DCIT CIR 13(3), MUMBAI V. VIPUL RAMESHCHANDRA SHAH, MUMBAI

ITA 6593/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3798 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 14-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SAXENA
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Keywords: Capital asset; Business income; Transactions in derivatives; Futures and options

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI , . . / , . . BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER /AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 6593/MUM/2011 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2008-09 THE DY. COMMISSIONER OF INCOME TAX 13(3), MUMBAI. VS. SHRI VIPUL RAMESHCHANDRA SHAH, J.V. ENTERPRISES, R.NO. 29, 2 ND FLOOR, HANUMAN BUILDING, 67, MUMBADEVI ROAD, PYDHONIE, MUMBAI-400 003. PAN: AAGPS 9478 N ( #$ / APPELLANT) ( %&#$ / RESPONDENT) REVENUE BY : SHRI V. SAXENA ASSESSEE BY : SHRI REEPAL G. TRALSHAWALA ! ' () / DATE OF HEARING : 06-05-2013 *+' ' () / DATE OF PRONOUNCEMENT : 15-05-2013 ,- / O R D E R PER RAJENDRA, A.M./ , . . THE PRESENT APPEAL IS FILED AGAINST THE ORDER DT. 25-07-2011OF CIT(A)-24, MUMBAI BY THE ASSESSING OFFICER (AO) ON THE FOLLOWI NG GROUNDS: 1. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ASS ESS INCOME FROM SHARE TRANSACTION UNDER THE HEAD CAPITAL GAINS INSTEAD OF INCOME FROM BUSINESS. (II) WHILE DOING SO, THE LD. CIT(A) HAS ERRED BOTH IN NOT APPRECIATING THE FACTORS LIKE VOLUME, PERIOD OF HOLDING, EXPERTISE, AND INTE NTION OF THE ASSESSEE AS CRITERIA TO DETERMINE THE NATURE OF TRANSACTIONS AS ADVENTUR E IN THE NATURE OF TRADE AND NOT AS INVESTMENT. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND, IF NECESSARY. ITA NO. 6593/MUM/2011 SHRI VIPUL RAMESHCHANDRA SHAH 2 2. ASSESSEE, AN INDIVIDUAL, TRADER IN YARN AND DEALING IN SECURITIES, FILED HIS RETURN OF INCOME ON 28-09-2008 DECLARING TOTAL INCO ME AT RS. 60.38 LAKHS. ASSESSMENT WAS FINALISED U/S.143(3) OF THE INCOME T AX ACT, 1961 (ACT) ON 26-11-2010 BY THE ASSESSING OFFICER (AO) DETERMININ G TOTAL INCOME AT RS. 01.04 CRORES. 3. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD CONSISTENTLY DEALT IN SHARES FOR THE LAST 4 5 YEARS, THAT SHAR E INCOME AMOUNTING TO 52.04 LAKHS WAS CLAIMED UNDER THE HEAD LONG TERM CAPITAL GAINS (LTCG), INCOME FROM SHARES SOLD WITHIN THE PERIOD OF ONE YEAR WERE SHOWN AS SH ORT TERM CAPITAL GAIN (STCG). CONSIDERING THESE FACTS, HE DIRECTED THE ASSESSEE A S WHY THE ACTIVITY OF SELLING OF SHARES COULD NOT BE TAKEN AS BUSINESS ESPECIALLY WH EN HE WAS DEALING IN SHARE FUTURES AND OPTIONS (F&O). AO HELD THAT ASSESSEE HAD NOT D EALT IN SHARES DUE TO FINANCIAL NEEDS, THAT HIS PURCHASE/SALE ACTIVITIES HAD NOT BE EN FEW AND FAR BETWEEN, THAT ASSESSEE HAD PURCHASED/SOLD/SHARES OF F&O SEGMENT EVERY WEEK /EVERY MONTH OF THE ASSESSMENT YEAR (AY) UNDER CONSIDERATION, THAT TREA TMENT GIVEN TO INCOME AS INCOME FROM CAPITAL GAINS AND TO LOSS ON F&O SEGMENT AS LO SS FROM BUSINESS ACTIVITY WAS PART OF CRUDE TAX PLANNING. AS A RESULT, SHARE TRADIN G ACTIVITY CARRIED OUT BY THE ASSESSEE WAS TREATED AS BUSINESS BY THE AO. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT THE INTENTION AT THE TIME OF PURCHASE WAS MOST IMPO RTANT FACT TO DECIDE WHETHER THE PURCHASE WAS MADE AS TRADER OR AS A INVESTOR, THAT INTENTION HAD TO BE GATHERED FROM SUBSEQUENT CONDUCT OF THE ASSESSEE, THAT AN INVESTO R WOULD PURCHASE SHARES WITH A VIEW TO EARN INCOME IN FORM OF DIVIDEND, THAT SUCH INVESTORS ARE NOT MOTIVATED TO SELL SHARES ON EACH AND EVERY RISE IN VALUE OF SHARES, T HAT FOR DECIDING THE QUESTION OF TAXABILITY OF SHARE ACTIVITIES UNDER THE HEAD BUSI NESS INCOME/INCOME FROM OTHER SOURCES, THAT NO SINGLE THUMB RULE COULD BE APPLIE D, THAT PARAMETERS LAID DOWN BY AUTHORITIES IN THIS REGARD INCLUDED VARIOUS FACTORS LIKE INTENTION OF THE APPELLANT AT THE TIME OF PURCHASE OF SHARES, FREQUENCY OF TRANSACTIO N, CONTINUITY, VOLUME, HOLDING PERIOD, TREATMENT IN BOOKS OF ACCOUNTS, USE OF BORR OWED/OWN FUNDS AND DEVOTION OF TIME TO THE ACTIVITY, THAT INDIVIDUAL PARAMETERS WO ULD NOT BE DECISIVE AND IT WAS ONLY A CUMULATIVE EFFECT OF ALL THESE FACTORS TO DECIDE TH E ISSUE AS WHETHER THE ASSESSEE WAS AN INVESTOR/A TRADER. HE FURTHER HELD THAT ASSESSE E HAD DISCLOSED INCOME OF RS. 52,04,472/- UNDER THE HEAD LTCG, THAT ASSESSEE HA D FILED THE DETAILS OF SHARES ON WHICH THE SAID CLAIM WAS MADE. AFTER GOING THROUGH THE DETAILS, HE FOUND THAT SHARES HAD BEEN HELD FOR THE PERIOD RANGING FROM 406 DAYS TO 4933 DAYS, THAT ASSESSEE HAD DISCLOSED LTCG OF RS. 8.83 LAKHS IN RESPECT OF SHAR ES OF TATA POWER CO. LTD., WHICH WERE HELD FOR 2512 DAYS, THAT 150 SHARES OF SAME CO MPANY WERE HELD FOR 432 DAYS, THAT SHARES OF JUBILANT ORGANOSYS LTD., WERE HELD F OR 567, 1264 AND 1729 DAYS, THAT ALL THESE SHARES ON WHICH LTCG WAS CLAIMED BY THE ASSES SEE HAD BEEN HELD FOR A PERIOD OF MORE THAN 365 DAYS, THAT THE SHARES WERE CAPITAL ASSETS AS DEFINED IN SECTION 2(29A) R.W.S. 2(42A) OF THE ACT. HE FURTHER HELD THAT IT WAS NOT THE CASE OF THE AO THAT SHARES WERE NOT DISCLOSED AS INVESTMENTS IN THE BALANCE SH EET OF THE ASSESSEE, THAT THE CONDUCT OF THE ASSESSEE IN DEALING THESE SHARES SHO WED THAT HIS INTENTION WAS TO HOLD ALL THESE SHARES AS INVESTMENTS AND NOT AS TRADING ASSETS, THAT MOST OF THE SHARES WERE BROUGHT AT LEAST TWO YEARS BEFORE THEIR DISPOSAL, T HAT ASSESSEE WAITED FOR A LONG TIME AFTER PURCHASE OF THE SHARES FOR APPRECIATION IN TH EIR VALUE, THAT HIS BEHAVIOR WAS CLASSICAL EXAMPLE OF AN INVESTOR, THAT THE HOLDING PERIOD OF SHARES SHOWED THAT SHARES ITA NO. 6593/MUM/2011 SHRI VIPUL RAMESHCHANDRA SHAH 3 WERE PURCHASED FOR THE PURPOSE OF INVESTMENTS, THAT ASSESSEE HAD NOT TAKEN ANY LOAN FOR MAKING INVESTMENTS IN THE SHARES, THAT THE SAID SHARES WERE PURCHASED FROM OWN FUNDS AVAILABLE WITH THE ASSESSEE. AFTER CONSIDERI NG THE TOTALITY OF THE FACTS AND PARAMETERS AS LAID DOWN BY THE COURTS AS WELL AS CB DT, HE HELD THAT ASSESSEE WAS AN INVESTOR IN RESPECT OF THE SHARES AND THE PROFIT AR ISING OUT OF SHARES SOLD AMOUNTING TO RS. 52.04 LAKHS WERE TO BE ASSESSED UNDER THE HEAD LTCG. 4.1 FAA FURTHER FOUND THAT ASSESSEE HAD ALSO SHO WN PROFIT OF RS. 62.21 LAKHS FROM THE SALES OF SHARES AS STCG, THAT ASSESSEE HAD DISCLOSED STCG FROM SHARES OF RS. 30.15 LAKHS IN THE IMMEDIATELY PRECEDING YEAR, THAT ASSESSEE HAD BEEN CONSISTENTLY DISCLOSING HIMSELF TO BE AN INVESTOR I N SHARES IN RESPECT OF WHICH HE WAS OFFERING INCOME UNDER THE HEAD CAPITAL GAINS, THA T THE SHARES ON WHICH CAPITAL GAINS HAD BEEN DISCLOSED WERE BEING REFLECTED IN TH E BOOKS OF ACCOUNTS AS AN INVESTMENT, THAT IN THE BALANCE SHEET FILED, ASSESS EE WAS DISCLOSING THE SHARES UNDER THE HEAD INVESTMENTS, THAT THE INTENTION OF THE A SSESSEE SHOWED THAT SHARES WERE NOT HELD AS TRADING ASSETS. AFTER CONSIDERING THE DETA ILS AVAILABLE ON THE RECORD, HE FOUND THAT MAJORITY OF THE SHARES SOLD WERE HELD FOR MORE THAN 60 DAYS, THAT SUBSTANTIAL AMOUNT OF CAPITAL GAINS REPRESENTING ALMOST 84.66% OF THE TOTAL STCG WAS EARNED FROM SHARES WHICH WERE HELD FOR MORE THAN 30 DAYS, THAT 60.84% OF THE TOTAL STCG WAS EARNED FORM THE SHARES WHICH WAS BETWEEN 90 TO 365 DAYS, THAT 15.33% OF THE TOTAL STCG WAS EARNED FROM SHARES IT WAS HELD FOR L ESS THAN 30 DAYS, THAT TOTAL CONDUCT OF THE ASSESSEE IN RESPECT OF THESE HOLDING S WAS OF AN INVESTOR. HE HELD THAT THE SHARES WERE SHORT TERM CAPITAL ASSETS AS DEFINE D IN SECTION 2(42A) OF THE ACT. HE FURTHER FOUND THAT MAJORITY OF THE SHARES WERE B OUGHT AND SOLD NOT IMMEDIATELY AND ALMOST IMMEDIATELY AS TRADER, THAT SHARES WERE HELD FOR A SUFFICIENT PERIOD OF TIME BEFORE THEY WERE SOLD. WE ARE FURTHER FOUND THAT A SSESSEE WAS A PARTNER IN A CONCERN DEALING IN YARNS. HE HELD THAT ASSESSEE HAD TO SPE ND MOST OF HIS TIME IN BUSINESS ACTIVITIES RELATING TO THE FIRM, THAT HE DID NOT HA VE ANY OFFICE ESTABLISHMENT FOR INVESTMENT IN SHARES, THAT ASSESSEE WAS NOT A BROKE R OR SUB-BROKER, THAT HE HAS TAKEN THE DELIVERY OF THE SHARES. FINALLY, HE HELD THAT ASSESSEE HAD DEALT WITH THE SHARES IN QUESTION AS AN INVESTOR AND NOT AS A TRADER, THAT S HARES REPRESENTED HIS CAPITAL ASSET, THAT THE PROFITS OF THE ASSESSEE WERE IN THE NATURE OF THE INVESTMENT ACTIVITIES AND NOT OF TRADING/ BUSINESS ACTIVITY, THAT PROFITS ON THE SALE OF SHARES WAS THEREFORE ASSESSABLE IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITA L GAINS, THAT CAPITAL GAINS OF RS. 52.40 LAKHS HAD ARISEN ON SALE OF SHARES HELD FOR M ORE THAN ONE YEAR, THAT SAME WAS RIGHTLY ASSESSEE AS LTCG, THAT CAPITAL GAIN OF RS. 60.21 LAKHS HAD ARISEN TO THE ASSESSEE TO THE SALE OF SHARES HELD FOR A PERIOD OF LESS THAN ONE YEAR, THAT THE SAME WAS TO BE ASSESSED AS STCG. AS A RESULT, APPEAL FILED BY THE ASSESSEE WAS ALLOWED BY THE FAA. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SU BMITTED THAT FAA DID NOT APPRECIATE FACTORS LIKE VOLUME, PERIOD OF HOLDING A ND INTENTION OF THE ASSESSEE TO DETERMINE THE NATURE OF TRANSACTIONS, THE ACTIVITIE S OF THE ASSESSEE WERE IN THE NATURE OF BUSINESS. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE WAS AN INVESTOR AND NOT A TRADER OF THE SHARES, INCOME/LOSS ARISING OUT OF F&O SEGMENT OF SHARES WAS OFFERED FOR TAXATION UNDER THE HEAD BUSINESS BY T HE ASSESSEE. ASSESSEE HAD SOLD SOME SHARES FOR A PERIOD OF LESS THAN ONE YEAR AND THAT SHARES HELD FOR MORE THAN 365 DAYS WERE ALSO SOLD DURING THE AY UNDER CONSIDERATI ON, THAT FAA HAD RIGHTLY HELD THEM AS CAPITAL ASSETS. HE RELIED UPON THE ORDERS OF DIFFERENT BENCHES OF ITAT IN THE CASES OF MR. HITESH SATISHCHANDRA DOSHI (ITA NOS. 6 497/MUM/09 AY. 2003-04 & ITA NO. 6593/MUM/2011 SHRI VIPUL RAMESHCHANDRA SHAH 4 6603/MUM/09 AY. 2006-07); SHRI RAMESH BABU RAO (ITA NO. 3719/MUM/09 AY. 2005-06); SHANTILAL M. JAIN (ITA NO. 2690/MUM/10 AY . 2006-07); NAGINDAS P. SHETH (HUF) [ITA NO. 961/MUM/10 AY. 2006-07]; MR. N EHAL V. SHAH (ITA NO. 2733/MUM/09 AY. 2005-06) AND SHRI NARENDRA GEHLAUT (ITA NO. 1648/DEL/10 AY. 2006-07). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL PUT BEFORE US. THE FACTS OF THE CASE ARE THAT ASSESSEE HAS SHOWN T HE CAPITAL GAINS FROM THE SALE OF SHARES IN HIS RETURN OF INCOME. WHILE PASSING THE ORDER, AO HAS NOT DISCUSSED THE REASONS AS WHY THE INCOME RETURNED UNDER THE HEAD CAPITAL GAIN SHOULD BE TREATED AS BUSINESS INCOME. HE HAS NOT TAKEN INTO CONSIDERA TION THE CRITERIA LAID DOWN BY THE CBDT. NOT A SINGLE INSTANCE HAS BEEN QUOTED BY THE AO ABOUT THE FREQUENCY OF SHARES, HOLDING PERIOD OF SHARES, ENTRIES IN THE BO OKS OF ACCOUNTS AND OTHER RELEVANT FACTORS. WE FIND THAT FAA HAS DEALT ISSUE AT LENGT H AND HAS DELIBERATED UPON ALL THE RELEVANT FACTS WHICH ARE DECISIVE FOR SETTLING THE ISSUE. SHARES CAN BE HELD AS TRADER AND AS AN INVESTOR ALSO. SIMILARLY, PROFIT/LOSS A RISING FROM SHARE ACTIVITIES CAN BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR INCOM E FROM OTHER SOURCES. CBDT VIDE ITS CIRCULAR NO. 4/2007 HAS INDICATED A FEW PA RAMETERS TO BE INVESTIGATED BEFORE DECIDING THE ISSUE. COURTS/VARIOUS BENCHES OF THE TRIBUNAL HAVE ALSO DEALT THE ISSUE IN MANY A CASES. NOW, IT IS UNIVERSALLY ACCEPTED T HAT A SINGLE PARAMETER CANNOT DECIDE THE NATURE OF THE SHARES SOLD AND RESULTANT SALE PR OCEEDS. WE FIND THAT FAA HAS DEALT IN DETAILS ABOUT THE STCG TRANSACTIONS AS WELL AS L TCG. HE HAS ANALYSED THE PERIOD OF HOLDING AND INTENTION OF THE ASSESSEE. HE HAS A LSO TAKEN INTO CONSIDERATION THAT NO BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR MA KING INVESTMENT IN SHARES. AFTER CONSIDERING ALL THE RELEVANT FACTS AND CIRCUMSTANCE S OF THE CASES, HE HAD REACHED TO A LOGICAL CONCLUSION THAT TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE NOT IN THE NATURE OF BUSINESS ACTIVITY. WE FIND THAT HIS ORDER DOES NOT SUFFER FROM ANY FACTUAL OR LEGAL INFIRMITY. THEREFORE, UPHOLDING HIS ORDER, WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . /0 ! -) 2 ,34 ' 5 ! 67 ' ( 89. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2013 ,- ' *+' ; <,! 15 ,2013 + ' 5 B SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) ,/ / JUDICIAL MEMBER ,/ / ACCOUNTANT MEMBER / MUMBAI, <,!/ DATE: 15 TH MAY, 2013 TNMM ITA NO. 6593/MUM/2011 SHRI VIPUL RAMESHCHANDRA SHAH 5 ,- ,- ,- ,- ' '' ' %( %( %( %( D'( D'( D'( D'( / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT/ #$ 2. RESPONDENT/ %&#$ 3. THE CONCERNED CIT(A)/ E F 4. THE CONCERNED CIT/ E F 5. DR F BENCH, ITAT, MUMBAI / G5 %(! , . . . 6. GUARD FILE/ 5 &( %( //TRUE COPY// ,-! ,-! ,-! ,-! / BY ORDER, H HH H / 8 8 8 8 DY./ASST. REGISTRAR , / ITAT, MUMBAI