BAHRAM N. VAKIL,MUMBAI vs. ACIT 19(1), MUMBAI

Before the CIT(A), assessee submitted a copy of order of Hon'ble ITAT, Mumbai for AY.2008-09 in his own case, wherein the issue has been decided in favour of assessee. The assessee also relied on CBDT’s Circular No.6/2016, dt.29-02-2016. The Ld. Counsel for the assessee further submitted that from AY.2013-14 onwards, the Department has been accepting that the profit from sale of shares held for less than one year as Short Term Capital Gain.

Considering the submissions, Ld. CIT(A) dismissed the appeal of assessee, by giving the findings in Para 4.4 of his order, as under: “4.4. I have considered the rival submissions. I find that the AO has not brought material on record to justify the treatment of the profit on sale of shares as business income. In the assessment order the AO has stated that the appellant was requested to state why the short term capital gain amounting to Rs.1,39,449/- should not be treated as business income. But the appellant did not make any submission in this regard before the AO. Whether the profit on sale of shares is business income or short term capital gain depends on facts of the particular case. It is not necessary that facts of this year is same as that of the earlier years. Therefore, the findings of the earlier years cannot be imported to the assessment order of this year. The onus to prove that the profit represented short term capital gain was on the appellant. But he has failed to do so. As stated above, in the course of assessment proceedings, the appellant was requested to state why the profit from sale of shares should not be treated as business income. The appellant did not respond to the query of the Assessing Officer. In the course of appellate proceedings, the appellant has not been able to furnish the details to prove that the profit on sale of shares in Yes Bank constitutes short term capital gain. I therefore, confirm the order of the AO. In the result, grounds of appeal no. 1 and 2 are dismissed.”

Aggrieved, now the assessee preferred an appeal before the Tribunal, by raising the following Grounds: “

We have heard rival contentions and gone through the facts and circumstances of the case. The main issue in this appeal of assessee is treating the profit on sale of shares as ‘business income’ instead of ‘Short Term Capital Gain’. This issue is squarely covered in favour of assessee in his own case by the decision of the Co-ordinate Bench of this Tribunal (wherein one of us, JM was the author) in &6039/Mum/2012, dt.12-07-2017, wherein the Co-ordinate Bench has decided the issue as under: “7. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also gone through the statement of shares enclosed by assessee at pages 4 to 10 of assessee’s paper book, wherein complete details of shares purchased and sold on short term basis is filed. We find that the assessee has retained the shares for more than one day in each of the case and taken delivery and kept in the Demat A/c maintained with the portfolio manager Kodak Securities Ltd. We are of the view that in the given facts and circumstances of the case, the assessee has kept these shares as investment and taken physical delivery of shares and after taking physical delivery kept the same in Demat A/c maintained with portfolio manager Kodak Securities Ltd. Further, the assessee has not borrowed any money for the investment rather he has invested his surplus funds for purchase and sale of shares. In such circumstances, we are of the view that the intention of the assessee or objective of the assessee is investment and the intention of the assessee at the time of making investment should be the guiding factor for deciding the issue. Accordingly, in the present case, we are of the view that gains arising out of the sale and purchase of shares is assessable as capital gains. For the purpose of consistency also, this issue has been settled by the CBDT circular No.6 of 2016, dated 29-02-2016, where CBDT has clarified by issuing the following circular: - “Sub: Issue of taxability of surplus 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 fact-specific determination and has led to a lot of uncertainty and litigation in the past.

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 also, 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 of income from sale of shares and securities (Le. 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 litigation 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 Gain 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/securities 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 thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be 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 Capital Gain / Short Term Capital Loss or any other sham transactions.

Respectfully following the said decision of the Co-ordinate Bench of this Tribunal, we are of the view that the profit earned by the assessee on sale of shares may be treated as ‘Short Term Capital Gain’. Accordingly, the grounds raised