA (CR), MUMBAI 400019 MUMBAI 400012 PAN - AAHPM 3435E APPELLANT RESPONDENT APPELLANT BY: B.P.K. PANDA RESPONDENT BY: NONE DATE OF HEARING: 11.11.2013 DATE OF PRONOUNCEMENT: 11.11.2013 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL IS FILED AT THE INSTANCE OF THE REVENUE AND IT IS DIRECTED AGAINST THE ORDER DATED 16.06.2011 PASSED BY THE CI T(A)-29, MUMBAI. 2. FOLLOWING GROUNDS WERE URGED BY THE REVENUE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE ASSESSEES INCOME FROM SHARE TRANSACTION AS STCG U/ S. 45 OF THE I.T. ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS IGNORED THE FACTS BROUGHT BY ASSESSI NG OFFICER ON RECORD THAT SHORT PERIOD OF HOLDING OF SHARES ESTAB LISHES THE INTENTION OF SELLING AT PROFIT AND NOT KEEPING THE SHARE FOR LONG TERM APPRECIATION OR EARNING DIVIDEND. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAVE HE ARD THE LEARNED D.R. AND CAREFULLY PERUSED THE RECORD. 4. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE DE CLARED TOTAL INCOME OF ` 36,67,810/-, WHICH INCLUDED INCOME IN THE FORM OF S HORT TERM CAPITAL ITA NO. 6334/MUM/2011 MRS. NANCY B. MODY 2 GAINS. THE ASSESSEE HAD ALSO DECLARED DIVIDEND INCO ME WHICH WAS CLAIMED AS EXEMPT. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSEE WAS CALLED UPON TO FILE DETAILS OF THE SHARE TRANSACTIO NS. ASSESSEE FURNISHED RELEVANT DETAILS WHEREFROM THE AO NOTICED THAT THE ASSESSEE CARRIED OUT THE ACTIVITIES OF PURCHASE AND SALE OF SHARES ON A LARG E SCALE AND HAD ALSO UTILISED BORROWED FUNDS TO THE TUNE OF ` 1,13,75,000/-. IN THE OPINION OF THE AO THE AFOREMENTIONED CIRCUMSTANCES INDICATE THAT T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHA RES AND THE INCOME ARISING THEREFROM IS ASSESSABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS. 5. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE S UBMITTED THAT SHE WAS MERELY AN INVESTOR, INVESTING IN SHARES THROUGH PRIMARY MARKET OR THROUGH SECONDARY MARKET. DELIVERY WAS TAKEN IMMEDI ATELY AND AS AND WHEN THERE IS APPRECIATION IN THE VALUE OF SHARES T HE SAME WERE SOLD AND HER MOTIVE WAS TO TREAT THEM AS INVESTMENT AND TO EARN DIVIDEND WHICH IS TAX FREE BUT AS A NECESSARY CONSEQUENCE SHE HAD TAKEN T HE BENEFIT OF APPRECIATION IN THE VALUE OF SHARES BY SELLING THEM AT APPROPRIATE TIME. IT WAS ALSO CONTENDED THAT SHE WAS MAINLY INVESTING IN SHARES FROM HER OWN FUNDS AND SOMETIMES HAD TEMPORARY/INTEREST FREE LOA NS FROM FAMILY MEMBERS; THERE WAS NO PAYMENT OF INTEREST ON BORROW ED FUNDS. THE NUMBER OF TRANSACTIONS OF SHORT TERM CAPITAL GAINS ON SALE OF SHARES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION ARE ONLY 15 OUT OF WHICH FIVE TRANSACTIONS ARE OF SALE OF SH ARES OF TATA STEEL LTD. WHICH WAS INVESTED BY THE ASSESSEE BY WAY OF SHARE APPLICATION. IT WAS THUS CONTENDED THAT THE ASSESSEE WAS ESSENTIALLY AN INVE STOR AND NEVER PURCHASED SHARES WITH AN INTENTION TO CARRY ON BUSI NESS. 6. THE AO OBSERVED THAT MERE ENTRIES IN THE BOOKS OF A CCOUNTS SHOWING SHARES AS INVESTMENT IS NOT DETERMINATIVE AS TO T HE NATURE OF TRANSACTIONS. HE HAD TAKEN NOTE OF THE FACT THAT THE MAJOR ACTIVI TY UNDERTAKEN BY THE ASSESSEE WAS DEALING IN SHARES WHEREFROM SHE HAS EA RNED HUGE INCOME COMPARED TO VERY NOMINAL INCOME EARNED FROM OTHER A CTIVITIES. THE AO THEREFORE ASSUMED THAT THE ASSESSEE WAS INDULGING I N SHARE TRADING ACTIVITY ITA NO. 6334/MUM/2011 MRS. NANCY B. MODY 3 AND SHARES WERE NOT PURCHASED AS INVESTMENT. HE FUR THER OBSERVED THAT ONE OF THE TESTS WITH REGARD TO VERIFYING THE INTENTION OF PURCHASES WAS TO LOOK TO THE INTENTION OF THE ASSESSEE. IN THE INSTANT CASE THE SOLE INTENTION WAS TO SELL THE SHARES AT PROFIT. SINCE THE ASSESSEE HELD MANY SHARES FOR A SHORT PERIOD, IT ESTABLISHED THE INTENTION OF SELLING THE SHARES AT PROFIT. IN OTHER WORDS, IT WAS NOT FOR KEEPING THE SHARES FOR LONG T ERM APPRECIATION OR EARNING DIVIDEND. IN HIS OPINION THE HOLDING PERIOD AND SUBSTANTIAL AMOUNT INVOLVED IN PURCHASE AND SALE OF SHARES ARE SUFFICI ENT TO PROVE THAT THE ASSESSEE WAS A TRADER IN PURCHASE AND SALE OF SHARE S. HE FURTHER OBSERVED THAT THE ASSESSEE RAISED BORROWED FUNDS OF ` 1,13,75,000/- WHEREAS IN ORDER TO PROVE THAT THE SHARES WERE PURCHASED WITH A VIEW TO DEAL WITH THEM AS AN INVESTOR IT HAS TO BE SHOWN THAT THE SHARES WERE PU RCHASED WITH HER OWN CAPITAL. HAVING REGARD TO THE OVERALL CIRCUMSTANCES THE AO OBSERVED THAT THE PREDOMINANT ACTIVITY WAS SHARE TRADING AND HENCE TH E PROCEEDS ON SALE OF SHARES ARE ASSESSABLE TO TAX UNDER THE HEAD BUSINE SS INCOME. 7. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T ONLY 15 TRANSACTIONS OF SALE OF SHARES HAD TAKEN PLACE DURI NG THIS YEAR OUT OF WHICH 12 TRANSACTIONS GIVE RISE TO SHORT TERM CAPITAL GAI NS. THE VOLUME OF TRANSACTIONS MEANS PURCHASE AND SALE OF NUMBER OF S CRIPS WHEREAS IN THE INSTANT CASE THE LARGE SCALE APPEARS TO BE WITH R EGARD TO THE LARGE VALUE AND NOT WITH REFERENCE TO THE NUMBER OF SCRIPS TRAN SACTED. IT WAS ALSO CONTENDED THAT THE AO ASSUMED THAT THE PURCHASE OF SHARES WERE MADE THROUGH BORROWED FUNDS WHEREAS THE FACT REMAINS THA T THE INVESTMENTS WERE MADE FROM HER OWN FUNDS OR THE INTEREST FREE BORROW INGS FROM THE FAMILY MEMBERS ONLY AND NO INTEREST BEARING FUNDS FROM AN OUTSIDER WERE UTILISED FOR ACQUISITION OF SHARES. IN THIS REGARD A CHART W AS FURNISHED BEFORE THE CIT(A) WHICH REVEALS THAT THE ASSESSEE USED INTERES T FREE BORROWINGS FROM THE FAMILY MEMBERS AND NO OTHER INTEREST BEARING FU NDS WERE UTILISED. IN FACT, OUT OF THE 12 SCRIPS ONLY TWO SCRIPS WERE PUR CHASED BY BORROWING MONEY FROM FAMILY MEMBERS AND THE REST OF THE SCRIP S WERE PURCHASED OUT OF OWN FUNDS. THE ASSESSEE ALSO SUBMITTED THAT THE INVESTMENTS WERE MADE OVER A PERIOD OF TIME AND THEY WERE CONSISTENTLY RE CORDED UNDER THE HEAD ITA NO. 6334/MUM/2011 MRS. NANCY B. MODY 4 INVESTMENTS AND, IN FACT, THEY WERE MEANT FOR THE PURPOSE OF ACHIEVING CAPITAL APPRECIATION ONLY. 8. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) AGREED WITH THE CLAIM MADE BY THE ASSESSEE. IN THIS REGARD HE OBSERVED AS UNDER: - 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, ARGUMENTS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS O F THE AUTHORISED REPRESENTATIVE OF THE APPELLANT. I FIND THAT THE EN TIRE CAPITAL GENERATED IS ONLY FROM 12 SCRIPS. OUT OF THIS THE GAIN IS ARI SING FROM IPO SUBSCRIPTION IN 10 SCRIPS. THE SUBSCRIPTION IN IPO IS A PRIMARY INVESTMENT ACTIVITY. THE ONLY OTHER TRANSACTION IS IN A SCRIP I.E., TATA STEEL WHICH IS AGAIN SALE OF RIGHTS ISSUE OF SHARES . HENCE, THERE IS OVERWHELMING EVIDENCE THAT THE ACTIVITIES WERE INVE STMENT ACTIVITIES IN NATURE. THE BORROWAL OF FUNDS HAVE BEEN USED ONLY F OR SUBSCRIBING TWO IPOS. THE BORROWAL IS INTEREST FREE BORROWINGS FROM FAMILY MEMBERS. AS REGARDS THE HOLDING PERIOD, MORE THAN ` 30,34,414 OF STCG ARISES FROM ONLY THREE SCRIPS WHICH HAVE BEEN HELD FOR A PERIOD OF MORE THAN 30 DAYS BUT LESS THAN 180 DAYS. HERE AGAIN THE RE IS GOOD EVIDENCE THAT SHARES HAVE BEEN HELD FOR A CONSIDERA BLE LENGTH OF TIME. THIS COVERS 85% OF THE GAIN. AS CAN BE SEEN THE INV ESTMENTS ARE PRIMARILY IN IPOS AND RIGHTS ISSUES. IT CANNOT BE S AID THAT APPELLANT WAS ENGAGED IN AN ORGANIZED BUSINESS ACTIVITY. APAR T FROM THIS THE INVESTMENTS HAVE BEEN DISCLOSED IN THE BALANCE SHEE T AS INVESTMENT AND NOT AS STOCK-IN-TRADE. ALL MOST 75% OF THE STCG ARE FROM SHARES OF ONLY ONE COMPANY I.E., TATA STEEL LTD., WHICH WERE FROM RIGHTS ISSUE. ABOUT 20% OF STCG ARE FROM TWO OTHER COMPANIES, I.E ., POWER GRID CORPORATION AND MUNDRA PORT WHICH ARE SUBSCRIBED TH ROUGH IPO. FROM THESES FACTS IT CAN BE SEEN THAT THE SHORT TERM CAP ITAL GAIN DISCLOSED IS OUT OF INVESTMENT ACTIVITIES AND NOT OUT OF BUSINES S ACTIVITIES. THE ASSESSING OFFICER IS DIRECTED TO TEAT THE DISCLOSED STCG ACCORDINGLY. THIS GROUND OF APPEAL IS ALLOWED. 9. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), REVEN UE IS IN APPEAL BEFORE US. THE LEARNED D.R. SUBMITTED THAT THE VOLU ME OF TRANSACTIONS, IN TERMS OF VALUE OF SHARES, IS HIGH AND THE ASSESSEE HAVING BORROWED FUNDS FOR PURCHASE OF SHARES, THE ACTIVITY HAS TO BE CONSIDER ED AS TRADING ACTIVITY. HE THUS STRONGLY SUPPORTED THE ORDER PASSED BY THE AO. WITH REGARD TO THE QUERY AS TO WHETHER THE ASSESSEE WAS INVOLVED IN PU RCHASE AND SALE OF SHARES IN THE PREVIOUS OR SUBSEQUENT YEARS AND WHAT IS THE TREATMENT GIVEN BY THE AO IN THOSE YEARS, THE LEARNED D.R. SUBMITTE D THAT SUCH FACTS WERE NOT AVAILABLE ON RECORD. WHEN POINTED OUT THAT THE LEARNED CIT(A) ITA NO. 6334/MUM/2011 MRS. NANCY B. MODY 5 CATEGORICALLY STATED THAT OUT OF THE 12 SCRIPS 10 S CRIPS WERE PURCHASED OUT OF OWN FUNDS AND EVEN THE BALANCE TWO SCRIPS WERE PURC HASED THROUGH IPO WITH FUNDS BORROWED FROM RELATIVES ON WHICH NO INTE REST WAS PAID, THE LEARNED D.R. COULD NOT CONTRADICT THE FINDINGS OF T HE LEARNED CIT(A). 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED D .R. AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION THE LEARNED C IT(A) HAS CONSIDERED THE FACTS IN THE PROPER PERSPECTIVE WHILE COMING TO THE CONCLUSION THAT THE ASSESSEE HAD PURCHASED THE SHARES IN HER CAPACITY A S INVESTOR AND NOT WITH A VIEW TO TRADING IN PURCHASE AND SALE OF SHARES. S INCE NO EVIDENCE, WHATSOEVER, WAS FURNISHED BY THE LEARNED D.R. TO CO NTRADICT THE FINDINGS OF THE LEARNED CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A). WE, THEREFORE, SUSTAIN THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH NOVEMBER, 2013. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 11 TH NOVEMBER, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 29, MUMBAI 4. THE CIT 17, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.