NAGINDAS P. SHETH (HUF), MUMBAI V. ACIT 21(3), MUMBAI

ITA 961/MUM/2010

• Counselvise Citation: 96119914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K.PANDA, ACCOUNTANT MEMBER ITA. NO. 961/MUM/2010 ASSESSMENT YEAR 2006-2007 NAGINDAS P. SHETH (HUF) MUMBAI 400 022 PAN AAAHN3294F VS. ACIT 21 (3) MUMBAI - 51 (APPELLANT) (RESPONDENT) ITA. NO. 1836/MUM/2010 ASSESSMENT YEAR 2006-2007 ACIT 21 (3) MUMBAI - 51 VS. NAGINDAS P. SHETH (HUF) MUMBAI 400 022 PAN AAAHN3294F (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI BHUPENDRA SHAH FOR REVENUE : SHRI A.K. NAYAK ORDER PER D. MANMOHAN, V.P. 1. THESE CROSS-APPEALS ARE DIRECTED AGAINST THE OR DER OF THE CIT(A)-XXXII, MUMBAI AND THEY PERTAIN TO ASSESSMENT YEAR 2006- 2007. 2. FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE HUF EARNED INCOME FROM BUSINESS, CAPITAL GAINS AND OTHER SOURCES AND DECLARED TOTAL INCOME OF RS.4 5,57,970/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE FREQUENTLY TRANSACTED IN PURCHASE AND SALE OF SHARES WHICH WOULD AMOUNT TO TRADING ACTIVITY. S INCE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAINS IN RESPECT OF THE SHARES SOLD WITHIN A SPAN OF 12 MONTHS, ASSESSING OFFICER ISSUED A SHOW- CAUSE NOTICE CALLING UPON THE ASSESSEE TO EXPLAIN AS TO WHY INCO ME THEREON SHOULD 2 NOT BE TREATED AS BUSINESS INCOME ARISING OUT OF TR ADING IN SHARES. IN RESPONSE THERETO, IT WAS EXPLAINED THAT THE ASSESSE E HAS TREATED THEM AS INVESTMENT IN SHARES AND MERELY BECAUSE ASSESSEE MADE SOME PROFIT OUT OF BULK TURNOVER ON PURCHASE AND SALE OF SHARES THEY SHOULD NOT BE TAKEN AS CRITERION TO ARRIVE AT THE NATURE O F THE TRANSACTION. 3. ASSESSING OFFICER HOWEVER REJECTED THE CONTENTI ON OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE MADE 158 SH ARE TRANSACTIONS DURING THE PREVIOUS YEAR UNDER CONSIDERATION AND TH US INTENTION OF THE ASSESSEE WAS ONLY TO TRADE IN SHARES TO MAKE PR OFIT. ANY INVESTOR WOULD BE PRINCIPALLY INTERESTED IN HOLDING THE SHAR ES SO AS TO EARN DIVIDEND INCOME WHEREAS, THE REGULARITY AND FREQUEN CY OF THE TRANSACTIONS, IN THE INSTANT CASE, SHOWS THAT THE A SSESSEE HAS NO SUCH INTENTION. FURTHER, AN INVESTOR WOULD NORMALLY OPEN ONE OR TWO DEMAT ACCOUNTS WHEREAS, IN THE INSTANT CASE, THE ASSESSEE CHOSE TO GO ABOUT IN A MUCH MORE PROFESSIONAL MANNER BY CHOOSING SEVE RAL BROKERS, EACH ONE JOINTLY AND SEVERALLY CONTRIBUTED TO THE K ITTY OF THE ASSESSEE IN EARNING INCOME FROM SALE OF SHARES. HE THUS CONC LUDED THAT THE ASSESSEE WAS DEEPLY INVOLVED IN THE SHARE TRADING A CTIVITY AND THE INCOME ON SALE OF SHARES ON SHORT TERM BASIS WAS TR EATED AS INCOME FROM BUSINESS. 4. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ASSESSING OFFICER ACCEPTED IN SEC. 143 (3) PROCEEDI NGS THAT ASSESSEE PURCHASED AND SOLD SHARES IN HIS CAPACITY AS INVEST OR AND ACCORDINGLY ACCEPTED THE RETURN OF INCOME FOR THE ASSESSMENT YE AR 2005-2006. THERE WAS NO REASON FOR DEVIATION FROM THE ASSESSME NT ORDER FOR THE ASSESSMENT YEAR 2005-2006 WITHOUT POINTING OUT ANY CHANGED CIRCUMSTANCES. ASSESSEE WAS CONSISTENTLY TREATING T HE PURCHASE OF SHARES AS INVESTMENT. HE THUS CONTENDED THAT THE IN COME FROM SALE OF SHARES IS ASSESSABLE TO TAX UNDER THE HEAD CAPITA L GAINS. 5. LEARNED CIT(A) PARTLY ACCEPTED THE CONTENTION O F THE ASSESSEE. IN THIS REGARD, HE OBSERVED THAT SHORT TE RM PROFIT ON SALE OF 3 SHARES HELD FOR MORE THAN 30 DAYS WORKS OUT TO RS.2 8,04,407/- WHEREAS PROFIT ON SALE OF SHARES FOR LESS THAN 30 D AYS WORKS OUT TO MERELY RS.8,57,555/- AND GOING BY THE CIRCUMSTANCES ONLY THE SHARES HELD FOR LESS THAN 30 DAYS SHOULD BE TREATED AS INC OME FROM BUSINESS. IN THIS REGARD HE OBSERVED AS UNDER : 4.1. FROM THE ANALYSIS OF THE DATA IT IS CLEAR THAT THI S IS A CASE OF AN INVESTOR CUM TRADER. THE APPELLANT IS AN INVESTOR WHO ALSO AT TIMES TRIES HIS HAND AT TRADING IN SHARES. IT IS A WELL KNOWN FACT THAT THE PERSON WHO IS A FULL TIME INVESTOR WOULD BE IN A POSITION TO UNDERSTAND AND TAKE ADVANTAGE OF SHORT TERM OPPORTUNITIES THAT ARE PRESENT IN THE MARKET. THE FACT THAT A PERSON CAN BE BOTH AN INVESTOR AS WELL AS A TRADER IS ALSO RECOGNISED BY THE CBDT AND THE CBDT HAS STATED THAT A TAX PAYER CAN HAVE BOTH PORTFOLIOS, AN INVESTMENT PORTFOLIO AS WELL AS TRADING PORTFOLIO. VARIOUS FACTORS WHICH MAKES THE APPELLANT AN INVESTOR ARE THAT THE APPELLANT HAD MADE INVESTMENTS IN UNLISTED SHARES, THE SHARES WERE SHOWN IN BALANCE SHEET AS INVESTMENTS AND VALUED AT COST, THE APPELLANT DID NOT HAVE ANY OFFICE AND / OR ADMINISTRATIVE SET UP, THERE ARE NO FIXED ASSETS, THE SOURCE OF ACQUISITION OF SHARES WAS OUT OF OWN FUNDS AND FAMILY FUNDS, THE RATIO OF INVESTMENTS TO SALE AND PURCHASES IS VERY HIGH AND THE FACT THAT THERE WAS NOT A SINGLE INSTANCE WHERE THE APPELLANT HAD SQUARED OFF THE TRANSACTION ON THE SAME DAY WITHOUT TAKING DELIVERY OF SHARES. 4.2. WHILE THE FACTORS LISTED ABOVE MAKES IT CLEAR THAT THE APPELLANT IS MAINLY AN INVESTOR THE FACTORS LIKE LACK OF DIVIDEND INCOME, TURNOVER OF SHARES IN LESS THAN 30 DAYS, ETC., POINTS TO THE FACT THAT 4 THE APPELLANT IS ALSO A TRADER. I THEREFORE HOLD THAT THE APPELLANT IS BOTH AN INVESTOR AS WELL AS TRADER. I DIRECT THE ASSESSING OFFICER TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS AS BUSINESS INCOME/LOSS AND THE TO TREAT THE SURPLUS/LOSS ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS AS CAPITAL GAINS/LOSS. 6. AGGRIEVED, ASSESSEE AS WELL AS REVENUE ARE IN A PPEAL BEFORE US. THE CASE OF THE REVENUE IS THAT EVEN SHA RES HELD FOR MORE THAN 30 DAYS SHOULD BE TREATED AS STOCK-IN-TRADE; WHEREAS, THE CASE OF THE ASSESSEE IS THAT EVEN SHARES SOLD WITHIN A S PAN OF 30 DAYS FROM THE DATE OF PURCHASE SHOULD BE BROUGHT TO TAX UNDER THE HEAD SHORT TERM CAPITAL GAINS, SINCE THE PRE-DOMINANT INTENT ION OF THE ASSESSEE WAS TO HOLD THE SHARES AS INVESTMENT. 7. WE HAVE HEARD THE LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE AS WELL AS LEARNED DR IN THIS REGAR D AND CAREFULLY PERUSED THE RECORD. THE ISSUE AS TO WHETHER PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES IS ASSESSABLE TO TAX UN DER THE HEAD CAPITAL GAINS OR BUSINESS INCOME IS A VEXED Q UESTION DEPENDING ON FACTS AND CIRCUMSTANCES OF EACH CASE, BASED UPON TH E PRINCIPLES SET OUT BY VARIOUS JUDICIAL PRECEDENTS. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS HOLDING THE SHARES IN ITS BOOKS AS AN INVESTOR. LEARNED CIT(A) OBSERVED THAT THE ASSESSE E DID NOT HAVE ANY OFFICE OR ADMINISTRATION SET UP AND THE SOURCE OF A CQUISITION OF SHARES WAS OUT OF OWN FUNDS AND FAMILY FUNDS. HE FURTHER N OTICED THAT THERE WAS NOT A SINGLE INSTANCE WHERE THE ASSESSEE HAD SQ UARED-UP TRANSACTIONS ON THE SAME DAY WITHOUT TAKING DELIVER Y OF THE SHARES. LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSE E, PLACED BEFORE US A COPY OF THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF THE ASSESSMENT YEAR 2007-2008 TO SUBMIT THAT SUBSEQUENT TO THE PASSING OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UND ER CONSIDERATION THE ASSESSING OFFICER ACCEPTED THE NATURE OF TRANSA CTIONS AS 5 INVESTMENT IN THE SUBSEQUENT YEAR IN HIS ORDER DATE D 20-10-2009. IN OTHERWORDS, BOTH FOR THE EARLIER YEAR AND SUBSEQUEN T YEAR ASSESSING OFFICER ACCEPTED, IN THE SCRUTINY ASSESSMENT PROCEE DINGS, THAT THE ASSESSEE IS AN INVESTOR. SUCH BEING THE CASE, MEREL Y BECAUSE ASSESSEE TRANSACTED IN 158 SHARES THAT SHOULD NOT BE TAKEN A S A SOLE CRITERION TO COME TO THE CONCLUSION THAT ASSESSEE IS A TRADER IN SHARES. IT IS NOT IN DISPUTE THAT IN THE BOOKS OF ACCOUNTS ASSESSEE H AS DECLARED THE SHARES AS AN INVESTMENT AND THE FINDING OF THE LEAR NED CIT(A) THAT ONLY OWN FUNDS WERE UTILISED FOR PURCHASE OF SHARES WAS NOT CONTRADICTED BY THE LEARNED DR. IT WAS ALSO HIGHLIG HTED BY THE LEARNED CIT(A) THAT ASSESSEE HAD NOT INDULGED IN ANY SQUARI NG-UP OF THE TRANSACTIONS ON THE SAME DAY. ON A CONSPECTUS OF TH E MATTER, WE ARE OF THE VIEW THAT THE TRANSACTIONS OF PURCHASE AND S ALE OF SHARES, IN THE INSTANT CASE, DESERVES TO BE CONSIDERED AS INVESTME NT AND PROFIT THEREON HAS TO BE ASSESSED TO TAX UNDER THE HEAD C APITAL GAINS. WE DIRECT THE ASSESSING OFFICER ACCORDINGLY. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ACCORDINGLY IN THE OPEN COURT SD/- SD/- (R.K.PANDA) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 05 TH APRIL, 2011. VBP/- 6 COPY 1. NAGINDAS P. SHETH (HUF), 5, MEGHDOOT, 283 FLANK ROAD, SION (EAST), MUMBAI 400 022 PAN AAAHN3294F 2. ACIT 21 (3), BANDRA (EAST), MUMBAI 51. 3. CIT(A)-32, MITTAL COURT, B WING, R.NOS. 13 & 1 4, 3 RD FLOOR, NARIMAN POINT, MUMBAI 21. 4. CIT, CITY-21, MUMBAI. 5. DR G BENCH 6. GUARD FILE TRUE COPY BY ORDER ASST. 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