M/s. Rajendrakumar M.Jain, Ahmedabad V. The Dy.CIT.,Circle-7, Ahmedabad

ITA 84/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9723 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-12-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Business income; Wrong claim; Sham transactions
• Section: 143(3)

Judgement Text

I.T.A. NO . 84 /AHD /201 1 A SSESSMENT Y EAR: 200 7 - 08 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] I.T.A. NO. 84 /AHD/ 20 1 1 ASSESSMENT Y EAR : 200 7 - 08 RAJENDRAKUMAR M. JAIN, .... . ...... . ... . APPELLANT BUNGALOW NO.20, NAVKAR COTTAGE, B/H. ASHWAMEGH, SATEL LI T E ROAD, AHMEDABAD. [ PAN: A ARPJ 0417 D ] VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7, AHMEDABAD. ... ............ . RESPONDENT APPEARANCES BY: M.K. PATEL, FOR THE APPELLANT MADHUSUDAN , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 1 9 . 1 2 .2016 DATE OF PRONOUNCING THE ORDER : 19 .12 .2016 O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 08.11.2010 PASSED BY THE LD. CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2007 - 08, ON THE FOLLOWING GROUND S : - (1) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GRIEVOUSLY ERRED I N LAW AND ON FACTS IN TREATING THE SHORT TERM CAPITAL GAINS OF RS.26,34,314/ - AS BUSINESS INCOME. (2) THAT ON FACTS AND IN LAW, IT OUGHT TO HAVE BEEN HELD THAT THE SHARES ARE HELD AS INVESTMENTS AND THE GAINS ARE ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. I.T.A. NO . 84 /AHD /201 1 A SSESSMENT Y EAR: 200 7 - 08 PAGE 2 OF 4 2. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IN APPEAL IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A CO - ORDINATE BENCH S DECISION IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. VIDE THIS DECISION DATED 06.12.2016 , THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS : - 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS BEEN SHOWING THE PURCHASE OF SHARES UNDER THE HEAD INVESTMENT . IT IS ALSO AN UNDISPUTED F ACT THAT IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. A.Y. 2005 - 06, THE ASSESSEE HAS NOT DONE ANY TRANSACTION AND, THEREFORE, THE INVESTMENTS WERE BROUGHT FORWARD BALANCES FROM EARLIER YEARS. 9. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SALE AN D PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMENT SHARES HAVE BEEN VALUED AT COST. THE HON'BLE SUPREME COURT IN THE CASE OF CI T ASSOCIATED INDUSTRIAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS - WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE S HARES WHICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT' 10. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVERSIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE SAME READS AS UNDER: - SUB: ISSUE OF TAXABILITY OF SUR PLUS ON SALE OF SHARES AND SECURITIES - CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUCE LITIGATION - REG. - SUB - SECTION (14) OF SECTION 2 OF THE INCOME - TAX ACT, 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK - IN - TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CAN BE HELD EITHER AS CAPITAL ASSETS OR STOCK - IN - TRADE/TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK - IN - TRADE, IS ESSENTIALLY A I.T.A. NO . 84 /AHD /201 1 A SSESSMENT Y EAR: 200 7 - 08 PAGE 3 OF 4 FACT - SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFERENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK - IN - TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT') HAS A LSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPLICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER O F INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LI TIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GA IN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING - A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK - IN - TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECU RITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER TH EREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT B E ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL NOT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINENESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LONG TERM CAPI TAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. I.T.A. NO . 84 /AHD /201 1 A SSESSMENT Y EAR: 200 7 - 08 PAGE 4 OF 4 11. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD, IN OUR CONSIDERED OPINION, THE INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHASE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HAS CLEAR INTENTION OF BEING AN INVESTOR AND SHOWING THE SHARES AS INVESTMENT, WE DO NOT FIND ANY REASON TO DISTURB T HE INTENTION OF THE ASSESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVESTOR AND, THEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAINS BE IT SHORT TERM OR LONG TERM. 12. IN THE LIGHT OF THE AFOREMENTIONED DISCUSSION QUA THE FACTUAL MATRIX OF THE CASE IN HAND, WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE WAS AN INVESTOR. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE CIT(A). AND DIRECT THE A.O. TO TREAT THE SHORT - TERM CAPITAL GAIN OF RS. 49,02,350/ - . GROUND NO. 1 IS A CCORDINGLY ALLOWED. 3. I SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO - ORDINATE BENCH. 4. RESPECTFULLY FOLLOWING THE TRIBUNAL S DECISION DATED 06.12.2016 , IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSM ENT YEAR, I DISAPPROVE THE ORDER OF THE LD. CIT(A) AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 5. IN THE RESULT, THE APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DECEMBER , 201 6 . SD/ - PRAMOD KU MAR (ACCOUNTANT MEMBER) DATED: THE 19 TH DAY OF DECEMBER , 2016. PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTAN T REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD