ITO 1(1)(2), MUMBAI V. DEVESH DARSHAN INVESTMENT P. TLTD, MUMBAI

ITA 7205/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3395 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAJENDRA KUMAR
• Assessee Lawyers: A H DALAL
• Keywords: Business income; Source of fund; Speculative transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 7205/MUM/2011 ASSESSMENT YEAR: 2007-08 ITO 1(1)(2) R. NO. 534/579 AAYAKAR BHAVAN. M.K. ROAD MUMBAI-4000 VS. M/S DEVESH DARSHAN INVESTMENT PVT. LTD. 35, CCI CHAMBERS, DINSHAW WACHHA ROAD, CHURCHGATE MUMBAI- 400020 PAN :AAACD 1924 D (APPELLANT) (RESPONDENT) APPELLANT BY : DR. RAJENDRA K UMAR RESPONDENT BY : SHRI A.H. DALAL DATE OF HEARING : 30.04.2013 DATE OF PRONOUNCEMENT : 17.05.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A) I, MUMBAI DATED 30.08.2011 FOR THE A.Y. 2007-08. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE F OLLOWING GROUND: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO TREAT THE PRO FIT ON SALE OF SHARES AND SECURITIES AS CAPITAL GAIN/LOSS AS AGAINST BUSI NESS INCOME TREATED BY THE A.O.? 3. BRIEFLY STATED, THE ASSESSEE, A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF FINANCE SERVICES, CAR HIRE, ADMINISTRAT IVE SERVICES AND TRADING HAD, ITA NO.7205/M/2011 M/S. DEVESH DARSHAN INVESTMENT PVT. LTD AY: 2007-08 2 DURING THE YEAR UNDER CONSIDERATION, DISCLOSED FOLL OWING INCOME AND LOSS ON ACCOUNT OF PURCHASE AND SALE OF SHARES, SECURITIES AND UNITS OF MUTUAL FUNDS: LONG TERM CAPITAL GAIN ON SALE OF SHARES AND MUTUAL FUNDS RS.753847/- SHORT TERM CAPITAL GAIN IN PMS ACCOUNTS IN MUTUAL F UNDS RS.630661/- SHORT TERM CAPITAL LOSS IN PMS ACCOUNT AND SHARES (-) RS.943093/- THE ASSESSEE HAD CLAIMED THE LTCG OF RS.7,53,847/- AS EXEMPT U/S 10(38) WHEREAS THE NET SHORT TERM CAPITAL LOSS OF RS.3,12,432/- (9 ,43,093-6,30,661) HAS BEEN CLAIMED FOR CARRIED FORWARD TO THE SUBSEQUENT YEARS . THE BREAK-UP OF CAPITAL GAIN AND LOSSES SHOWN BY THE ASSESSEE HAS TABULATED AS U NDER: NAME OF COMPANY SALES (RS.) PURCHASE (RS.) LONG TERM CAPITAL GAIN SHORT TERM CAPITAL GAIN TCS 401488 233542 16 7946 INFOSYS TECH. 1588739 803196 199643 585900 ONGC 1371010 1198363 738430 646615 (756671) TCS 135006 70189 105481 (40664) INFOSYS TECH 334871 424262 (89390) TULIP 16226 6000 10226 BANK OF BARODA 42568 34270 8298 ANDHRA BANK 32281 32670 388 TOTAL 39,22,189 44,92,661 7 ,53,846 (8,68,589) THE AO TAXED THE ABOVE LONG TERM CAPITAL GAIN AND N ET SHORT TERM CAPITAL LOSS ON SHARES AND MUTUAL FUNDS AS BUSINESS INCOME OF THE A SSESSEE. ON APPEAL, THE LD.CIT(A) DIRECTED THE AO TO TREAT THE PROFIT ON SA LE OF SHARES AND SECURITIES AS CAPITAL GAIN/LOSS AS AGAINST BUSINESS INCOME TREATE D BY THE AO. THE RELEVANT FINDINGS OF THE LD.CIT(A) IS EXTRACTED HEREUNDER: I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANTS AR. I FIND FROM THE FACTS EMANATING FROM THE ASSESSEES RECORD INDICATE THAT ASSESSEE IS AN INVESTOR AND NOT TRADER IN SHARES FO R THE FOLLOWING REASONS: ITA NO.7205/M/2011 M/S. DEVESH DARSHAN INVESTMENT PVT. LTD AY: 2007-08 3 \THE FACT THAT THE EXPENSES ARE CLAIMED CANNOT LEAD TO THE CONCLUSION THAT THE PURCHASE AND SALE OF SHARES WAS BY WAY OF TRADING ACTIVITY AND NOT INVESTMENT, AS EVEN IN THE LATTER CASE, THE EXP ENSES LISTED ABOVE WILL BE INCURRED AND CLAIMED BY THE COMPANY, MANY O F THEM RELATING TO THE TRADING IN BOOKS, ADMINISTRATIVE SERVICES, HIRE OF CAR AND OTHER SOURCES OF INCOME. EVEN IN THE CASE OF INVESTOR, TH ESE ITEMS WILL APPEAR IN THE PROFIT & LOSS ACCOUNT WITHOUT LEADING TO THE CONCLUSION DRAWN BY THE A.O. THE ABSOLUTE FIGURES OF SALES AND PURCHASE S CITED BY THE A.O. CANNOT LEAD TO A CONCLUSION THAT THE APPELLANT IS T RADING IN SHARES, AS THE VOLUME OF FIGURES OF PURCHASES AND SALES DEPEND UPON THE EXTENT OF INVESTMENTS MADE BY THE APPELLANT. EVEN IN THE C ASE OF THE INVESTOR, THE SHARES CAN BE SOLD AFTER BRIEF HOLDIN G. THE SALE OF SHARES HELD BY WAY OF INVESTMENTS WILL ALSO HAVE TO BE THR OUGH STOCK BROKERS AND PORTFOLIO MANAGERS. TDS IS TO BE DEDUCTED FROM PORTFOLIO MANAGEMENT FEES AS PER I.T. ACT IRRESPECTIVE OF THE POSITION WHETHER THE APPELLANT IS AN INVESTOR OR TRADER, AND SUCH FE ES ARE CLAIMED AS EXPENSES EVEN IN THE CASE OF AN INVESTOR. THE FREQU ENCY IN DEALING IN THE SHARES IS ITSELF IN DISPUTE AND BEGGING THE QUE STION. EVEN THE MANAGEMENT OF INVESTMENTS AND THEIR SALE AT THE APP ROPRIATE TIME INVOLVES APPLICATION OF MIND AND IS BASED ON MARKET INFORMATION. INVESTING IN SHARES AND SECURITIES ALSO INVOLVES RI SK TAKING AND CAPACITY TO INCUR RISK. THE APPELLANT HAS NOT SOLD THE SHARE S WITHOUT TAKING DELIVERY AND NOT CARRIED ON SPECULATION IN SHARES. THE APPELLANT HAS NOT ENTERED INTO ANY SPECULATIVE TRANSACTIONS IN SH ARES DURING THE YEAR. THE CAPITAL GAIN ON SALE OF SHARES IS DETERMINED AS SHORT TERM OR LONG TERM DEPENDING ON PERIOD OF HOLDING. THE PRESUMPTIO N MADE BY THE A.O. REGARDING THE ATTITUDE OF THE INVESTOR AS AGAI NST TRADER ARE ALL IMAGINARY AND THE INTENTION TO DEFEAT INFLATION AND EROSION OF THE HOLDINGS ARE THEORETICAL CONSIDERATIONS NOT PRESENT IN THE MIND OF INVESTOR. THE A.O.S CONCEPTION ABOUT PARKING OF FU NDS IN INVESTMENT AND THEN PURSUE HIS PROFESSION AND NOT TRACKING THE INVESTMENT AND ITA NO.7205/M/2011 M/S. DEVESH DARSHAN INVESTMENT PVT. LTD AY: 2007-08 4 TAKING DECISION ABOUT CHANGES THEREIN ARE CONSIDERA TIONS FAR FROM REALITY. THERE IS NO QUESTION OF ENTERING THE MARKE T DIRECTLY WHEN INVESTMENTS ARE MADE THROUGH BROKERS OR PORTFOLIO M ANAGERS. THE FREQUENT INDULGENCE IN TRADING OF SHARES IS NOT BOR NE OUT BY THE TRANSACTIONS OF THE APPELLANT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I DIR ECT THE A.O. TO ACCEPT THE LONG TERM CAPITAL GAIN OF RS.7,53,847/- AND SHORT TERM CAPITAL GAIN OF RS.6,30,661-/ AS SHOWN BY THE APPEL LANT AND ALLOW SETTING OFF THE LOSS UNDER THE HEAD SHORT TERM CAPI TAL GAIN OF RS.9,43,093/-. THESE GROUNDS OF APPEAL ARE ALLOWED. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD.DR HAS STATED THAT THE ORDER O F THE LD.CIT(A) IS NOT FOCUSED ON THE RELEVANT ISSUE AND OF CONFUSING NATURE. FURT HER, HE RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE CASE OF REVENUE. ON THE OTHER HAND, THE LD. AR HAS PLACED HIS ARGUMENTS IN THE SIMILAR LINE OF CONTENTION EARLIER TAKEN BEFORE THE LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT THE OUT SET, IT IS PERTINENT TO MENTION THAT IT IS NOT DISPUTED THAT THE ASSESSEE HAS PURCHASED THE SHARES OUT OF ITS OWN FUNDS. AS REGAR DS THE LTCG OF RS.7,53,847/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF SALE OF SHARE S OF TCS AND INFOSYS TEC, THE PERUSAL OF THE DETAILS OF SALE AND PURCHASE CLEARLY INDICATES THAT THE HOLDING PERIOD OF THE SHARES IS MORE THAN ONE YEAR AND THE ENTIRE LTC G IS ON ACCOUNT OF THESE TWO SCRIPTS ONLY. THE PERUSAL OF VOLUME OF TRADE AND FR EQUENCY ALSO CLEARLY SUGGESTS THAT THE IMPUGNED ACTIVITY OF THE ASSESSEE IS IN THE NAT URE OF INVESTOR AND NOT AS A TRADER. AS REGARDS THE STCG RS.6,30,661-/ SHOWN BY THE ASSESSEE, IT IS RELEVANT TO NOTE THAT THE ASSESSEE HAS MADE THE INVESTMENTS THR OUGH PORT-FOLIO MANAGEMENT SCHEME (PMS). THE CO-ORDINATE BENCH OF THE MUMBAI ITAT IN THE CASE OF ITO VS RADHA BIRJU PATEL IN ITA NO 5382/ MUM/2009 HAS HELD THAT THE TRANSACTIONS CARRIED OUT VIA PORTFOLIO MANAGEMENT SCHEME ARE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMIZATION OF WEALTH RATHER ENCASHING THE PRO FITS ON APPRECIATION IN VALUE OF ITA NO.7205/M/2011 M/S. DEVESH DARSHAN INVESTMENT PVT. LTD AY: 2007-08 5 SHARES. THE VERY NATURE OF PORTFOLIO MANAGEMENT SCH EME IS SUCH THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE PROTECTED AND ENHANCED AND IN SUCH A CIRCUMSTANCE, IT CANNOT BE SAID THAT PORTFOLIO MANA GEMENT IS SCHEME OF TRADING IN SHARES AND STOCK. WHETHER, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INVESTMENT IN SHARES IS ESSENTIALLY A QUE STION OF FACT AND IT HAS TO BE DETERMINED WITH REGARD TO THE ENTIRETY OF THE CIRCU MSTANCES. WHERE THE ASSESSEE IS ENGAGED IN SYSTEMATIC ACTIVITIES OF HOLDING PORTFOL IO THROUGH A PMS MANAGER, IT CANNOT, BY ANY STRETCH OF IMAGINATION, BE SAID THAT THE MAIN OBJECT OF HOLDING THE PORTFOLIO IS TO MAKE PROFIT BY SALE OF SHARES DURIN G THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OVER THE PERIOD. THE HIGH NUMB ER OF TRANSACTIONS SHOWN IN THE STATEMENT IS MISLEADING BECAUSE THESE ARE COMPUTER- SPLIT TRANSACTIONS AND NOT INDEPENDENT TRANSACTIONS. THE DECISION OF THE ITAT HAS BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT IN THE APPEAL PREFERRED B Y THE REVENUE AGAINST THE SAID DECISION (336 ITR 287). WE, RELYING ON THE SAID DEC ISION, ARE OF THE VIEW THAT THE SAID PROFITS ON THE SALE OF SHARES NECESSARILY QUAL IFY FOR THE TREATMENT AS INVESTMENT AND CONSEQUENTLY A STCG. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD .CIT(A) ON THESE ISSUES AND THE SAME IS UPHELD. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF MAY, 2013. SD/- SD/- (P.M.JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17.05.2013. *SRIVASTAVA ITA NO.7205/M/2011 M/S. DEVESH DARSHAN INVESTMENT PVT. LTD AY: 2007-08 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.