HARSHA L. TAHILARAMANI, MUMBAI V. ACIT CIR 19(1), MUMBAI

ITA 7516/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8076 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 26-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT; SURESH N OTWANI
• Keywords: Capital asset; Business income; Question of law
• Section: 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 7516/MUM/2010 ( / ASSESSMENT YEAR: 2007-08) HARSHA L. TAHILRAMANI 1003/1102, VINAYAK HEIGHTS, ARGIS DUTT ROAD, PALI HILL, BANDRA (W), MUMBAI-400 050 / VS. ASST. CIT CIRCLE 19(1), MUMBAI ./ ./PAN/GIR NO. AAOPT 6988 Q ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : SHRI S. C. TIWARI, MS. NATASHA MANGAT & SHRI SURESH N. OTWANI !' # $ / RESPONDENT BY : SHRI TUSHAR DHAWAL SINGH % &'( # )* / DATE OF HEARING : 18.08.2014 +,- # )* / DATE OF PRONOUNCEMENT : 17.10.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-30, MUMBAI (CIT(A) FOR SH ORT) DATED 30.08.2010, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2007-08 VIDE ORDER DATED 08.12.2009. 2 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT 2. THE SOLE ISSUE ARISING PER THE INSTANT APPEAL RA ISED, PER THE ASSESSEES ONLY GROUND, REPRODUCED AS UNDER, IS THE NATURE OF THE INCOME AR ISING TO THE ASSESSEE ON THE PURCHASE AND SALE OF SHARES, I.E., WHETHER SHORT-TERM CAPITA L GAIN (STCG), AS OFFERED BY THE ASSESSEE PER ITS RETURN OF INCOME, OR BUSINESS INC OME, I.E., AS ASSESSED BY THE REVENUE: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANTS CASE AND IN LAW LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMEN T THE SUM OF RS.13,266,180/- AS BUSINESS INCOME OF INSTEAD OF SHORT-TERM CAPITAL GAINS AS PER THE RETURN OF INCOME FILED BY THE APPELLANT. 3. WE SHALL BEGIN BY RECOUNTING THE BACKGROUND FACT S OF THE CASE. THE ASSESSEE, AN INDIVIDUAL, RETURNED BUSINESS LOSS (RS.20.64 LACS) FROM TRADING IN DERIVATIVES, BESIDES STCG AND LONG-TERM CAPITAL GAIN (LTCG) (CLAIMED EXE MPT) AT RS.132.66 LACS AND RS.139.43 LACS RESPECTIVELY. THE MAGNITUDE OF THE T RANSACTIONS SUGGESTING SO; THE PURCHASE AND SALE OF SHARES DURING THE YEAR (AS REV EALED BY THE STCG STATEMENT FURNISHED BY THE ASSESSEE), BEING AT RS.1344.52 LACS AND RS.1 477.11 LACS RESPECTIVELY, THE ASSESSEE WAS SHOW CAUSED BY THE ASSESSING OFFICER (A.O.) AS TO WHY THE SAME, I.E., THE PURCHASE AND SALE OF SHARES, BE NOT TREATED AS TRADING IN SH ARES AND, ACCORDINGLY, THE GAIN ARISING BE ASSESSED AS BUSINESS INCOME. THE ASSESSEE EXPLAINED THAT IT WAS UNDERTAKING THE SAID ACTIVITY SINCE 1998-99. THE LAW PROVIDES FOR A HOLD ING PERIOD OF ONE YEAR (12 MONTHS) FOR A CAPITAL ASSET, WHERE IT IS A SHARE IN A COMPANY O R A UNIT OF A MUTUAL FUND, TO QUALIFY AS A LONG-TERM CAPITAL ASSET (LTCA). NO MINIMUM PERIOD, HOWEVER, STANDS PRESCRIBED IN RESPECT OF A SHORT-TERM CAPITAL ASSET (STCA), SO TH AT THE HOLDING OF EVEN ONE DAY MAY BE SUFFICIENT FOR AN ASSET TO BE A STCA, AND THE GAIN ON ITS TRANSFER, RESULTANTLY, A STCG. WHAT IS RELEVANT IS THE INTENT WITH WHICH THE SHARES (ASSET) WAS BOUGHT, I.E., WHE THER FOR TRADING OR FOR INVESTMENT, THEREIN. IN THE PRESENT CASE, THE ASSESSEE HAD RETAINED CERTAIN SHARES NOT FOR WEEKS OR MONTHS, BUT FOR YEARS. ACCO RDINGLY, NO ADVERSE INFERENCE, WHERE THE SHARES HAD BEEN HELD FOR A SHORTER PERIOD, MAY BE DRAWN. THAT IS, IT WAS POSSIBLE FOR AN INVESTOR, AS INDEED A TRADER, TO BUY AND SELL SH ARES ON A DAILY BASIS, AND THE FREQUENCY ITSELF WOULD NOT BE DETERMINATIVE. IT RELIED ON THE ASSESSMENT OF SUCH GAINS AS STCG FOR 3 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT A.Y. 2005-06 BY THE FIRST APPELLATE AUTHORITY, WHIC H HAD NOT BEEN CONTESTED BY THE REVENUE. THE A.O. PROCEEDED TO ANALYZE THE ASSESSEES ACTIVI TY OF PURCHASE AND SALE OF SHARES ON THE ANVIL OF THE CBDT INSTRUCTION NO. 182 7 DATED 31.08.1989 AND CIRCULAR NO. 4 OF 2007 DATED 15.06.2007, BEING BASED ON JUDGMENT S BY THE HONBLE COURTS, FURTHER LISTING TWENTY SEVEN (27) JUDGMENTS, INCLUDING NINE (9) BY THE APEX COURT IN THE MATTER. SURELY, IT IS THE MOTIVE WHICH IS THE PRINCIPAL FACTOR IN DETERMINING WHETH ER A TRANSACTION IS TO BE REGARDED AS ONE OF TRADE, CONSTITUTING BUS INESS OR A PART THEREOF, OR AS ONE OF THE TRANSFER (BY WAY OF SALE) OF A CAPITAL ASSET. IN TH E INSTANT CASE, THERE ARE 1900 SALE TRANSACTIONS DURING THE YEAR, OF WHICH IN 570 THE HOLDING PERIOD HAVE LESS THAN A MONTH , WHILE FOR ANOTHER 756 IT IS LESS THAN THREE MONTHS . FURTHER, THE ASSESSEE HAD MADE SALE TRANSACTIONS ON MOST DAYS, I.E., OUT OF THE 240 DAY S AVAILABLE (ON THE TRADING PLATFORM OR EXCHANGE) FOR TRADING DURING THE YEAR. AS SUCH, THE TRANSACTIONS QUALIFIED TO BE TRADING TRANSACTIONS ON THE PARAMETERS OF REGULARITY, CONTI NUITY, VOLUME, FREQUENCY AND HOLDING PERIOD. THE DIVIDEND INCOME (RS.12.77 LACS) WAS MEA GER IN RELATION TO THE QUANTUM OF HOLDING, I.E., AT AN AVERAGE OF OVER RS. 7.5 CR. TH E ASSESSEE ALSO HAD BORROWED CAPITAL, BOTH AT THE BEGINNING AND THE CLOSE OF THE YEAR. TH E ASSESSEE WAS ALSO UNDERTAKING DERIVATIVE BUSINESS, HAVING IN FACT A HUGE TURNOVER OF RS.295 CRS. FOR THE YEAR. CONSIDERING ALL THESE FACTS, HE CONCLUDED THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE IN FACT TRADING TRANSACTIONS, RELYING ON THE DECISIONS CITED BY HIM. EACH OF THE SEVERAL CASES CITED BY THE ASSESSEE BEFORE HIM WERE ALSO CONSIDERED AND DISTINGUISHED BY THE A.O. FURTHER, THE ASSESSEE HAD PAID SECURITY TR ANSACTIONS TAX AT RS.3,37,137/- ON THE SALE OF SHARES, WHICH WAS ALLOWED BY HIM AS A BUSIN ESS DEDUCTION (REFER PARAS 8 TO 14 OF THE ASSESSMENT ORDER). IN APPEAL, THE LD. CIT(A) FOUND CONSIDERABLE FORCE IN THE ARGUMENTS OF THE A.O. THE DECISION BY THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA VS. ACIT [2007] 11 SOT 627 (MUM), RELIED UPON BY THE ASSESSEE, HAD BEEN AL READY DISTINGUISHED BY THE A.O. AS REGARDS THE DECISION IN THE CASE OF GOPAL PUROHIT VS. JCIT [2009] 29 SOT 117 (MUM), THE SAME WOULD NOT BE OF CONSEQUENCE, AS THE REVENU E HAD IN THE INSTANT CASE HELD A 4 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT CONSISTENT VIEW SINCE A.Y. 2005-06, I.E., OF THE AS SESSEE BEING A TRADER IN SHARES. HE NOTED THAT THE A.O. HAD IN FACT RELIED UPON AS MANY AS 27 DECISIONS IN SUPPORT OF HIS SAID FINDINGS (REFER PARA 3 OF THE IMPUGNED ORDER). THE A.O.S ACTION IN ASSESSING THE INCOME ARISING ON THE PURCHASE AND SALE OF SHARES AS BUSIN ESS INCOME, BEING CONFIRMED BY HIM THUS, AND FOR THE SAME REASONS AS PREVAILED WITH TH E A.O., THE ASSESSEE IS IN SECOND APPEAL. 4.1 BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE (A R), THE ASSESSEES COUNSEL, ARGUED THE MATTER AT LENGTH. THE ASSESSEE ENGAGES IN BOTH DELIVERY-BASED AND NON-DELIVERY BASED (DERIVATIVE SEGMENT) TRADING IN SHARES. THE ASSESSE E HAS ITSELF CONSIDERED THE NON-DELIVERY BASED TRANSACTIONS AS BUSINESS. THE REVENUE, HOWE VER, INSISTS ON EVEN THE DELIVERY BASED TRANSACTIONS AS BEING SO, I.E., AS BUSINESS, EVEN AS IT ALLOWS THE ASSESSEES CLAIM TOWARD SHARES HELD FOR 12 MONTHS OR MORE AS LTCG, T HEREBY CONTRADICTING ITSELF. THE MATTER CAME UP BEFORE THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR AN EARLIER YEAR (A.Y. 2006-07), WHEREAT THE TRIBUNAL (IN ITA NO. 5931/MUM (H)/2009 DATED 10.08.2011), NOTING THAT THE CREDIT FACILITY HAD ALSO BEEN PROVI DED BY THE PORTFOLIO MANAGER (PM), RESTORED THE MATTER BACK TO THE FILE OF THE A.O. TO ASCERTAIN THE TRUE NATURE OF THE ARRANGEMENT BETWEEN THE PM AND THE ASSESSEE (PB PGS . 89-102). TRUE, IT IS THE INTENTION WITH WHICH THE SHARES ARE BOUGHT, I.E., WHETHER FOR INCOME, EITHER AS DIVIDEND OR BY WAY OF CAPITAL APPRECIATION OVER TIME, OR FOR TRADING, BY TAKING ADVANTAGE OF THE MARKET VOLATILITY, THAT IS DECISIVE OF THE MATTER. BUT, SU RELY, THE OBJECTIVE OF PROFIT MAXIMIZATION CANNOT TAKE AWAY THE TRANSACTION/S FROM THE REALM O F INVESTMENT. AGAIN, VOLUME, FREQUENCY, REGULARITY AND PERIOD OF HOLDING ARE NO DOUBT RELEVANT INDICES. HOWEVER, THE SAME BEING RELATIVE CANNOT BE REGARDED AS CONCLUSIV E. IT IS TO BE BORNE IN MIND THAT THE SHARE MARKET FLUCTUATES EVERY HOUR, SO THAT THE IND ICES HAVE TO BE CONSTRUED IN LIGHT OF THE SAME. A PARTICULAR VOLUME OF TURNOVER, RS.1 CR. (SA Y), MAY BE HIGH FOR ONE BUT NOT FOR THE OTHER. ADVERTING TO SECTION 2(14) OF THE ACT, DEFIN ING CAPITAL ASSET, HE WOULD CONTINUE FURTHER, THAT THE LAW ALSO SUPPORTS THE ASSESSEES CASE. ANY ASSET OF THE BUSINESS IS ONLY A CAPITAL ASSET, EXCEPT WHERE IT IS STOCK-IN-TRADE TH EREOF. EACH SHARE (SCRIP) IS TO BE REGARDED 5 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT AS A DISTINCT COMMODITY, AND IT IS NOT PERMISSIBLE TO TREAT DIFFERENT SHARES AS EITHER ONE INVESTMENT OR AS A SINGLE ITEM OF STOCK-IN-TRADE. T HERE WERE NO REPETITIVE TRANSACTIONS. EVEN IF IT WERE TO BE REGARDED AS IN BUSINESS, THE ASSESSEE MAY BE TREATED AS IN THE BUSINESS OF INVESTING, RATHER THAN IN THE BUSINESS OF TRADING, AND WHICH IN FACT HAD BEEN ENTRUSTED TO A PM, BEING AN EXPERT, WHO MANAGES THE ASSESSEES FUNDS. THE AVERAGE CAPITAL TURNOVER RATIO OF 1.92 ALSO SUPPORTS THE AS SESSEES CASE. WHEN POINTED OUT BY THE BENCH THAT THE ASSESSEE HAD REPETITIVE TRANSACTIONS IN THE SAME SCRIP, I.E., A PURCHASE TRANSACTION/S, SUBSEQU ENT TO THE SALE/DISPOSAL THEREOF (REFER PARA 11(III) OF THE ASSESSMENT ORDER), HE CONCEDED THERETO, STATING THAT SUCH TRANSACTIONS WOULD ONLY BE MARGINAL, NOT SIGNIFICANTLY IMPACTING THE ASSESSMENT OF THE NATURE OF TRANSACTION ENTERED INTO, WHICH HAS TO BE MADE TAKING THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES INTO ACCOUNT . 4.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON TH E OTHER HAND, WOULD SUBMIT THAT THE ASSESSEES ARGUMENTS AS MADE BEFORE US, OBLITER ATE THE DIFFERENCE BETWEEN A CAPITAL ASSET AND A REVENUE ASSET, AS STOCK-IN-TRADE, OF TH E BUSINESS. THE SHARES IN THE INSTANT CASE ARE ONLY THE CURRENT ASSETS OR THE STOCK-IN-TRADE O F THE ASSESSEES BUSINESS OF TRADING IN SHARES. HE PLACED RELIANCE ON THE ORDERS BY THE AUT HORITIES BELOW, CONTENDING THEM TO BE WELL CONSIDERED, IN CONSONANCE WITH THE FACTS OF TH E CASE AND THE LAW IN THE MATTER. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE RE IS NO DISPUTE QUA THE PRIMARY FACTS; IN FACT, BEING ONLY THAT AS FURNISHED BY THE ASSESS EE. THERE IS, FURTHER, NO DIFFERENCE QUA THE LAW IN THE MATTER, I.E., AS TO THE RESPECTIVE U NDERSTANDING THEREOF, OF THE PARTIES, SO THAT IT IS THE INTENTION OR THE MOTIVE WITH WHICH THE AS SET IS PURCHASED THAT IS DETERMINATIVE OF WHETHER THE SAME IS A CURRENT ASSET (I.E., HELD FOR ITS DISPOSAL IN THE ORDINARY OR REGULAR COURSE OF BUSINESS) OR A CAPITAL ASSET (I.E., DEPLO YED FOR THE PURPOSE OF CARRYING ON THE SAME), AND WHICH (INTENT) IS TO BE DETERMINED BY TA KING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO ACCOUNT (REFER PARAS 3 & 4 SUPRA ). 6 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT THE EXPRESSION BUSINESS IS WELL KNOWN IN THE INCO ME-TAX LAW, BEING IN FACT DEFINED U/S.2(13) THEREOF TO INCLUDE TRADE, COMMERC E OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN RELATION THERETO. AS OBSERVED BY THE APE X COURT AS FAR BACK AS IN NARAIN SWADESHI WEAVING MILLS VS. COMMISSIONER OF EXCESS P ROFITS TAX [1954] 26 ITR 765 (SC), THE WORD BUSINESS CONNOTES SOME REAL, SUBST ANTIAL AND SYSTEMATIC OR ORGANIZED COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE. I T GOES ON TO EXPLAIN THAT EVEN A SINGLE AND ISOLATED TRANSACTION IS CONCEIVABLY CAPABLE OF FALLING WITHIN THE DEFINITION OF BUSINESS AS BEING AN ADVENTURE IN THE NATURE OF TRADE PROVID ED THE TRANSACTIONS BEARS CLEAR INDICIA OF TRADE (PG. 773). THE PARTIES, WE OBSERVE, TO BE ALSO IN AGREEMENT WITH THE MATTER BEING A MIXED QUESTION OF LAW AND FACT. THE PRINCIPLE/S O F LAW BEING CLEAR, THE DETERMINATION RESTS ON THE FINDING/S OF FACT, WHICH IS TO BE ARRI VED AT BY TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO ACCOUNT. AS EXPLAINED, BUSI NESS IS A TERM OF WIDE IMPORT, ENCOMPASSING WITHIN IT THE DIFFERENT FORMS AND SHAD ES OF TRANSACTIONS, VIZ. TRADE, COMMERCE, ETC., WHICH ARE AGAIN TERMS OF CONSIDERAB LE AMPLITUDE. THE IMPORT OR EVEN THE COMMON PARLANCE MEANING OF ALL THESE TERMS IS NOT I N DISPUTE OR IN DOUBT. REFERENCE IN THIS CONTEXT MAY BE MADE INTER ALIA TO DECISIONS IN THE CASE OF BENGAL & ASSAM INVESTORS LTD. V. CIT [1966] 59 ITR 547 (SC); KHAN BAHADUR AHMED ALLADIN & SONS V. CIT [1968] 68 ITR 573 (SC); P.M. MOHAMMED MEERA KHAN V. CIT [1969] 73 ITR 735 (SC); DALMAI CEMENT LTD. V. CIT [1976] 105 ITR 633 (SC), BESIDES SEVERAL BY THE HI GH COURTS, AS RECENTLY IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) V. DIRECTOR G ENERAL OF IT [2012] 347 ITR 99 (DEL), WHERE THE TERM HAS BEEN EL UCIDATED BY THE HONBLE COURTS. THE ASSESSEES ACTIVITY OF PURCHASE AND SALE BEING REGULAR AND CONTINUOUS, SO THAT IT IS ONLY IN THE NATURE OF AN ORGANIZED AND SYSTEM ATIC ACTIVITY FOR PROFIT, WOULD CONSTITUTE BUSINESS BY DEFINITION. IT WAS THUS INCUMBENT UPON THE ASSESSEE TO SHOW AS TO WHY, NEVERTHELESS AND NOTWITHSTANDING THE SAME, THE SAID ACTIVITY COULD NOT BE REGARDED AS BUSINESS OR TRADE. THE ONUS WAS HEAVY IN VIEW OF THE SETTLED POSITION OF LAW, AND THE CLEAR, ADMITTED FACTS, GIVING RISE TO A CLEAR INFER ENCE OF FACTS, WITH 30% OF THE TRANSACTIONS BEING OF LIQUIDATION/SALE WITHIN ONE MONTH, AND ABO UT 70% (1326 OUT OF 1900) WITHIN THREE MONTHS OF PURCHASE (ACQUISITION). IT BECOMES ALL THE MORE ACCENTUATED CONSIDERING 7 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT THAT THE SAID ACTIVITY IS BEING ADMITTEDLY CARRIED ON SINCE F.Y. 1998-99, AS ALSO THE SIMULTANEOUS CARRYING ON OF NON-DELIVERY BASED TRAD ING IN SHARES (DERIVATIVE SEGMENT). THE ASSESSEE, HOWEVER, COMPLETELY FAILS TO DISCHARG E THE SAID ONUS, SO THAT WE FIND THE REVENUES STAND OF THE ASSESSEES ACTIVITY OF PURCH ASE AND SALE OF SHARES AS CONSTITUTING BUSINESS AS WELL FOUNDED. BEFORE US ALSO THE ASSESS EE HAS ONLY PRESENTED ANOTHER SET OF ARGUMENTS, WITHOUT DISPUTING THE PRIMARY FACTS - BE ING IN FACT ONLY AS FURNISHED BY IT, GIVING RISE TO THE CONCOMITANT INFERENCE OF THE SAM E BEING A CONTINUOUS AND REGULAR ACTIVITY OF TRADING IN SHARES, SYSTEMATICALLY UNDER TAKEN, WITH A VIEW TO MAKE PROFIT, I.E., IS NOTHING BUT A PROFIT MAKING SCHEME, WHICH IS ESSENT IALLY A FINDING OF FACT. WE MAY, HOWEVER, IF ONLY FOR THE SAKE OF COMPLETENE SS OF THIS ORDER, CONSIDER AND ADDRESS EACH OF THE ARGUMENTS RAISED BY THE LD. AR BEFORE US, SO AS TO SHOW THAT NONE OF THEM OPERATE TO DISTURB THE SAID FINDING, OR AT LEA ST TO ANY MATERIAL EXTENT AND, RATHER, REFURBISH AND REINFORCE IT FURTHER. 5.2 THE ASSESSEE WONDERS AS TO WHY SHOULD SHE BE NO T ALLOWED HER CLAIM OF THE DELIVERY-BASED TRANSACTIONS AS BEING NOT TRADE, WHI CH STANDS ADMITTED BY HER QUA NON- DELIVERY BASED TRANSACTIONS? HOWEVER, THAT PRECISEL Y DEFINES THE CONTROVERSY WHICH IS TO BE RESOLVED (WITH REFERENCE TO AND ON THE BASIS OF THE FACTS), SO THAT NOTHING TURNS ON THE SAID ARGUMENT. IF ANYTHING, IT ONLY RAISES A PRESUM PTION OF THE ASSESSEE BEING WELL VERSED WITH THE SHARE MARKET, DEVOTING CONSIDERABLE TIME A ND RESOURCES TOWARD THE SAME, SO THAT THERE IS NO REASON WHY SHE WOULD NOT EXTEND IT TO T HE DELIVERY-BASED SEGMENT (WHICH IS IN FACT THE TRADITIONAL, LESS SOPHISTICATED AND, IN FA CT, PREDATE THE DERIVATIVE BY DECADES) AS WELL, OR LIMIT HER ENGAGEMENT TO ONLY INVESTMENT. I T IS NO DOUBT OPEN TO THE ASSESSEE TO SHOW, ON FACTS, TO BE ENGAGED ONLY IN INVESTMENTS, BUT WE ARE ONLY MEETING THE ARGUMENT, HAVING IN FACT OBSERVED THE ASSESSEES CASE AS DE HORS ANY REFERENCE TO FACTS. 5.3 THE SECOND ARGUMENT IS THAT THE REVENUE HAVING ACCEDED TO THE ASSESSEE BEING AN INVESTOR, IN-AS-MUCH AS IT ALLOWS HER CLAIM OF LTCG , ACTS CONTRADICTORILY WHEN A CAPITAL ASSET IS SOLD WITHIN THE MINIMUM HOLDING PERIOD PRE SCRIBED FOR THE SAME TO BE A LTCA. THAT IS, A CAPITAL ASSET WOULD NOT, FOR BEING CLASS IFIED AS SUCH, DEPEND ON THE TIME OF ITS 8 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT SALE, WHICH DETERMINES ITS HOLDING PERIOD, BUT WOU LD BE SO SINCE INCEPTION, I.E., ACQUISITION. TRUE. BUT THEN IT IS ONLY FOR THE ASSE SSEE TO ESTABLISH HER INTENTION THROUGH HER CONDUCT, OR EXPLAIN WHY, DESPITE THE INTENTION FOR RETENTION, THE SHARES WERE NOT SO, AND WHICH WE FIND AS COMPLETELY MISSING. INTENT, BEING A STATE OF MIND, WOULD FIND MANIFESTATION IN CONDUCT AND, THUS, CAN ONLY BE INF ERRED THERE-FROM. IF NOT BY CONDUCT, HOW ELSE, ONE MAY ASK, WOULD THE SAME BE INFERRED A ND, THUS, DETERMINED ? TOWARD THIS, THE ARGUMENT, FACT BASED, THAT THE SHARES HAVE BEEN HELD BY HER FOR NOT WEEKS OR MONTHS, BUT FOR YEARS, SO THAT THE OPENING STOCK INCLUDES S HARES BEING HELD FOR YEARS PRIOR TO THE CURRENT YEAR, ENDORSES THE REVENUES AND NOT THE ASSESSEES STAND . IT FIRSTLY EMPHASIZES THE PARAMOUNT SIGNIFICANCE OF CONDUCT, EVEN AS DISC USSED EARLIER. TWO, IT CLEARLY STATES OF A MARKED DIFFERENCE CHARACTERIZING THE TWO BEHAVIOR S, I.E., THE INVESTMENT BEHAVIOR AND THE TRADING BEHAVIOR, WHICH REFLECTS THE TRADING SE NTIMENT OR RESPONSES TO TRADING IMPULSES. THERE ARE IN THE PRESENT CASE NOT ONE OR TWO OR, GIVEN THE VOLUME, EVEN A FEW, BUT SCORES, NAY, OVER A HUNDRED TRANSACTIONS WHERE THE SHARES ARE SOLD IMMEDIATELY OR WITHIN DAYS OF PURCHASE (PB PGS. 132-146). AN INVES TOR, ON THE OTHER HAND, HAVING ENTERED THE MARKET WITH A LONG TERM HORIZON OR PERS PECTIVE, SEEKING ACCRETION TO CAPITAL, WOULD ORDINARILY BE ALMOST OBLIVIOUS TO THE MARKET VOLATILITY, GIVING, AS IT WERE, TIME FOR THE INVESTMENT TO MATURE, WITHOUT WHICH NO INVESTME NT WOULD NORMALLY BEAR FRUIT. THERE COULD BE NO DOUBT CASES OF A DECISION, SOUND AT THE RELEVANT TIME (SO THAT IT COULD BE SHOWN TO BE SO IN TERMS OF FUNDAMENTALS), PROVES OR TURNS BAD (WHICH WOULD AGAIN BE POSSIBLE TO BE EXHIBITED ON THE BASIS OF THE SOME V ITAL STATISTICS OR INFORMATION, OR WITH REFERENCE TO THE SUBSEQUENT, UNANTICIPATED EVENTS), SO THAT AN EXIT DECISION IS MADE SOONER OR EVEN MUCH SOONER. SUCH CASES WOULD NOT ONLY BE F EW, BUT ALSO ESTABLISHED ON SOME OBJECTIVE BASIS/FACTS; INVESTMENT DECISION MAKING B EING INFORMED AND BASED ON DEFINED (INVESTMENT) CRITERION. IN THE INSTANT CASE, HOWEVE R, AS AFORE-NOTED, SALE WITHIN A SHORT PERIOD IS A NORM RATHER THAN AN EXCEPTION. WE OBSER VED THAT IN MANY CASES SHARES ARE SOLD WITHIN A WEEK OR EVEN A DAY. IN FACT, THE HOLDING P ERIOD IS EVEN NEGATIVE IN SOME CASES, WHICH ONLY IMPLIES SPECULATIVE TRADE, VIZ. ANSAL HO USING, ARIH FOUND F, DECCAN CHO HOLD, SHIVAANI SUGAR, SPANCO TELESY. THE FREQUENT INTERVENTION IS NOT WITHOUT PURPOSE . 9 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT THE WHOLE BASIS BEING TO EARN PROFIT, I.E., IN TERM S OF RETURN ON CAPITAL EMPLOYED, WHICH IS A FUNCTION OF TIME, A MORE FREQUENT IMPLYING A CO NSTANT WATCH OF THE MARKET AND FORMULATING A RESPONSE IN LIGHT OF THE MARKET DEVEL OPMENTS, ALLOWS THE ASSESSEE TO EXIT AT A MUCH LOWER MARGIN. AN EXIT ALSO FORECLOSES THE EX POSURE AND, THUS, RISK. A SHORT TERM POSITIONING OR STRATEGY, THUS, PLAYS ON MARKET VOLA TILITY WITH A VIEW TO GENERATE POSITIVE RETURN ON THE BASIS OF THE MARKET SENTIMENT OR INFO RMATION FOR THE TIME BEING. THE HOLDING PERIOD IS RENDERED OF NO OR LITTLE RELEVANCE IN THI S SCHEME OF THINGS, WHICH MAY ALSO, BEING INHERENTLY RISKIER, ENTAIL LOSSES. IN OTHER W ORDS, THE INVESTMENT AND THE TRADING BEHAVIOR, WHICH MAY OVERLAP IN SOME CASES, ARE IN G ENERAL OPPOSED TO EACH OTHER. THE AVERAGE MARGIN ON STCG, AT 8.98% OF TURNOVER (I.E., RS.132.66 LACS ON RS.1477.11 LA CS) IS, ACCORDINGLY, MUCH LOWER THAN THE AVERAGE YIELD OF 44.38% (RS.139.43 LACS/RS.314.35 LACS) REALIZED ON LTCG. THAT IS, VARY BY A FACTOR OF 5 . 5.4 THE ASSESSEES THIRD ARGUMENT IS THAT THE INDIC IA OF VOLUME, REGULARITY, CONTINUITY, FREQUENCY, HOLDING PERIOD, ETC. BEING RELATIVE, DO NOT AMOUNT BY THEMSELVES AMOUNT TO MUCH, I.E., IN UNDERSTANDING THE NATURE OF THE TRAN SACTIONS UNDERTAKEN, WHETHER AS CONSTITUTING TRADE/BUSINESS OR NOT. THE ARGUMENT, I N ONE BRUSH, SETS ASIDE THE SETTLED LAW IN THE MATTER, TOWARD WHICH CASE LAW IS LEGION, WIT H WE HAVING ALSO REFERRED TO SOME DECISIONS, NOTICEABLY BY THE APEX COURT, BESIDES SE VERAL BY THE REVENUE AUTHORITIES, WHICH HAVE NOT BEEN CONTROVERTED IN ANY MANNER, WHICH WE MAY CITE (REFER PARA 8 OF THE ASSESSMENT ORDER): A) RAMNARAIN SONS (P.) LTD. VS. CIT [1961] 41 ITR 534 (SC); B) RAJA BAHADUR VISHESHWAR SINGH VS. CIT [1961] 41 ITR 685 (SC); C) RAJPUTANA TEXTILES (AGENCIES) LTD. VS. CIT [1961] 42 ITR 743 (SC); D) DALHOUSIE INVESTMENT TRUST CO. LTD. VS. CIT [1968] 68 ITR 473 (SC); E) NEW ERA AGENCIES (PVT.) LTD. VS. CIT [1968] 68 ITR 585 (SC); F) JUGGILAL KAMLAPAT VS. CIT [1970] 75 ITR 186 (SC); G) RAJA BAHADUR KAMAKHYA NARAIN SINGH VS. CIT [1970] 77 ITR 253 (SC); H) CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. PVT. LTD. [1971] 82 ITR 586 (*); I) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. [1975] 100 ITR 706 (SC); AND J) CIT VS. H. HOLCK LARSEN [1986] 160 ITR 67 (SC) (*) 10 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT THE ARGUMENT IN FACT RUNS COUNTER TO THE JUDGMENTS REFERRED TO BY THE BOARD IN ITS CIRCULAR (NO.4/2007 DATED 15/6/2007, AT PAGES 1-3 O F THE COMPILATION-I OF CASE LAW FURNISHED BY THE ASSESSEE), WHICH THE ASSESSEE ITSE LF SEEKS RELIANCE ON. THE BOARD HAS, IN OUR VIEW, CORRECTLY ENLISTED THE RELEVANT PRINCIPLE S TO BE CONSIDERED IN DETERMINING THE ISSUE, I.E., WHETHER A PARTICULAR SHARE OR SECURITY (ASSET) IS THE ASSESSEES STOCK-IN-TRADE OR A CAPITAL ASSET, FURTHER CAUTIONING THAT NO ONE PRI NCIPLE, BUT THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, INCLUDING THE ASSESSEES EXPLANATION /S, ARE TO BE TAKEN INTO ACCOUNT IN ARRIVING AT THE DECISION. THE ARGUMENT IS ALSO WITHOUT BASIS ON FACTS. REGULA RITY, FREQUENCY, CONTINUITY, ETC. ARE IN FACT PARAMETERS THAT ARE AMENABLE TO MATHEMA TICAL TREATMENT AND, CONSEQUENTLY, AN ACCURATE MEASUREMENT AND, THUS, SUBJECT TO AN OBJEC TIVE ASSESSMENT. THE ASSESSEE HAS TRANSACTED BUSINESS ON MOST OF THE 240 TRADING DAYS AVAILABLE ON THE MARKET, SO THAT WE WONDER WHY SHE CANNOT BE SAID TO BE REGULAR OR, RAT HER, A REGULAR, WHICH IN FACT SHE WOULD QUALIFY FOR EVEN ON A MUCH LOWER, SAY BY OR 1/3, TRADING DAYS. THE CONTINUITY IS AGAIN ADMITTED, WITH THE ASSESSEE STATING TO BE UNDERTAKI NG THE SAME SINCE 1988-89. THE HOLDING PERIOD IS IN FACT A MEASURE OF FREQUENCY, S O THAT THE TWO INDICATE THE SAME. TOWARD THIS, WE HAD OBSERVED THE SHARES TO HAVE BEE N OFF LOADED AT VERY SHORT INTERVALS OF TIME, WHICH ALSO REVEAL AN ENGAGEMENT ON A CONTINUO US BASIS. THE WHOLE PREMISE OF EXAMINING THESE INDICES, WHICH HAVE TO BE CONSIDERE D AND APPLIED TOGETHER, IS TOWARD AN ASSESSMENT OF THE CONDUCT, THE DEVOTION OF TIME, EF FORT AND RESOURCES TO THE ACTIVITY, SO THAT WHERE WITH A VIEW TO EARN PROFIT, WOULD BE BUS INESS BY DEFINITION, PARTICULARLY WHERE CARRIED ON IN AN ORGANIZED AND SYSTEMATIC MANNER. T RUE, VOLUME BY ITSELF IS A RELATIVE MEASURE, BUT THEN, AS EXPLAINED, THE PARAMETERS ARE TO BE VIEWED TOGETHER AND NOT IN ISOLATION THE PURPORT BEING TO ASSESS BEHAVIOR. T WO, VOLUME IS TO BE SEEN IN RELATION TO TURNOVER (OF CAPITAL), SO THAT WHAT IS RELEVANT IS NOT THE VOLUME PER SE , BUT THE CAPITAL TURNOVER RATIO; EACH PERSON BEING LIMITED BY THE CA PITAL AVAILABLE, WITH THE INVESTMENT AND THE TRADING BEHAVIOR, AS AFORE-STATED, BEING MARKED BY VERY DIFFERENT TENDENCIES. THERE IS ANOTHER ASPECT TO VOLUME, I.E., THE NUMBER OF TRANS ACTIONS. TOWARD THIS, IT IS THE AGGREGATE OF THE PURCHASE AND SALE TRANSACTIONS, WHICH ARE SE PARATE AND DISTINCT, REPRESENTING IN FACT 11 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT OPPOSITE FUNCTIONS OF A TRADE, WHICH IS TO BE CONSI DERED. THE A.O. OBSERVES THE SALE TRANSACTIONS DURING THE YEAR TO BE AT 1900 . THE PURCHASE TRANSACTIONS, RECKONING THEM TO BE EVEN AT HALF THAT NUMBER, OR EVEN LESSER, WOULD MAKE FOR AGGREGATE TRANSACTIONS IN THE RANGE OF 2500 . EVEN A FRACTION OF THIS NUMBER WOULD IN OUR VIEW MAKE FOR A HEALTHY VOLUME, WHICH OF-COURSE IS TO BE CONSIDERED ALONG W ITH THE OTHER PARAMETERS. 5.5 NEXT, THE ASSESSEE ARGUES THAT IT SHOULD, IF AT ALL, BE CONSIDERED AS IN THE BUSINESS OF INVESTMENTS, RATHER THAN IN THE BUSINESS OF TRAD ING. THE SAID ARGUMENT CAN BE SERIOUSLY CONSIDERED ONLY AFTER THE ASSESSEE IS ABLE TO SHOW, ON FACTS, OF NOT BEING A TRADER IN SHARES IN-AS-MUCH AS IT BECOMES OTHERWISE HYPOTHETICAL OR ACADEMIC. RAISING OF PLEAS, DE HORS AND WITHOUT REFERENCE TO FACTS, IS OF LITTLE CONSEQ UENCE. THE LAW IN THE MATTER IS ALSO WELL SETTLED. AS EXPLAINED BY THE APEX COURT IN BENGAL & ASSAM INVESTORS LTD. (SUPRA), IF A COMPANY MERELY ACQUIRES AND HOLDS SHARES WITH THE O BJECT OF RECEIVING DIVIDEND, IT DOES NOT CARRY ON BUSINESS WITHIN SECTION 10 (OF THE 192 2 ACT). IN THE FACTS OF THAT SAID CASE, THE APEX COURT WAS DECIDING ON WHETHER DIVIDEND COU LD BE ASSESSED AS BUSINESS INCOME. IT FOUND AS NOT SO UNLESS THE SHARES REPRESENT THE STOCK-IN-TRADE OF THE ASSESSEES BUSINESS AND, FURTHER, THAT INVESTMENT FOR INCOME COULD NOT BE CONSIDERED AS BUSINESS. THE HEAD NOTE OF THE DECISION RUNS THUS: FOR A DIVIDEND ON SHARES TO BE ASSESSED UNDER SECT ION 10 OF THE INDIAN INCOME-TAX ACT, 1922, THE ASSESSEE, BE IT AN INDIVIDUAL OR A COMPANY OR ANY OTHER ENTITY, MUST CARRY ON BUSINESS IN RESP ECT OF SHARES, THAT IS TO SAY, THE ASSESSEE MUST DEAL IN THOSE SHARES. AN IND IVIDUAL, WHO MERELY INVESTS IN SHARES FOR THE PURPOSE OF EARNING DIVIDE ND, DOES NOT CARRY ON A BUSINESS. THE ONLY WAY HE CAN COME UNDER SECTION 10 IS BY CONVERTING THE SHARES INTO STOCK-IN-TRADE, I.E., BY CARRYING ON TH E BUSINESS OF DEALING IN STOCKS AND SHARES. IF A COMPANY MERELY ACQUIRES AND HOLDS SHARES WITH THE OBJECT OF RECEIVING DIVIDENDS, IT DOES NOT CARRY ON BUSINESS WITHIN SECTION 10. THE MERE FACT THAT A COMPANY IS INCORPORATED TO CAR RY ON INVESTMENT DOES NOT SHOW THAT IT IS CARRYING ON BUSINESS. THE DECISION WOULD APPLY EQUALLY UNDER THE EXTANT LAW IN-AS-MUCH AS THE APEX COURT HAS CLARIFIED THAT INVESTMENT PER SE CANNOT BE CONSIDERED AS A BUSINESS. FURTHER STILL, HOW WE WONDER WOULD IT ASSIST THE ASSESSEES CASE. EVEN ACCEPTING OF BEING IN THE 12 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT BUSINESS OF INVESTMENT, THE INVESTMENTS WOULD THE N CONSTITUTE THE STOCK-IN-TRADE THEREOF, WHICH ALSO ENABLES AN APPRECIATION OF THE AFORE-STA TED DECISION. 5.6 THE ASSESSEE HAS ENGAGED THE SERVICES OF A PM. IN OUR CONSIDERED VIEW, THE COOPTION OF OR TAKING ON BOARD A PM, AND AVAILING I TS SERVICES, IS AT BEST A NEUTRAL FACT THE SERVICE PROVIDER ONLY ACTING FOR AND ON BEHALF OF THE ASSESSEE. THE MATTER THUS HAS TO BE CONSIDERED IN LIGHT OF AND ON THE BASIS OF THE P RIMARY FACTS. THAT IS, THE SHARES WOULD WARRANT BEING CONSIDERED AS INVESTMENTS OR AS TRADI NG ASSETS DEPENDING ON WHETHER THEY REVEAL AN INVESTMENT BEHAVIOR OR TRADING BEHAVIOR, I.E., WEAR THE BADGES OF TRADE OR A PROFIT MAKING SCHEME, RATHER THAN WHETHER THE ASSES SEE UNDERTAKES THEM HERSELF OR ENGAGES THE SERVICES OF THE PROFESSIONAL FOR THE SA ME. REALIZING THAT SHARE MARKET, WHILE OFFERING A GOOD POTENTIAL FOR PROFIT, BEING MARKET DRIVEN, WHICH MAY NOT BE EFFICIENT AT ALL TIMES AND IS IN ANY CASE NOT PERFECT, IS INHERENTLY RISKIER, CHOOSES TO AVAIL THE SERVICES OF AN EXPERT TO MANAGE HER AFFAIRS FOR A CONSIDERATION . THE SAID FACT IS THUS, TO OUR MIND, OF NO MOMENT. IF ANYTHING, IT ONLY SHOWS THE SERIOUSNESS OF INTEN T WITH WHICH THE ASSESSEE REGARDS HER RESOURCES, CARRYING IT IN AN ORGANIZED MANNER (ALSO REFER PARA 5.9). NEEDLESS TO ADD, THE REVENUE DOES NOT DISPUTE THE CLAIM OF P MS CHARGES AS BUSINESS EXPENSE. 5.7 NEXT, THE ASSESSEE ARGUES THAT THE SHARES, IN-A S-MUCH AS THEY ARE NOT THE STOCK-IN- TRADE OF ITS BUSINESS, ARE CAPITAL ASSETS IN TERMS OF SECTION 2(14) OF THE ACT. THE ARGUMENT, IF ANYTHING, IS AMUSING TO SAY THE LEAST. THE STOCK -IN-TRADE IS ONLY THE STOCK OF THE TRADE, I.E., THE GOOD OR COMMODITY OR CHATTEL, ETC. WHICH IS ACQUIRED FOR THE PURPOSES OF THE ASSESSEES TRADE. THE TRADE, ASSUMING SO, IN THE IN STANT CASE, BEING OF PURCHASE AND SALE OF SHARES, HOW WE WONDER ARE THE SHARES NOT TO BE REGA RDED AS STOCK-IN-TRADE, EVEN IF THE SHARES OF ANY COMPANY ARE TO BE TREATED AS A SEPARA TE ITEM, WHICH WOULD ONLY BE OF THE STOCK-IN-TRADE. RATHER, IN-AS-MUCH AS THE SHARES IN A COMPANY OR A PARTICULAR SCRIP IS SOLD TO BUY ANOTHER, IT ONLY SHOWS THAT THEY ARE TREATED BY THE ASSESSEE AS ONE CLASS OF GOODS /COMMODITY. THAT THE FIRST SCRIP MAY OR MAY NOT BE BOUGHT AGAIN, WHICH WE HAVE FOUND TO BE SO IN MANY CASES, IS, IN THIS SCHEME OF THINGS, ONLY INCIDENTAL. SOME EXAMPLES OF REPETITIVE TRANSACTIONS ARE AS: ANSAL HOUSING & CON STRUCTION; ARIH FOUND F; ASIAN 13 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT ELECTRONICS LTD.; BIRLA CORPORATION LTD.; DECCAN CH O HOLD; ERA CONSTRUCTION; EVEREST KANTO CYL; FINANCIAL TECH; FORTUNE INFO; GAYATRI PR OJECTS; I.C.S.A INDIA LTD.; I.P.C.L. LTD.; INFOSYS TECHNOLOGIES LTD.; ITC LTD.; SIMBH SU GAR; KARUTURI.COM, ETC. CONTINUING FURTHER, IN THE ASSESSEES CASE, THE SHA RES ARE BOUGHT AND SOLD REGULARLY, ACROSS COMPANIES OF DIFFERENT SIZES, INDUSTRIES AND SECTORS, SO THAT THESE ONLY REPRESENT THE STOCK-IN-TRADE OF ITS BUSINESS. FURTHER, THE ASSESS EE MAINTAINING ONE SET OF BOOKS, THE CAPITAL IS SHIFTED REGULARLY, NOT ONLY ACROSS DIFFE RENT SCRIPS, BUT ALSO ACROSS DIFFERENT SEGMENTS, I.E., DELIVERY BASED AND NON-DELIVERY BAS ED, SO THAT THE STATE OF FINANCES ALSO REVEALS THE TWO AS CONSTITUTING DIFFERENT FORMS OF BUSINESS OF DEALING IN SHARES. HERE IT MAY BE RELEVANT TO MENTION THAT THE SHARE-HOLDING, WHICH IS AT RS.9.66 CRS. AT THE BEGINNING OF THE YEAR, DECLINES TO RS.5.69 CRS. AT ITS END, SO THAT THERE IS A REDUCTION IN OR FLIGHT OF CAPITAL BY ALMOST RS.4 CRS. THE SAME, PRE SUMABLY AND UNDERSTANDABLY, IS IN THE DERIVATIVE BUSINESS. A CAPITAL ASSET, ON THE OTHER HAND, IS HELD EITHER FOR THE PURPOSES OF CARRYING ON TRADE ITSELF, IN WHICH CASE IT IS ALSO A BUSINESS A SSET, OR FOR ITS OWN SAKE, AS FOR PERSONAL PURPOSES. FINANCIAL SECURITY IS A HUMAN NEED. GIVEN THE INFLATIONARY CONDITION OF THE ECONOMY, ONE MAY INVEST IN, INTER ALIA , SHARES AND SECURITIES, WHICH, ON ACCOUNT OF THE UNDERLYING ECONOMIC ACTIVITY, ARE A GOOD HEDGE AGAI NST INFLATION, ALSO PROVIDING SCOPE FOR APPRECIATION. THE GROWTH HINGES CRITICALLY ON THE Q UALITY OF THE ASSET, AND THE PERIOD OVER WHICH IT IS HELD. WHAT CAPITAL GAIN ATTEMPTS TO CAP TURE IS THE ACCRETION TO CAPITAL. IT IS ON ACCOUNT OF THIS FACT, I.E., BEING ESSENTIALLY THE V ALUE OF ONES CAPITAL, SINCE REALIZED, THAT PREFERENTIAL TREATMENT IS ACCORDED TO CAPITAL GAINS UNDER THE TAX STATUTES, AS BY WAY OF INDEXATION AND LOWER (OR NIL) TAX INCIDENCE. THERE IS AS SUCH HARDLY ANY NEED TO MARK THE ASSETS TO MARKET, OR AT LEAST FREQUENTLY; THE WHOLE PREMISE OF GROWTH OR CAPITAL ACCRETION, WHICH, BEING ONLY ON ACCOUNT OF AN UNDERLYING ECONO MIC ACTIVITY, WOULD REQUIRE TIME TO FRUCTIFY. THE DIFFERENCE BETWEEN THE SHARES HELD AS CAPITAL ASSETS AND STOCK-IN-TRADE IS BOTH CRITICAL AND MARKED. WE ARE, THEREFORE, COMPLE TELY UNABLE TO, GIVEN THE TRANSACTIONS, APPRECIATE THE ASSESSEES STAND OF THE STOCKS AND S HARES AS REPRESENTING CAPITAL ASSETS. 14 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT 5.8 BE THAT AS IT MAY, IT CANNOT BY LOST SIGHT OF T HAT THE ASSESSEES HOLDING OF SOME SHARES IS FOR YEARS, SO THAT SHE IS ALSO AN INVESTO R. WHY, THE REVENUE HAS ITSELF ALLOWED HER CLAIM OF LTCG. SURELY, IT CANNOT BE THAT ONLY T HE SHARES WHICH ARE HELD FOR 12 MONTHS OR MORE ARE CAPITAL ASSETS, WHICH WOULD AMOUNT TO S TIPULATING THE SAID TIME LIMIT FOR A SHARE/SECURITY TO BE A CAPITAL ASSET. FURTHER, IF T HE ASSESSEE WAS ONLY A TRADER, EVEN THE GAIN ON SHARES HELD FOR ONE YEAR OR MORE, BEING ONL Y QUA THE STOCK-IN-TRADE OF HER BUSINESS, WOULD QUALIFY TO BE BUSINESS INCOME - T HE HOLDING PERIOD BEING OF NO OR LITTLE RELEVANCE. THE REVENUES STAND IS, TO THAT EXTENT, CLEARLY CONTRADICTORY AND, THUS, INFIRM. IN FACT, THE ASSESSEE, BY TREATING ALL ITS PURCHASE (OF SHARES) AS OF CAPITAL ASSETS, SO THAT ITS ACCOUNTS DO NOT REFLECT THE TRUE STATE OF AFFAIRS, HAS ONLY HERSELF TO BLAME, COMPLICATING MATTERS. THE ASSESSEE HAS REPORTED LTCG ON 21 SCRIPS. WE MAY HERE MENTION THAT GOING BY INVESTMENT THEORY, INVESTMENT IN SHARES IS IDEAL LY SPREAD OVER 8-12 SCRIPS, CHOOSING ACROSS SECTORS, IN-AS-MUCH AS IT BECOMES UNFEASIBLE OR IMPRACTICAL TO TRACK THE COMPANY AND INDUSTRY FUNDAMENTALS BEYOND THE SAME, WHILE AC HIEVING MAXIMUM RISK DIVERSIFICATION, SO THAT THE SAME REPRESENTS AN OPT IMUM PORTFOLIO SIZE. FURTHER, THE INVESTMENT STRATEGY, EVEN FOR THE SHORT-TERM, WOULD CONSISTS OF A LOCK-IN PERIOD OF 12-18 MONTHS, WHILE THE LONG-TERM WOULD BE FOR 3-5 YEARS, EXTENDING TO EVEN LONGER IN SOME CASES, AS FOR INDUSTRIES WITH LONG-TERM GESTATION P ERIOD, VIZ. START-UPS, INFRASTRUCTURE, ETC. EVEN THE PORTFOLIO REPORT ISSUED BY THE PM (PB PGS. 190-194 TO WHICH THOUGH REFERENCE WAS MADE DURING THE HEARING, SO THAT THE SAME CANNO T BE TAKEN AS A PART OF THE RECORD), ALSO ENLISTS 10 SCRIPS ACROSS FIVE SECTORS, FURTHER SHOWING GROWT H AS THE INVESTMENT OBJECTIVE. THE PORTFOLIO SIZE IN THE INSTANT CASE , ON THE OTHER HAND, IS MANY TIME OVER. THE TOTAL NUMBER OF SCRIP AS PER THE STOCK FLOW STA TEMENT (PB PGS.223-226) ARE 126 , INCLUDING 21 WHICH FIND REFLECTION IN THE LTCG REPORT. THE AVER AGE PROFIT PERCENTAGE ON TRADING SHARES, AS AFORE-NOTED, IS IN THE RANGE O F 8% TO 9%, AND WHICH CANNOT BE REGARDED AS GROWTH. COMING BACK TO OUR DISCUSSION, IN OUR VIEW, THE I NVESTMENT IN THESE SHARES, ACCEPTED AS LTCAS, IF ALSO MADE AT OR AROUND THE SA ME TIME AS IN THE SHARES WHICH STAND SOLD, RESULTING IN LTCG, OR ARE SOLD ALONG WITH, AR E LIABLE TO BE CONSIDERED AS CAPITAL 15 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT ASSETS. WE SAY SO AS AN INVESTMENT PATTERN IS DISCE RNABLE UNDER SUCH CIRCUMSTANCES. WE MAY THOUGH CLARIFY THAT IN DOING SO, WE DO NOT WISH TO, AND ARE NOT LAYING DOWN ANY GENERAL PRESCRIPTION FOR DETERMINING WHETHER A PART ICULAR SCRIP IS A CAPITAL ASSET OR STOCK- IN-TRADE, BUT ONLY THAT WE CONSIDER IT AS APPROPRIA TE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE SAY SO AS WE ARE AWARE THAT NO ONE PRESCRI PTION, EVEN AS CAUTIONED BY THE APEX COURT TIME AND AGAIN, CAN HOLD. ALL THAT AN ASSESSE E WOULD HAVE TO, TO MEET SUCH A CRITERION, DO IS TO RETAIN A FEW SHARES DEALT IN FO R BEING SOLD AFTER A PERIOD OF 12 MONTHS, ARGUING ON THAT BASIS THAT THE SHARES SOLD WITHIN A SHORTER PERIOD BE ALSO CONSIDERED AS CAPITAL ASSETS. WE TABULATE THE SHARES/SCRIPS, 11 I N NUMBER, WHICH MEET THIS CRITERION, AS UNDER: LTCG STCG SCRIP QTY. PURCHASE DT. SALE DT. QTY. PURCHASE DT. SALE DT. AMTEK AUTO LTD. 2500 23.06.05 27.07.06 3000 28.11. 05 27.07.06 ANG EXPORTS 1600 JAN-FEB, 06 FEB,07 3250 SEP/DEC,05 & JAN, 03 APRIL-JUNE, 06 DHAMPUR SUGAR MILLS LTD. 1500 OCT, 04 & JAN, 05 JUNE-JULY, 06 5000 29.08.05 10.07.06 EPC INDUS. 2175 05.09.05 05.09.06 17060 SEP-OCT, 0 5 JULY-SEP, 06 I-FLEX SOLUTIONS 1350 28.12.04 18.08.06 150 30.12. 05 18.08.06 LARSEN & TOUBRO LTD. 337 29.09.05 06.11.06 1795 28 .02.05 APRIL, JULY, 06 RALLIS INDIA LTD. 1701 8.11.05 NOV, 06 4299 NOV, 05 & MAR, 06 AUG & NOV, 06 STATE BANK OF INDIA 3500 JUNE, 03 & FEB-MARCH,05 07.06.06 1000 OCT-NOV,05 07.06.06 SUVEN PHARMA 13574 FEB, 05 JUNE,06 15000 JULY AU G,05 JUNE, 06 TRANSGENE BIOTEK 1900 07.01.05 29.06.06 1000 12.04 .06 29.06.06 VALIANT COMM. 7500 OCT, 05 DEC, 06 9500 MARCH, 06 DEC, 06 WE, ACCORDINGLY, CONSIDER THE SAID SHARES AS CAPITAL ASSETS, SO THAT THE GAIN ARISING ON THEIR SALE DURING THE YEAR WOULD GIVE RISE TO, D EPENDING ON THE PERIOD OF HOLDING, STCG OR LTCG. AS REGARDS THE BALANCE 10 SHARES, I.E ., OF THE 21 ON WHICH LTCG STANDS REPORTED FOR THE YEAR, NO INVESTMENT PATTERN IS DIS CERNED FOR 3 (HELIOS, SIMBH SUGAR AND ZENITH INFOT), I.E., WITH REFERENCE TO THE CRITERIA LISTED, WITH THERE BEING A SPECULATIVE TRADE IN ONE (SHIVANI SUGAR), WHILE THERE ARE NO SALES WI THIN THE SHORT-TERM FOR THE REMAINING 6. FURTHER STILL, A SCRUTINY OF THE TRANSACTION SHEET FOR THE YEAR REVEALS SOME SHARES BEING HELD BOTH AT THE BEGINNING AND THE CLOSE OF T HE YEAR. THE ASSESSEE IN FACT STATES, AND 16 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT WHICH REMAINS UNDISPUTED BY THE REVENUE, OF HAVING HELD SOME SHARES FOR YEARS. SURELY, EACH OF THE SAID SCRIPS, WHERE THE SHARES ACQUIRED PRIOR TO THE CURRENT YEAR CONTINUE TO BE HELD AT ITS CLOSE, WOULD ALSO WITHOUT DOUBT QUALIFY AS CAPITAL ASSETS. A DETAIL OF SUCH SHARES, AS WE OBSERVE, IS AS UNDER: (AMT. IN RS. LACS) SR. NO. PARTICULARS STOCK AS ON 31.03.2006 1 BIRLA CORPORATION LTD. 15.53 2 CENLUB INDUSTRIES 18.54 3 DAMANIA AIRWAYS 0.60 4 DYNAVISION NCD 0.02 5 GOODEARTH ORG 0.05 6 GUJARAT ALKALIES & CHEM 2.77 7 HERO HONDA MOTORS LTD. 35.09 8 KESAR ENT. 5.54 9 LUPIN LABORATORIES LTD. 30.83 10 MANEKLAL HARILAL MILLS 0.18 11 MORGAN STANLEY 23.09 12 RAS PROPACK LAMIPACK LTD. 0.13 13 SRISTHTI VIDEOCORP 0.52 14 SUVEN PHARMA 30.35 TOTAL 163.24 THE ASSESSEE HAS WORKED OUT THE CAPITAL RATIO FOR T HE YEAR AT 1.92. THE SAME IS MISTAKEN FOR TWO REASONS. FIRSTLY, THE PROFIT (OR L OSS) ELEMENT OF THE TRANSACTION (OR TURNOVER) WOULD REQUIRE BEING ELIMINATED TO YIELD A CORRECT MEASURE OF THE CAPITAL TURNOVER RATIO. SECONDLY, THE ASSESSEE HAS COMPUTED THE SAME FOR ALL THE SHARES TOGETHER, I.E., FOR THOSE HELD AS STOCK-IN-TRADE AS WELL AS T HAT AS CAPITAL ASSETS; IT BEING NOW CLEAR THAT THE ASSESSEE WHILE BEING A TRADER IS ALSO AN I NVESTOR. THE VALUE OF THE BROUGHT FORWARD ASSETS, WHICH CONTINUE TO BE RETAINED BY IT IS, AS WE HAVE FOUND, AT RS.163.24 LACS. FOR THOSE SHARES, BEING CAPITAL ASSETS, THAT STAND SOLD, IN WHOLE OR IN PART, DURING THE CURRENT YEAR, WE ASSUME (FOR THE LIMITED PURPOSE OF WORKING THIS RATIO) THAT THEIR SALE IS SUBSTITUTED BY AN EQUIVALENT INVESTMENT, SO THAT TH E VALUE OF THE SHARES AT THE BEGINNING OF 17 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT THE YEAR, WHICH IS AT RS.252.37 LACS, CONTINUES UNA BATED. THE TURNOVER OF THE CAPITAL ASSETS IS ACCORDINGLY WORKED AS UNDER: (AMOUNT IN RS. LACS) A) TURNOVER RS.174.92 LACS (RS.314.35 (SALE) RS.1 39.43 (PROFIT)) B) INVESTMENT RS.415.61 LACS (RS.163.24 + RS.252.37 ) C) RATIO (A/B) 0. 421 (EQUIVALENT TO A HOLDING PERIOD OF 28.51 MONTHS) THE CAPITAL TURNOVER RATIO FOR STOCK-IN-TRADE: A) TURNOVER (OTHER THAN CAPITAL ASSETS, AT COST) 1344.51 (1477.11 132.66) B) AVERAGE INVESTMENT DURING THE YEAR - AVERAGE INVESTMENT (TOTAL) 767.95 - INVESTMENT IN CAPITAL ASSET 415.61 352.34 C) RATIO (A/B) 3.816 (EQUIVALENT TO 3.14 MONTHS) IT WOULD BE SEEN THAT THE DIFFERENCE IN THE CAPITAL TURNOVER RATIO AND, THUS, THE AVERAGE HOLDING PERIOD, BETWEEN THE TWO CATEGORIES OF ASSET S, VARIES BY A FACTOR OF OVER 9 (NINE) . CASE LAW 5.9 BEFORE PARTING WITH THE ORDER, WE MAY ALSO ADVE RT TO THE CASE LAW; THE ASSESSEE HAVING SUBMITTED TWO COMPILATIONS THEREOF, LISTING 12 DECISIONS. WE HAVE ALREADY, BEFORE PROCEEDING TO ANALYZE THE FACTS OF THE CASE, REVIEW ED THE LAW IN THE MATTER, TO FIND NEITHER ANY AMBIGUITY THEREIN NOR IN FACT ANY DISPUTE BETWE EN THE PARTIES WITH REGARD THERETO. THE PRINCIPLES BEING, THEREFORE, WELL LAID DOWN, THE MA TTERS BOILS DOWN TO ONE OF FACT, WITH THERE BEING IN FACT NO QUARREL QUA THE PRIMARY FACTS AS WELL (REFER PARA 5.1). ACCORDI NGLY, WE DO NOT SEE AS TO HOW THE SAID CASE LAW, TO WHICH IN FACT NO REFERENCE WAS MADE BY THE LD. AR DURING HEARING (EXCEPT THE TWO DECISIONS BY THE APEX COURT REFERRED TO BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DATED 15.06.2007, M ARKED AS (*), SO THAT BOTH THE PARTIES RELY THEREON), WOULD ASSIST THE ASSESSEES CASE. IN FACT, THE ONLY DECISION BY THE APEX COURT CITED BY THE ASSESSEE, NOT ALSO RELIED UPON BY THE REVENUE, IS IN THE CASE OF JANKI RAM BAHADUR RAM V. CIT [1965] 57 ITR 21 (SC). THE APEX COURT HAS THEREIN CLARIFIED THAT THE QUESTION WHETHER THE PROFIT IN A 18 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT TRANSACTION ARISES OUT OF AN ADVENTURE IN THE NATUR E OF TRADE IS A MIXED QUESTION OF LAW AND FACT, WHICH IT OBSERVES TO HAVE BEEN CONSISTENTLY H ELD BY IT AS SO. TWO, THAT THE NATURE OF THE TRANSACTION MUST BE DETERMINED ON A CONSIDERATI ON OF ALL THE FACTS AND CIRCUMSTANCES WHICH ARE BROUGHT ON RECORD BY THE IT AUTHORITIES AGAIN, AN ASPECT OFT NOTED, AS ALSO IN THIS ORDER. IN THE FACTS OF THAT CASE, THE ASSESSEE , A DEALER IN IRON SCRAP AND HARDWARE, ENTERED INTO AN ISOLATED TRANSACTION OF PURCHASE OF A JUTE MILL, WHICH WAS SOLD LATER. THE PROPERTY WAS CAPABLE OF AND IN FACT LET OUT BEFORE ITS SALE, FOR WHICH IN FACT NO EFFORTS WERE MADE BY THE ASSESSEE, BEING APPROACHED BY A WI LLING BUYER. IT WAS UNDER THESE CIRCUMSTANCES THAT IT WAS HELD BY THE APEX COURT TH AT THE TRANSACTION IS NOT AN ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEE IN THE INSTANT CA SE IS ENGAGED IN VOLUMINOUS TRANSACTIONS ON A REGULAR BASIS; IN FACT, SOURCING EXPERTISE AT A COST FOR THE PURPOSE, WHICH RATHER INDICATES THE EXTENT TO WHICH THE SAID EXERCISE IS SOUGHT TO BE CARRIED IN AN ORGANIZED AND SYSTEMATIC MANNER . THE SAID DECISION, THEREFORE, ONLY ASSISTS THE CA SE OF THE REVENUE. EACH OF THE OTHER DECISIONS BY THE APEX COURT, WE M AY CLARIFY, HAS ALSO PERUSED BY US, ONLY TO FIND OF THE SAME HAVING BEEN RIGHTLY RELIED UPON BY THE REVENUE OR ASSISTING ITS CASE. THE ISSUE, THUS, EVEN AS OBSERVED EARLIER, AR ISING IS ESSENTIALLY THE APPLICATION OF THE PRINCIPLES AS LAID DOWN BY THE HONBLE COURT, SO TH AT THE MATTER IS PRIMARILY FACTUAL, AND HAS BEEN DECIDED BY ISSUING DEFINITE FINDINGS OF FA CT. THE OTHER DECISIONS, AS BY THE TRIBUNAL, SUBMITTED BY THE ASSESSEE WOULD THEREFORE BE OF LITTLE MOMENT, EVEN AS NONE WAS IN FACT ADVERTED TO DURING HEARING. AS REGARDS THE DECISION BY THE HONBLE JURISDICTION AL HIGH COURT IN CIT VS. GOPAL PUROHIT [2011] 336 ITR 287 (BOM), WE FIND NOTHING THEREIN THAT WOULD SUPPORT THE ASSESSEES CASE. THE HONBLE COURT HAS AFFIRMED THA T THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE PROCEEDINGS UNDER THE ACT, WHICH IS TRITE LAW, WHILE STATING THAT THERE SHOULD BE UNIFORMITY IN APPROACH OF THE REVENUE. TH E TWO INJUNCTIONS HAVE TO BE READ IN HARMONY, RATHER THAN IN CONFLICT, DOING WHICH WOULD IN FACT RENDER THE DECISION AS IMPRACTICABLE TO FOLLOW. FURTHER, IF TO THE EXTENT THE ISSUE INVOLVED IS A LEGAL ISSUE, IT IS THE CORRECT LEGAL POSITION THAT IS RELEVANT, AND NO T THE VIEW THAT ANY ONE OR BOTH THE PARTIES MAY TAKE (REFER: CIT V. C. PARAKH & CO. (INDIA) LTD . [1956] 29 ITR 661 (SC); KEDARNATH 19 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 (SC)). THE LD. CIT(A) HAS IN FAC T CLARIFIED THAT THERE IS NO INCONSISTENCY IN THE APPROACH OF T HE REVENUE. WE OBSERVE THAT THE ASSESSMENTS PRIOR TO A.Y. 2005-06 WERE MADE U/S. 143(1) (PB PG.227), SO THAT THERE WAS IN FACT NO ASSESSMENT. THE ORDER BY THE FIRST A PPELLATE AUTHORITY FOR A.Y. 2005-06; THE REVENUE ADOPTING THE SAME VIEW AS FOR THE SUBSEQUEN T YEARS, OR EVEN THE FACTS FOR THAT YEAR, ARE NOT ON RECORD FOR US TO BE ABLE TO COMMEN T THEREON. FOR A.Y. 2006-07, THE TRIBUNAL HAS OBSERVED A DIFFERENCE IN FACTS, I.E., FROM THE PRECEDING YEAR, NECESSITATING A RESTORATION, SO THAT THE VARIATION IN FACTS ACROSS YEARS IS PRESENT. THE SAID DECISION ACCORDINGLY WOULD BE OF LITTLE MOMENT. 6. IN VIEW OF THE FOREGOING, IN OUR CLEAR VIEW, THE SHORT TERM CAPITAL GAIN (STCG), AS ASSESSED, MERITS BEING CONFIRMED, SAVE ON THE 11 SC RIPS LISTED AT PARA 5.8 OF THIS ORDER. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. /-)0 &12/) # 3. ' 4 ) # ) 56 ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 17, 2 014 SD/- SD /- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; 7& DATED : 17.10.2014 '.&../ ROSHANI , SR. PS 20 ITA NO. 7516/MUM/2010 (A.Y. 2007-08) HARSHA L. TAHILRAMANI VS. ASST. CIT !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % 8) ( ) / THE CIT(A) 4. % 8) / CIT - CONCERNED 5. ;'<= !)&>1 , * >1- , % ( / DR, ITAT, MUMBAI 6. =?2 @( / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI