The ACIT, Central Circle-1(3), Ahmedabad V. M/s. Jagat Foods Pvt.Ltd., Ahmedabad

ITSSA 316/AHD/2010

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2108 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-07-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Business income; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) IT(SS)A. NO: 316/AHD/2010 (ASSESSMENT YEAR: 2005-06) ACIT, CENTRAL CIRCLE-1(3), AHMEDABAD V/S M/S. JAGAT FOODS PVT. LTD. 804, AVDHESH HOUSE, OPP: GURUDWARA, S.G. ROAD, THALTEJ, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACJ3859M APPELLANT BY : SHRI R.I. PATEL, CIT/DR RESPONDENT BY : SHRI M.K. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 05 -07-201 6 DATE OF PRONOUNCEMENT : 11 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF LD. CIT(A)-I, AHMEDABAD DATED 11.02.2010 PERTAINING TO A.Y. 2005-06. IT(SS)A NO. 316/AHD/2010 . A.Y. 2005-0 6 2 2. THE SOLE GRIEVANCE OF THE REVENUE RELATES TO THE TR EATMENT OF THE SURPLUS OF RS. 1,13,80,807/- ARISING FROM THE SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAINS AS AGAINST BUSINESS I NCOME TREATED BY THE A.O. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. FOUND THAT THE ASSESSEE HAS SHOWN PROFIT UNDER THE HEAD SHORT TERM CAPITAL GAINS FROM THE PURCHASES AND SALES OF SHARE S. THE A.O. FOUND THAT THE TRANSACTIONS WERE VOLUMINOUS AND THE SOURC ES APPEAR TO BE FROM THE LOANS/CC FACILITIES. 4. DRAWING SUPPORT FROM THE CBDT CIRCULAR NO. 4/2007 D ATED 15.06.2007, THE A.O. PROCEEDED BY TREATING THE SURP LUS ARISING OUT OF THE SALE OF SHARES AS BUSINESS INCOME OF THE ASSESS EE. THE MAIN REASONS FOR TREATING THE CAPITAL GAINS AS BUSINESS INCOME BY THE A.O. ARE AS UNDER:- (I) THE LENGTH OF THE PERIOD OF OWNERSHIP. (II) THE FREQUENCY/NUMBER OF TRANSACTIONS. (III) UTILIZATION OF BORROWED FUNDS. 5. ASSESSEE STRONGLY AGITATED THE ASSESSMENT BEFORE TH E LD. CIT(A) AND REITERATED ITS CLAIM OF CAPITAL GAINS. THE LD. CIT( A), AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS ALONG WITH THE RELATE D DOCUMENTARY EVIDENCES, WAS OF THE OPINION THAT THE ASSESSEE WAS HOLDING SHARES AS INVESTMENT AND THE SAME WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET ALSO AND ACCORDINGLY DIRECTED THE A.O. TO TRE AT THE SURPLUS UNDER THE HEAD CAPITAL GAINS. 6. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. IT(SS)A NO. 316/AHD/2010 . A.Y. 2005-0 6 3 7. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BE EN STATED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE RELATE D DOCUMENTARY EVIDENCES BROUGHT ON RECORD BEFORE US. AT THE VERY OUTSET, WE HAVE TO SAY THAT NO BORROWED FUNDS WERE UTILIZED IN THE PUR CHASES OF SHARES. 9. THE DISPUTE IS REGARDING THE NATURE OF INCOME ON SA LE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCO ME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SHOULD BE T REATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBATABLE ISS UE 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. T HE HON'BLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTR IAL DEVELOPMENT CO PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BE EN 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 O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS -WI THIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT ' IT(SS)A NO. 316/AHD/2010 . A.Y. 2005-0 6 4 10. THE CBDT HAS FURTHER THROWN LIGHT ON THIS CONTROVER SIAL ISSUE IN ITS CIRCULAR NO. 6/2016 DATED 29.02.2016 AND THE S AME READS AS UNDER:- SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES 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 BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASS ETS 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 INVE STMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN- TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OL UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK- IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT' ) HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIR CULAR 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 APPL ICATION 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 PRI NCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NAT URE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED O NES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE IT(SS)A NO. 316/AHD/2010 . A.Y. 2005-0 6 5 AFORESAID CIRCULARS, FURTHER INSTRUCTS THAT THE ASS ESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED S HARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSI NESS 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/SECURIT IES 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 TRA NSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQU ENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED T O ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUE NT 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) SHAL L CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LON G TERM CAPITAL GAIN/SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRAN SACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINI NG CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVE D 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. IT(SS)A NO. 316/AHD/2010 . A.Y. 2005-0 6 6 11. CONSIDERING THE FACTS IN HAND, IN THE LIGHT OF THE AFOREMENTIONED CIRCULAR OF THE BOARD AND THE CHART EXHIBITED HEREI NABOVE, IN OUR CONSIDERED OPINION, THE INTENTION OF THE ASSESSEE A T THE TIME OF THE PURCHASE OF SHARES IS PARAMOUNT. IF THE ASSESSEE HA S CLEAR INTENTION OF BEING AN INVESTOR AND SHOWING THE SHARES AS INVESTM ENT, WE DO NOT FIND ANY REASON TO DISTURB THE INTENTION OF THE ASS ESSEE. THE ASSESSEE UNDER CONSIDERATION IS INVESTOR AND, THEREFORE, ANY GAIN ARISING OUT THE TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAI NS BE IT SHORT TERM OR LONG TERM. 12. IN THE LIGHT OF THE AFOREMENTIONED DISCUSSION QUA T HE FACTUAL MATRIX OF THE CASE IN HAND, WE HAVE NO HESITATION I N UPHOLDING THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REV ENUE IS ACCORDINGLY DISMISSED. 13. BEFORE CLOSING, ALL THE DECISIONS RELIED UPON BY TH E LD. D.R. ARE MISPLACED IN AS MUCH AS SUCH CASES HAVE TO BE DECID ED ON THE FACTS OF EACH CASE. ORDER PRONOUNCED IN OPEN COURT ON 11 - 07 - 201 6. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED.