Commissioner Of Income Tax vs. Shri Santosh Kumar Gupta

THE HIGH COURT OF MADHYA PRADESH ITA-54-2018 (COMMISSIONER OF INCOME TAX vs. SHRI SANTOSH KUMAR GUPTA) Gwalior, Dated 09.03.2018 Shri D.P.S. Bhadauria, learned counsel for the appellant. Heard on admission. This Appeal under Section 260 of the Income Tax Act, 1961 takes exception to the order passed by the Income Tax Appellate Tribunal in ITA No.272/Agra/2015 Assessment Year 2011-12; whereby the order dated 23/03/2015 by Commissioner Income Tax(Appeal) holding that in the assessment year 2011-12 income of Rs.3,71,09,103/- earned by the assessee on purchase or sale of shares is an income from capital and gain and not from business or profession, has been upheld. The Assessing Officer: ACIT, Circle-2, Gwalior by his order dated 15/03/2013 passed under Section 143(3) of the Income Tax Act, 1961 disallowed the assessee's claim of earning Short Term Capital Gain of Rs.14,56,200/- and Long Term Capital Gain of Rs.3,56,52,903/- on sale of shares by treating it to be an income from business or profession, by observing that there is no risk involved and the purpose of investment is to earn safe income in the form of dividend/interest. The Assessing Officer further observed that the Assessee is mainly dealing in shares in which there is an element of risk or uncertainty involved which is a basic requisite to consider an activity to be in the nature of trade/adventure; that, the holding period of most of the securities is usually very short and the ratio of sales to purchase indicate that the assessee is engaged in the business of sale and purchase of securities. These observations led the Assessing Officer to treat the income of Rs.3,71,09,103/- as income from business and profession instead of income from

capital gain. In Appeal, the finding by the Assessing Officer was reversed by the CIT (A) by relying on the decision of this Court in CIT vs. Omprakash Suri [359 ITR 39(M.P.)], wherein it is held: “Having heard the learned senior counsel for the appellant, we find that the CIT(Appeal) as also the Tribunal, after due appreciating all the facts, have correctly recorded the finding that the delivery based transactions were made with an investment motive and as such, the income therefrom was in the nature of Short Term Capital Gains whereas the income from F & O transactions and daily trading in shares were with the business motive, which were showed as business income only, which were mainly through stock broker Arihant Capital Market Limited registered with the NSC, NSE and BSE. The CIT(Appeal) and the Tribunal have considered the Board Circular No.4/2007 dated 15.06.2007, emphasizing that it is possible for a tax payer to have two portfolios; namely, an Investment Portfolio comprising of the securities, which are to be treated as capital assets and Trading Portfolio comprising of stock in trade, which are to be treated as trade asset. The clarification issued by the Board was also considered, stating therein that no single principle would be decisive and the total proposition is to be considered. The authorities below have taken into consideration that the respondent-assessee had maintained only Trade Portfolio and claimed that to

be an Investment Portfolio and undisputedly, the period of holding is less than one year. Having regard to the aforesaid, the CIT(Appeal) and the Tribunal have held that there is no infirmity in holding that these transactions would be treated as Short Term Capital Gain.” The Appellate Authority also found that the provisions of Section 10 (38) of 1961 Act, applicable w.e.f. 01/10/2004 is attracted which envisages:- “10(38). any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter: [Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115-JB.] Explanation.- For the purposes of this clause, “equity oriented fund” means a fund (i) where the investible fund are invested by way of equity shares in domestic companies to the extent of more than [sixty-five percent.] of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23- D): Provided that the percentage of equity share holding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;]” Furthermore, having found three elements being satisfied,

viz., (i) that there is transfer of capital asset in the form of equity shares held for more than one year (ii) that transactions are enforced after commencement of Chapter VII of Finance Act (No.2) 2004 w.e.f. 01/10/2004 and (iii) that the transactions should be chargeable to Securities Transaction Tax. The Appellate Authority held the income to be capital gain. The Tribunal taking into consideration the fact and legal position held: “24. There is no force in the AO's observation that if the assessee does not earn substantial dividend income on shares held by him, the gain earned by the assessee on sale of such shares due to appreciation in the value thereof should be treated as business income. In order that profit earned on sale of shares may be claimed as capital gain, it is not a sine qua non that the assessee must earn specific dividend income on the shares held by him. The shares sold by the present assessee were held by him as investment and not as stock-in-trade. It has ever been the case of assessee that the transactions were delivery based and that on all the transactions, STT was paid and capital gain u/s. 10(38) or 111A was claimed. The assessee is not a registered broker or sub-broker or dealer in equity shares. As such, none of the decisions relied on by the AO against the assessee, is applicable. In “Omprakash Suri” (supra) and “Bharukha Industries Pvt. Ltd.” (supra), besides in the other decisions relied on by the assessee, it has been held that the profit earned by

the assessee on sale of shares has to be treated as capital gain and not business income. Remarkably, “Omprakash Suri” (supra) has been rendered by the Hon'ble M.P. High Court, which is the jurisdictional High Court, so far as the assessee is concerned. It is clear that the provisions of Section 10(38) of the Act are applicable w.e.f. 01.10.2004 to the profit earned on sale of shares held for a period of more than 12 months and thus, section 111A is applicable w.e.f. 01.04.2005, to the profit earned on sale of shares held for a period of not more than 12 months. STT, having been paid on the transactions, the provisions of section 10(38) or Section 111A are applicable, as the case may be, only to capital gains arising on transfer of shares.” These findings by the CIT (A) and the Tribunal when tested on the anvil of the facts and law, warrant no indulgence. Consequently, as no substantial question of law arises for consideration, Appeal is dismissed in limine. (Sanjay Yadav) (Ashok Kumar Joshi) Judge Judge pwn* Digitally signed by PAWAN KUMAR Date: 2018.03.13 19:24:49 +05'30'