Smt. M. Rajini V. Commissioner of Income Tax - IV

ITTA/311/2013

AI Insights

The case involves Smt. M. Rajini, the appellant, who contested the classification of her income from share transactions as business income by the Income Tax Department. Initially, the Commissioner of Income Tax (Appeals) classified her activities as investment, consistent with previous years. However, the Tribunal reversed this decision, classifying her income as business income based on the nature and frequency of her transactions. The High Court upheld the Tribunal's decision, emphasizing that the nature of transactions should be assessed in each assessment year independently and that previous classifications do not bind subsequent assessments unless circumstances remain unchanged.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 808073 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 31-07-2013
• Assessment Year: misc
• Other Referred Cases: SPECTRA SHARES & SCRIPS (P) LTD V. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Business income; Capital Gains; Income Tax; Investment; Share transaction
• Section: 143(3)

Judgement Text

"HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.No.311 of 2013 Date: 31-07-2013 Between: Smt. M. Rajini Flat No.2B, III Block, Falcon Crest Apartments, Street No.1, Banjara Hills, Hyderabad. … Appellant And 1. Commissioner of Income Tax - IV, I.T. Towers, A.C. Guards, Hyderabad. … Respondent HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND HON’BLE SRI JUSTICE K.C. BHANU I.T.T.A.No.311 of 2013 JUDGMENT: (Per Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is preferred against the judgment and order of the learned Tribunal, dated 15-03-2013 in I.T.A.No.958/Hyd/2009 in relation to assessment year 2006-07 and is sought to be admitted on the following suggested questions of law: i) Whether on the facts and circumstances of the case and in law the learned ITAT is correct in holding that the appellant’s income from investment in shares has to be assessed under the head business income? ii) Whether on the facts and circumstances of the case and in law the decision of the learned ITAT in concluding that what was consistently assessed as income from capital gains should be assessed as business income? 2. Learned counsel for the appellant submits that the Tribunal ought not to have reversed the decision and finding of the Commissioner of Income Tax (Appeals), who held that the nature of share transaction of the assessee was in the nature of investment and not business activity and this was consistently held on previous assessment years by all the authorities and accepted. According to the Commissioner of Income Tax (Appeals), he reversed the decision of the Assessing Officer. Under these circumstances, learned counsel submits that in the absence of any material contrary thereto, it was not appropriate either for the Assessing Officer or for the Tribunal to hold that the share transaction of the assessee, being a housewife, is in the nature of business and not investment. He in support of his contention relies on a judgment of this Court rendered in case of SPECTRA SHARES & SCRIPS (P) LTD V. DCIT [1]. He has drawn our attention to paragraphs-50 and 60 of the said report to support his arguments. 3. We have gone through the impugned judgment and order of the learned Tribunal. 4. It appears that the learned Tribunal has reversed the decision of the Commissioner of Income Tax (Appeals) who held, considering the decision of the authorities in the previous assessment years, that the nature of transaction of the appellant-assessee is in the nature of investment and not a business. It was also held by the Commissioner of Income Tax (Appeals) that the decision rendered and accepted earlier should not have been overlooked by the Assessing Officer. 5. In this context, we have to decide whether the decisions rendered by the authorities in the earlier assessment years of the assessee can have binding force or not. Fact finding of the Assessing Officer and that of the learned Tribunal suggest in the negative and further that the earlier decision should be overlooked. It is the settled proposition of law that the decision in revenue matters in earlier assessment years does not operate as res judicata, but if the decisions are accepted by both parties and if there are no changed circumstances, then such earlier decision has to be followed. This observation of ours will have support from the decision cited by the learned counsel for the appellant in paragraph-49 thereof, wherein this Court has observed that although the principle of res judiciata did not apply to the income tax proceedings, the revenue cannot be allowed to change its view with regard to the fundamental aspect of a transaction taken in earlier assessment years, unless it is able to demonstrate things in circumstances in the subsequent assessment years. (emphasis supplied) 6. Therefore, the distinguishing feature is whether there is any change in the facts and circumstances of the case or not. Meaning thereby whether the Assessing Officer has come to any fact finding that the transaction dealt with by the assessee is in the nature of business or in the nature of investment. Therefore, we quote the findings of the Assessing Officer first as follows: “In view of the above, for this assessee, the following check- list is applied to determine whether the assessee had investment motive purely while trading in the shares or a profit motive but was only using the clauses of the IT Act to lessen tax burden. i. The volume of transactions done by the assessee – The turnover for the year is 4.19 crores, a huge amount for an individual, on around 60 scrips which is also a high number. ii. Whether assessee traded throughout the year or in certain periods only – throughout the year continuously, with about 4-5 transactions per scrip on an average. iii. Whether there was delivery of the shares or the shares were simply held in the broker’s account ready to be disposed off any moment – there was no delivery in about 4 scrips which were sold on the same day. While it is true that in majority of the cases, there was delivery of shares, the fact that all these transactions happened through the same account proves that assessee did not have any motive except that of making profit as and when it is possible. iv. What was the period of Holding of the Shares and whether the entire purchases were done in the year itself or carried down from previous years closing balances – Except in 3 cases, all purchases done in this year only; even in those 3 cases, the major purchases happened in this year only. v. Whether the assessee maintained books and showed the shares as investment or stock-in-trade in Balance Sheet – no books were maintained and balance sheets were not filed. vi. The ratio of purchases to sales to determine whether certain quantities were retained or entire quantities disposed off to earn the profit – the ratio is around 1.2. With only a closing stock of Rs.39 lakhs of the 3.9 crores of purchases made, it is evident that the most of the stock was sold out, with the intention of making the quick profits. vii. Whether assessee received any dividends on the shares – Yes. viii. Motive of profit as determined by the sources of financing the transactions i.e., whether assessee financed the transactions by his own savings or through loans on which substantial interest was paid – assessee financed the transactions with her own funds. The Assessing Officer further recorded as follows: “As the Circular specifically stated, no single principle can be taken but the total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade. As can be seen, out of the above list of 8 points, only 2 points are clearly in the assessee’s favour. Added to this, it is the fact that assessee is not engaged in any other business or profession of any kind and her entire investment has been exclusively in equities and not in any other investment instruments such as bonds or mutual funds.” Then the Assessing Officer concluded on fact as follows: “Therefore, in view of all the discussion earlier, the share trading done by the assessee is nothing but a trading activity done regularly with the sole intention of earning profit and hence, the entire income from short-term capital gains in respect of the assessee is treated as Income from Business. “ 7. In the previous assessment years, the revenue authorities must have come to the conclusion that the nature of the transaction of the assessee was in the nature of investment, just because in the previous assessment years the assessee indulged in investment activity, that does not mean or debar the assessee cannot change the nature of business and for that matter there is no bar to revenue authority to look into afresh. Previous investment activity cannot be a precedent to hold that the assessee is carrying on the same activity in the subsequent assessment years as a matter of course. In our considered view, the nature of the transaction has to be examined in each and every individual assessment year and should not be accepted blindly as it was done in the previous assessment years. It was found by the Assessing Officer on fact, having regard to the transaction, that the motive was not of investment, but it was of business and to make quick profits. The Commissioner of Income Tax (Appeals), however, did not or could not dealt with the aforesaid fact finding of the Assessing Officer and simply relied on the past transaction and did not attempt to examine the transaction in the relevant assessment year. 8. The Tribunal has gone into the matter afresh and came to the fact finding as follows: “From the facts on record, we find that the assessee is not engaged in any other business or profession of any kind and her entire investment has been exclusively in equities and not in any other instruments such as bonds or mutual funds. As observed by the AO the volume of share trading is high and the assessee has been frequently trading continuously through the year. We find that except in 3 cases, all purchases have been done in the year under appeal only; even in those 3 cases, the major purchases happened in this year only and no books were maintained and balance sheets were not filed. We also find a closing stock of Rs.39 lakhs only out of the purchases running into over Rs.3.9 crores, which suggests that most of the stock was sold out, and the intention of the assessee in making bulk of purchases during the year was only with the intention of making quick profits. 9. In the grounds of appeal, nowhere it has been stated that the aforesaid fact finding is perverse. Rather the finding of the Commissioner of Income Tax (Appeals), even though has been relied on, is flawed one. Under these circumstances, we are of the view that relying on the fact finding of the Assessing Officer and the Tribunal, the nature of the transaction of the assessee in the relevant assessment year is in the nature of business and not an investment. Therefore, we do not find any element of law involved in this matter for adjudication. 10. Accordingly, the appeal is dismissed. There will be no order as to costs. Miscellaneous Petitions pending, if any, shall stand closed. _________________ K.J. SENGUPTA, CJ _________________ K.C. BHANU, J Date: 31-07-2013 YCR [1] [2013] 354 ITR 35 (AP) "