VISHESH SAHARA,MUMBAI vs. ITO WD 12(2)(3), MUMBAI

The learned Authorised Representative reiterating the stand taken before the departmental authorities submitted, the assessee has shown the shares as investment in 3 Shri Vishesh Shahra the books of account and not as stock in trade. Therefore, the income derived from sale of shares is to be assessed under the head capital gain. He submitted, the assessee has not utilized any interest bearing borrowed funds for investment in shares. He submitted, frequency and volume of share transaction cannot be a factor to decide whether the income derived from shares is to be taxed as business income or capital gain. In this regard he submitted that only because the average period of holding of shares is between 30 to 45 days the assessee cannot be treated as trader. He submitted, the Assessing Officer completely ignored the fact that in the relevant previous year assessee has earned dividend income of `.18.91.258/– which clearly demonstrates the intention of the assessee to hold the shares as investment. The learned Authorised Representative submitted, from the preceding years assessee had been showing the shares as investment and offering the income derived from share transaction under the head capital gain and the department has also accepted the claim of the assessee. He submitted, even in the impugned assessment year the long term capital gain offered by the assessee has been accepted by the Assessing Officer. He submitted, assessee is maintaining a single portfolio i.e investment portfolio from the very beginning and offering income derived from share transactions as capital gain.

The learned Departmental Representative relied upon the observations of the Assessing Officer and Commissioner (Appeals).

We have considered rival submissions and perused the record. From the factual matrix of the case it is noted that from the very inception the assessee had been 4 Shri Vishesh Shahra showing the share transaction as investment activity in its books of account. In fact, assessment order passed under section 143(3) of the Act for the A.Y.2004–05 clearly reveals that the Assessing Officer has accepted the income derived from sale of shares as short term capital gain. Even, in the subsequent years also there is no dispute with regard to assessee’s claim. Notably, in the impugned assessment year the Assessing Officer has also accepted long term capital gain offered by the assessee from sale of share. The primary reason for which the Assessing Officer has rejected assesee’s claim of short term capital gain is, the shares were held for a period of 30 to 45 days. In our view, that cannot be a determinative factor for treating the share transaction as trading activity. From the details furnished before us we find that only in respect of one share transaction the period of holding was 8 days. Otherwise, in respect of all other share transactions the period of holding varied between one month to 11 months. It is also not disputed that the assessee has not utitlised any borrowed fund for investment in shares. Moreover, the assessee is maintaining only one portfolio and one bank account to carry out share transactions. In these circumstances only for the purpose of bringing the income derived from share transaction to tax at a higher rate, the Assessing Officer cannot treat it as business income. Even though principles of res judicata do not apply to tax proceeding, however, rule of consistency cannot also be ignored. Considering the past treatment given by the department to the income derived from the share transaction, the income offered by the assessee from share transaction in the impugned assessment year has to be assessed under the head capital 5 ITA No. 6855/Mum/201 Shri Vishesh Shahra gain. Accordingly, we set aside the impugned order of learned Commissioner (Appeals) and direct the Assessing Officer to assess the income derived from sale of shares as short term capital gain.