ITO (IT) 2(1), MUMBAI V. SALIL SEVANTILAL SHAH, MUMBAI

ITA 8236/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9495 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 19-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI MAHESH KUMAR
• Assessee Lawyers: SUSHIL LAKHANI
• Keywords: Capital asset; Business income; Double taxation relief; Permanent establishment

Judgement Text

ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.8235/MUM/2010 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER (I.T.)2(1) ROOM NO.014, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400008 VS. SAMIR SEVANTILAL SHAH, 53 HATKESH SOCIETY, SHALIB BUILDING, 2 ND FLOOR, NS ROAD NO.7, JVPD SCHEME, NEAR JAMUNABAI HIGH SCHOOL, VILE PARLE (WEST) MUMBAI 400056 PAN: ACEPS 6596 H (APPELLANT) (RESPONDENT) ITA NO.8236/MUM /2010 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER (I.T.)2(1) ROOM NO.014, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400008 VS. SALIL SEVANTILAL SHAH, 53 HATKESH SOCIETY, SHALIB BUILDING, 2 ND FLOOR, NS ROAD NO.7, JVPD SCHEME, NEAR JAMUNABAI HIGH SCHOOL, VILE PARLE (WEST) MUMBAI 400056 PAN: ACEPS 6597 G (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI SHRI MAHESH KUMAR & MS. NEERAJA PRADHAN, DR ASSESSEE BY: SHRI SUSHIL LAKHANI DATE OF HEARING: 19/11/2012 DATE OF PRONOUNCEMENT: 27/11/2012 O R D E R PER BENCH: BOTH THESE APPEALS PERTAIN TO NON-RESIDENT INDIANS (NRI) FOR THE ASSESSMENT YEAR 2007-08 WITH REFERENCE TO THE C APITAL GAINS DECLARED BY THE RESEPCTIVE ASSESSEES. THE ASSESSEES ARE BASED IN THAILAND AND HAS SHOWN SHORT TERM CAPITAL GAIN OF ` .56,81,967 ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 2 OF 12 UNDER SECTION 111A OF THE INCOME TAX ACT, IN THE CA SE OF SALIL SEVENTILAL SHAH AND ` .40,38,474 UNDER SECTION 111A OF THE INCOME TAX ACT IN THE CASE OF SAMEER SEVENTILAL SHAH. AO T REATED THE SAME AS INCOME FROM BUSINESS, WHEREAS THE CIT (A) FOLLOW ING THE FINDINGS IN ASSESSMENT YEAR 2006-07 WHICH WERE CONFIRMED BY THE ITAT, DELETED THE SAME AS A COVERED ISSUE. 2. BRIEFLY STATED, ASSESSEES ARE RESIDENTS IN THAILAND AND HAVE BEEN INVESTING IN INDIAN SHARE MARKET THROUGH THE P ORTFOLIO INVESTMENT SCHEME MAINLY BY MAKING APPLICATIONS IN THE IPOS. ASSESSEES BEING NRIS WERE NOT PERMITTED UNDER THE R BI GUIDELINES TO TRADE IN SHARES AND ONLY INVESTMENT WAS ALLOWED. HOWEVER, AO WAS OF THE OPINION THAT CONSIDERING THE FREQUENCY O F THE TRANSACTIONS ASSESSEE HAS INDULGED IN TRADING OF TH E SHARES AND THEREFORE, THE INCOME EARNED THEREIN HAS TO BE ASSE SSED AS BUSINESS INCOME. HE ALSO CONSIDERED, AS ASSESSEE HAS GIVEN P OWER OF ATTORNEY TO HIS FATHER, THE FATHER HAS TO BE CONSIDERED AS A GENT PE AND IN THE ALTERNATE THE BROKERS FROM WHOM HE IS GETTING ADVIS ES WERE TO BE CONSIDERED AS AGENT PE. THESE ISSUES WERE ELABORATE LY DISCUSSED IN ASSESSMENT YEAR 2006-07 AND THE LEARNED CIT (A) AFT ER ANALYZING THE PATTERN OF THE INVESTMENT, RESTRICTIONS PLACED ON NRIS FOR TRADING IN SHARES IN INDIA AND ALSO EXAMINING THE R OLE OF FATHER AND THE BROKER HELD THAT ASSESSEE HAS NO PE IN INDIA UN DER INDO- THAILAND DTAA AND FURTHER ASSESSEE BEING AN INVESTO R, MADE OUT OF SURPLUS FUNDS, THE GAINS SHOULD BE TAXED ONLY AS CA PITAL GAINS. 3. AO WHILE ACCEPTING THE CIT (A) HAS HELD AGAINST THE REVENUE IN ASSESSMENT YEAR 2006-07, HOWEVER COMPLETED THE A SSESSMENT IN THE SAME MANNER IN THIS YEAR ALSO AS THE MATTER WAS PENDING BEFORE THE ITAT AT THE RELEVANT POINT OF TIME. AS STATED B RIEFLY ABOVE, THE LEARNED CIT (A) FOLLOWING THE ORDER OF THE ITAT IN ITA NOS.3229 & 3230/MUM/2009 DATED 7.9.1020 DIRECTED AO TO TREAT T HE INCOME OF ASSESSEES AS SHORT TERM CAPITAL GAINS, THE REVENUE IS AGGRIEVED. ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 3 OF 12 4. THE REVENUE HAS RAISED THE COMMON GROUNDS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN HOLD ING THAT THE PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES WERE ASSESSABLE AS CAPITAL GAIN AND NOT AS BUSIN ESS INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT SHRI SEVANTILAL S. SHAH, FATHER OF ASSESSEE DOES NO T CONSTITUTE THE AGENCY PE IN INDIA. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT M/S SUSHIL FINANCE CONSULTANTS LTD DO NOT CONSTITUT E THE AGENCY PE AS PER INDIA-THAILAND DTAA. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISTURB THE FINDINGS OF TH E CIT (A) IN THIS YEAR. THE MATTER WAS ELABORATELY DISCUSSED BY THE I TAT IN ASSESSMENT YEAR 2006-07, THE FINDINGS OF WHICH ARE EQUALLY APPLICABLE ON THE FACTS OF THIS CASE. THE FINDINGS OF THE ITAT ON THE ISSUE OF TREATING CAPITAL GAIN AS BUSINESS INCOME B Y AO ARE AS UNDER: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNS EL OF THE ASSESSEE. FIRST OF ALL ASSESSEE IS ALREADY E NGAGED IN FULL TIME BUSINESS OF MANUFACTURE AND SALE OF JEWELLERY IN THAILAND AND HAS INVESTED ONLY THE SUR PLUS MONEY IN THE INDIAN SHARE MARKET. IT HAS NOT BEEN DENIED THAT SUBSTANTIAL PORTION OF SUCH MONEY WAS INVESTED THROUGH PUBLIC ISSUES I.E. IPO. NORMALLY A TRADER IN SHARES WOULD NOT MAKE APPLICATION THROUGH IP0S A ND WAIT FOR SOMETIME FOR ALLOTMENT WHICH IS GENERALLY VERY LONG AND THEN HOLD THE SHARES AND WAIT FOR A PARTIC ULAR PRICE. IN THE CASE BEFORE US, THOUGH IT WAS ADMITTE D BY THE LEARNED COUNSEL OF THE ASSESSEE, THAT THE TRANSACTIONS WERE FREQUENT BUT THE REASONS HAVE ALS O BEEN EXPLAINED BECAUSE IT WAS A UNIQUE PHASE OF BOOMING MARKET AND THE TARGET PRICE REACHED VERY FA ST AND ASSESSEE SOLD HIS HOLDINGS IN SMALLER LOTS SO A S TO TAKE THE BENEFIT OF THE RISING MARKET. SECONDLY, AS SESSEE HAS NOT BORROWED ANY MONEY AND INVESTED HIS OWN ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 4 OF 12 FUNDS AND QUITE A SUBSTANTIAL AMOUNTS OF INVESTMENT S ARE THERE WHICH HAS BEEN NOTED BY THE LD. CIT(A) AS UNDER: 30-03-2004 RS.3.38 CRORES 31-03-2005 RS.1.82 CRORES 31-03-2006 RS.5.50 CRORES 31-3-2007 RS.7.59 CRORES 12. ONE OF THE MOST IMPORTANT ASPECTS IN FAVOUR OF THE ASSESSEE IS THAT THE ASSESSEE IS A NRI AND AS SUCH NOT ALLOWED TO TRADE IN SHARES IN VIEW OF THE RBI REGUL ATIONS. ASSESSEE COULD HAVE POSSIBLY INVESTED IN 12 SHARES AND THAT TOO THROUGH PORTFOLIO INVESTMENT SCHEMES THROU GH CERTAIN AUTHORIZED DEALERS. IN THE CASE OF FIDELITY NORTH STAR FUNDS & OTHERS IN-RE [SUPRA] FOLLOWING QUESTIO NS WERE RAISED- (I). WHETHER PROFITS FROM THE SALE OF PORTFOLIO INV ESTMENTS IN INDIA WILL BE TREATED AS BUSINESS INCOME; (II). WHETHER THE APPLICANT COULD BE REGARDED AS HA VING A PERMANENT ESTABLISHMENT IN INDIA' (III) IF THE INCOME IS FOUND TO BE IN THE NATURE OF BUSINESS INCOME WHETHER THE APPLICANT WILL BE TAXABLE IN IND IA; AND (IV) WHETHER THE INCOME FROM THE PORTFOLIO INVESTMENTS WOULD BE TAXABLE IN INDIA AT THE FIXED RATE OF 20 PER CENT UNDER SECTION 115AD OF THE INCOME TA X ACT, 1961. AND THE ANSWERS GIVEN BY THE AUTHORITIES ARE AS UND ER: '(I) THAT THE TRANSACTIONS WERE ONLY IN THE NATURE OF INVESTMENT IN CAPITAL ASSETS TO EARN CAPITAL GAINS BECAUSE' (A) THE WHOLE SCHEME MEANT FOR FIIS WAS TO INVEST I N SECURITIES IN INDIA TO RECEIVE INCOME FROM THEM SO LONG AS THEY HOLD THE SAME AND REALIZE CAPITAL GAINS ON THE IR TRANSFER. (B) THE EXPRESSION 'INCOME RECEIVED IN RESPECT OF SECURITIES' IN CL. (A) CONNOTES THE INCOME THEREFRO M WHEN THE SECURITIES HELD BY A FII ARE INTACT, E.G. DIVID ENDS, INTEREST, ETC. LIKE FRUITS FROM A TREE OR A RENT FR OM AN ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 5 OF 12 IMMOVABLE PROPERTY. THE TERM ' INCOME ' EMPLOYED THEREIN, HAVING REGARD TO THE CONTEXT, CAN, BY NO S TRETCH OF IMAGINATION, BE ASSUMED AS INCOME ARISING FROM T HE TRANSFER OF SUCH SECURITIES FOR THE SIMPLE REASON T HAT SUCH TYPE OF INCOME IS REFERRED TO IN CL. (B) WHERE THE INCOME IS SPECIFIED AS BEING BY WAY OF SHORT-TERM A ND LONG-TERM CAPITAL GAINS ARISING FROM THE TRANSFER O F SUCH SECURITIES. IT WAS AGAINST DEDUCTION OF EXPENDITURE SUCH AS BY WAY OF SALARY OF THE STAFF, ETC., EXPENDITURE IN OBTAINING LOANS AND PAYING INTEREST THEREON THAT PARLIAMENT GUARDED, BY PROVIDING IN CLAUSE {A} OF S ECTION 115AD(2) THAT NO DEDUCTION SHALL BE ALLOWED IN COMPUTING INCOME IN RESPECT OF SECURITIES REFERRED IN CLAUSE [A] OF SUB-SECTION [1]. (C) THE PLETHORA OF LEGISLATIVE PROVISIONS UNMISTAK ABLY POINTED OUT THAT AN FII WAS NOT REGISTERED FOR CARR YING ON TRADE IN SECURITIES; IT COULD ONLY INVEST IN SECURI TIES FOR THE PURPOSE OF EARNING INCOME BY WAY OF DIVIDENDS A ND INTEREST AND REALIZING CAPITAL GAINS ON THEIR TRANS FER. TRADING IN SECURITIES BY A FII WAS PROHIBITED. (D) IT WOULD BE PREPOSTEROUS TO IMPUTE AN INTENTION TO FIIS, WHO RESPONDED TO THE OFFER OF INVESTMENT IN SECURITIES IN RESPONSE TO THE GUIDELINES, GOT THEMS ELVES REGISTERED UNDER THE SEBI REGULATIONS AND UNDERTOOK TO ABIDE BY THOSE REGULATIONS THAT THEY WOULD, IN THE VERY FIRST STEP ITSELF, HAVE INTENDED TO VIOLATE ALL THE LEGISLATIVE REQUIREMENTS WHICH PROVIDED THEM THE OPPORTUNITY TO ENTER THE CAPITAL MARKET IN INDIA. (II) THAT THEREFORE, THE QUESTION DID NOT REQUIRE A NY RULING. THERE IS NO SCOPE FOR READING THE SEBI [FOREIGN INSTITUTIONAL INVESTORS] REGULATIONS, 1995, AS PERM ITTING TRADING IN SECURITIES. THE EXPRESSION 'OR OTHERWISE DEAL IN' IN REGULATION 3(1) MEANS OTHER THAN BUYING AND SELLING, E.G. LENDING/BORROWING PERMITTED UNDER REGULATION 15(8). IT CANNOT BE UNDERSTOOD TO MEAN D OING BUSINESS IN SECURITIES BECAUSE TRADING ITSELF INVOL VES BUYING AND SELLING AND IF IT IS CONSTRUED TO MEAN T HE EXPRESSION BECOMES OTIOSE. REGULATION 15A OF SEBI REGULATIONS PERMITS DEALING IN OFFSHORE DERIVATIVE INSTRUMENTS ONLY AND NONE OTHER. THE WORDS 'TRANSAC T BUSINESS' AND THE 'TRANSACTION OF BUSINESS' IN CLAU SES ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 6 OF 12 (A) AND (C) RESPECTIVELY OF SUB-REGULATION (3) OF R EGULATION 15 POSTULATE TRANSACTION OF SALE AND PURCHASE, THEY DO NOT REFER, AS SUCH, TO THE TRADING ACTIVITY. TRANSA CTING BUSINESS IS DIFFERENT AND DISTINGUISHABLE FROM CARR YING ON BUSINESS. TRANSACT BUSINESS IS A GENERAL TERM WH ICH REFERS TO CARRYING ON ALL TYPES OF ACTIVITIES WHERE AS BUSINESS TRANSACTION REFERS TO ONLY COMMERCIAL TRAD ING ACTIVITIES. THESE WORDS AND EXPRESSIONS, IN THE CON TEXT IN WHICH THEY ARE USED, DO NOT DEAL WITH THE SUBJECT O F TRADING IN SECURITIES MUCH LESS DO THEY PERMIT ACTI VITIES OF TRADING IN SECURITIES BY A FII. IN THE CASE BEFORE US ALSO THE RBI HAS ISSUED THE FOLLOWING DIRECTIONS WHICH HAVE BEEN INTIMATED TO T HE ASSESSEE BY HDFC BANK THROUGH THEIR LETTER WHICH HA S BEEN FILED BEFORE US. 'NRIS/OCBS HAVE TO TAKE DELIVERY OF THE SHARES/CONVERTIBLE DEBENTURES AND GIVE DELIVERY OF THE SHARES/CONVERTIBLE DEBENTURE SOLD UNDER THE SCHEME AND ARE NOT ALLOWED TO TRADE.' THE ABOVE CLEARLY SHOWS THAT WHEN AS PER THE SEBI REGULATIONS [IN THE CASE BEFORE US RBI REGULATIONS] THE ASSESSEE WAS NOT PERMITTED TO DO IN TRADING THEN GA INS RECEIVED FROM SALE AND PURCHASE OF SHARES CAN BE ON LY TAXED AS CAPITAL GAINS. 13. WE FURTHER FIND THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT [SUPRA] HAS HELD THAT THO UGH THE PRINCIPLES OF RES JUDCATA IS NOT ATTRACTED BECA USE EACH ASSESSMENT YEAR IS SEPARATE ENTITY, BUT THERE OUGHT TO BE SOME UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS ALSO SHAR E INCOME WAS HELD BE ON ACCOUNT OF CAPITAL GAINS. UND ER THESE CIRCUMSTANCES , WE ARE OF THE VIEW, THAT THE LD. CIT(A) HAS CORRECTLY HELD THAT PROFITS RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE AND PURCHASE OF SHARES ARE TO BE TREATED AS INCOME FROM CAPITAL GAINS AND ACCORDINGLY WE CONFIRM HIS ORDER. 6. ON THE ISSUE OF AGENCY PE THE DETAILED FINDINGS A RE AS UNDER: 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSE L OF ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 7 OF 12 THE ASSESSEE. WE WONDER AS TO WHY THE AO HAS NOT BROUGHT THE OUT COME OF THE ENQUIRY CONDUCTED WITH MR. AMOL JOSHI, CLIENT RELATIONSHIP MANAGER OF M/S SUSH IL FINANCE CONSULTANCY LTD, ON RECORD. THE LD. DR HAS NOT DENIED OF SUCH ENQUIRY, BUT AT THE SAME TIME HE HAS NOT BROUGHT THE OUT COME OF THE ENQUIRY TO OUR NOTICE. IN ANY CASE, WE FAIL TO UNDERSTAND THAT SIMPLY BY STATING THAT MR. AMOL JOSHI WAS TRACKING THE PRICE MOVEMENTS OF THE SHARES AND WAS ADVISING THE CLIENTS TO MAKE THE SHA RE BROKER OF THE ASSESSEE AS HIS PE. THE MOVEMENTS IN SHARE PRICES CAN BE MONITORED BY ANYBODY IN THE WOR LD BY OPENING ANY COMMERCIAL TV CHANNEL OR INTERNET SERVICES. AS FAR AS THE ADVICE IS CONCERNED, MERELY IF BROKER IS ADVISING THE CLIENT REGARDING CERTAIN SHA RES, THEN IT CANNOT BE SAID THAT SUCH BROKER IS ALSO TAK ING BUSINESS DECISIONS ON BEHALF OF THE ASSESSEE. NO FI XED PLACE OR EXCLUSIVE PERSON WAS PROVIDED FOR ASSESSEE TO CONDUCT HIS BUSINESS. IT HAS BEEN OBSERVED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTORO LA INC. VS. DCIT [SUPRA], THAT SIMPLY BECAUSE CERTAIN EMPLOYEES WERE ALLOWED TO VISIT THE FACILITIES LOCA LLY, IT CANNOT BE SAID THAT ASSESSEE HAD AT ITS DISPOSAL AS A MATTER OF RIGHT CERTAIN PLACES WHICH COULD BE CHARACTERIZED AS FIXED PLACE OF BUSINESS IN TERMS O F ARTICLE 5.1. IT WAS ALSO STATED THAT PORTFOLIO INVE STMENT SERVICES WERE PROVIDED TO THE ASSESSEE BY BNP PARIB AS AND UNDER THOSE GUIDELINES ONLY ASSESSEE WAS MAKING INVESTMENTS. BUT EVEN IF THE BROKER WAS GIVING CERT AIN ADVICES, WE ARE OF THE VIEW THAT IT WOULD NOT MAKE THE BROKER AS PE OF THE ASSESSEE. IT IS ALSO TO BE NOTE D THAT CLAUSE [4] OF ARTICLE 5 WHICH HAS BEEN INVOKED BY A O SPECIFICALLY EXCLUDES BROKER AND GENERAL COMMISSION AGENT FROM BEING CONSIDERED AS AN AGENT. 24. AS FAR AS PE IN THE FORM OF FATHER IS CONCERNED , ARTICLE 5 OF THE DTAA WITH THAILAND READS AS UNDER: 'ARTICLE 5 PERMANENT ESTABLISHMENT 1. FOR THE PURPOSES OF THIS CONVENTION, THE TERM 'PERMANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRIS E IS WHOLLY OR PARTLY CARRIED ON. ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 8 OF 12 2. THE TERM 'PERMANENT ESTABLISHMENT' SHALL INCLUDE : (A) A PLACE OF MANAGEMENT; (B) A BRANCH; (C) AN OFF ICE; (D) A FACTORY; (E) A WORKSHOP; (F) A MINE, A QUARRY, AN OIL OR GAS WELL OR OTHER PLACE OF EXTRACTION OF NATURAL RE SOURCES (G) A FARM, PLANTATION OR OTHER PLACE WHERE AGRICUL TURAL, FORESTRY, PLANTATION OR RELATED ACTIVITIES ARE CARR IED ON; (H) A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PRO JECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHE RE SUCH SITE, PROJECT OR ACTIVITY CONTINUES FOR THE SA ME OR A CONNECTED PROJECT FOR A PERIOD OR PERIODS AGGREGATI NG MORE THAN 183 DAYS; (I) A WAREHOUSE, IN RELATION TO A PERSON PROVIDING STORAGE FACILITIES FOR OTHERS; (J) THE FURNISHING OF SERVICES, INCLUDING CONSULTANCY SERVI CES, BY A PERSONNEL, PROVIDED ACTIVITIES OF THAT NATURE CONTINUE (FOR THE SAME OR A CONNECTED PROJECT) WITH IN THE OTHER CONTRACTING STATE FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 183 DAYS. 3. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL B E DEEMED NOT TO INCLUDE: (A) THE USE OF FACILITIES SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY OF GOODS OR MERCHANDISE BELONGI NG TO THE ENTERPRISE; (B) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHAND ISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELI VERY; (C) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHAND ISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPRISE; (D) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF PURCHASING GOODS OR MERCHANDISE, OR OF COLLECTING INFORMATION, FOR THE ENTERPRISE; (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILA R ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPRISE. ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 9 OF 12 4. NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING PARAGRAPHS A PERSON (OTHER THAN A BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDE NT STATUS TO WHOM PARAGRAPH 5 APPLIES) ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE SHALL BE DEEMED TO BE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED CONTRACTING ST ATE, IF: (A) HE HAS AND HABITUALLY EXERCISES IN THE FIRST- MENTIONED CONTRACTING STATE IN AUTHORITY TO CONCLUD E CONTRACTS FOR OR ON BEHALF OF THE ENTERPRISE, UNLES S HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRISE; (B) HE HABITUALLY MAINTAINS IN THE FIRST-MENTIONED CONTRACTING STATE A STOCK OF GOODS OR MERCHANDISE BELONGING TO THAT ENTERPRISE FROM WHICH HE REGULARL Y DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTERPRISE; OR (C) HE HABITUALLY SECURES ORDERS IN THE FIRST-MENTI ONED STATE WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE OR FOR THE ENTERPRISE AND OTHER ENTERPRISES WHICH ARE CONTROLLED BY IT OR HAVE A CONTROLLING INTEREST IN IT. 5. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTH ER CONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSI NESS IN THAT OTHER STATE THROUGH A BROKER, GENERAL COMMI SSION AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, WHERE SUCH PERSONS ARE ACTING IN THE ORDINARY COURS E OF THEIR BUSINESS. THIS SHALL NOT APPLY IF SUCH BROKER OR AGENT CARRIES ON IN THAT OTHER STATE AN ACTIVITY DESCRIPTED IN PARAGRAPH 4 WHOLLY OR ALMOST WHOLLY F OR THE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OTH ER ENTERPRISES WHICH ARE CONTROLLED BY OR HAVE A CONTR OLLING INTEREST IN IT. 6. THE FACT THAT A COMPANY, WHICH IS A RESIDENT OF A CONTRACTING STATE CONTROLS OR IS CONTROLLED BY A CO MPANY WHICH IS A RESIDENT OF THE OTHER CONTRACTING STATE, OR WHICH CARRIES ON BUSINESS IN THAT OTHER CONTRACTING STATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHERWISE), SHALL NOT, OF ITSELF, CONSTITUTE EITHER COMPANY A PERMANENT ESTABLISHMENT OF THE OTHER. ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 10 OF 12 7. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, AN INSURANCE ENTERPRISE OF A CONTRACTING S TATE SHALL, EXCEPT IN REGARD TO REINSURANCE, BE DEEMED T O HAVE A PERMANENT ESTABLISHMENT IN THE OTHER STATE I F IT COLLECTS PREMIUMS IN THE TERRITORY OF THAT STATE OR INSURES RISKS SITUATED THEREIN THROUGH AN EMPLOYEE OR THROU GH A REPRESENTATIVE WHO IS NOT AN AGENT OF AN INDEPENDEN T STATUS WITHIN THE MEANING OF PARAGRAPH 5 OF THIS ARTICLE.' THE AO HAS INVOKED CLAUSE [4] AND CLAUSE [4] CLEARL Y STATES THAT A PERSON WHO IS ACTING ON BEHALF OF AN ENTERPRISE SHALL BE DEEMED TO BE PE OF THE ASSESSEE . BUT NOTHING HAS BEEN BROUGHT ON RECORD BY AO AS TO HOW THE FATHER OF THE ASSESSEE ACTED ON BEHALF OF T HE ASSESSEE. IN FACT, AS OBSERVED EARLIER, ENQUIRIES M ADE WITH MR. AMOL JOSHI HAVE NOT BEEN BROUGHT ON RECORD . FURTHER AN AFFIDAVIT IN THE FORM OF ANNEXURE-6 WAS FILED AND VARIOUS AVERMENTS READ AS UNDER: I. I AM FATHER OF MR. SAMIR S. SHAH [HEREINAFTER RE FERRED TO 'SAMIR'] HAVING PAN ACEPS 6596. R, WHO IS PRESENTLY SETTLED AT BANGKOK, THAILAND. II. I AM RETIRED SINCE 21 YEARS (TWENTY ONE YEAR). TILL RETIREMENT I WAS EMPLOYED AS ASSISTANT MANAGER WITH CHAMPION ENGINEERING MUMBAI, POST RETIREMENT, I AM PURSUING MY HOBBY OF PAINTING. III. THOUGH FOR CONVENIENCE SAKE, MY SON SAMIR HAS GIVEN ME A GENERAL POWER OF ATTORNEY, I HAVE SO FAR NOT USED THIS POWER OF ATTORNEY FOR ANY TRANSACTIONS IN STOCK MARKET RELATING TO MY SON SAMIR. IV. WITHOUT PREJUDICE TO THE GENERALITY OF THE ABOV E, I CONFIRM THAT I HAVE NOT BOUGHT OR SOLD ANY SHARES O N THE STOCK MARKET ON BEHALF OF MY SON SAMIR. V. BEING ONE OF THE AUTHORISED SIGNATORY OF SAMIR'S BANK A/C. NO.0011220003572 WITH HDFC BANK LTD, TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI 400021. I HAVE AT TIMES ONLY SIGNED CHEQUES UNDER INSTRUCTION OF MY S ON SAMIR IN FAVOUR OF HIS SHARE BROKERS FOR THE AMOUNT S INSTRUCTED BY MY SON SAMIR. VI. WHATEVER STATED HER EIN ABOVE IS TRUE AND CORRECT TO THE BEST OF OUR KNOWLE DGE ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 11 OF 12 BELIEF AND INFORMATION AND NOTHING HAS BEEN CONCEAL ED HEREIN. FROM ABOVE AVERMENTS IT WAS MADE CLEAR THAT ASSESSEE'S FATHER WAS 76 YEARS OLD AND WAS A RETIRE D PERSON. HE HAS NOT ACTED ON BEHALF OF THE ASSESSEE. THIS HAS NOT BEEN REBUTTED BY THE DEPARTMENT. IF AO HAD ANY MATERIAL HE SHOULD HAVE CALLED MR. SEVANTIL AL S. SHAH AND EXAMINED HIM. BUT NOTHING LIKE THAT HAS BEEN DONE TO PROVE THAT ASSESSEE'S FATHER CONSTITUT ED PE. OCCASIONALLY HE MIGHT HAVE SIGNED CHEQUES AND THAT ITSELF WOULD NOT CONSTRUE HIM AS PE OF THE ASSESSEE. AS THE LD. DR HAS REFERRED TO THE QUESTIO N RAISED BY THE AO THAT HOW THE PAYMENTS WERE RECEIVE D AND PAID THROUGH THE BROKER, HOW THE SHARES WERE DELIVERED, WE HAD CALLED FOR THE BANK STATEMENTS AS WELL AS COPIES OF THE DEMAT ACCOUNT. A PERUSAL OF T HE BANK STATEMENTS SHOW THAT AS FAR AS SALE PROCEEDS A RE CONCERNED, THEY HAVE BEEN DIRECTLY CREDITED TO THE ASSESSEE AND NO CHEQUES AS SUCH HAVE BEEN ISSUED BY THE BROKERS. SOME OF THE CREDIT PROCEEDS HAVE BEEN USED FOR PURCHASE OF SHARES, BUT AT TIMES CHEQUES H AVE ALSO BEEN PAID ON BEHALF OF THE ASSESSEE. AS FAR AS MOVEMENT OF SHARE PRICE IS CONCERNED, IT IS A MATTE R OF COMMON KNOWLEDGE THAT WHENEVER SHARES ARE PURCHASED, THEN SAME ARE AUTOMATICALLY CREDITED BY THE BROKER TO DEMAT ACCOUNT OF THE PURCHASER ONCE THE PAYMENTS ARE RECEIVED. NORMALLY DELIVERY HAS TO BE GIVEN WHEN THE SHARES ARE SOLD, BUT IN THE CASE BEF ORE US IT WAS POINTED OUT THAT AUTO-PAY-IN INSTRUCTIONS WERE ISSUED. THEREFORE, THERE IS NO MATERIAL ON RECORD T O SHOW THAT ASSESSEE'S FATHER WAS REGULARLY EXECUTING THE CONTRACTS ON BEHALF OF THE ASSESSEE AND RECEIVING T HE PAYMENTS AND/OR RECEIVING SHARES. IN THESE CIRCUMSTANCES, IN OUR VIEW, HE CANNOT BE CALLED PE OF THE ASSESSEE. THEREFORE, GROUNDS NOS.2 & 3 OF THE REVENUE'S APPEA L ARE DISMISSED. 7. IN VIEW OF THE FINDINGS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 WITH WHICH WE A GREE, THERE IS NO MERIT IN REVENUE GROUNDS. ACCORDINGLY GROUNDS AR E REJECTED. ITA NO. 8235 & 8236 OF 2010 SAMIR & SALIL SEVENTILA L SHAH PAGE 12 OF 12 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENU E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2012. SD/- SD/- (VIJAY PAL RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED NOVEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, L BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI