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Income Tax Appellate Tribunal, ‘A’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S.S. Godara
Date of concluding the hearing : January 28th, 2019 Date of pronouncing the order : February 20th, 2019 O R D E R Per J. Sudhakar Reddy :- This appeal is filed by the assessee and is directed against the order of the ld. Commissioner of Income Tax (Appeals) - VIII, Kolkata (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dated 28/10/2013.
The assessee is a company and is in the business of sale of paintings. It also derived income from interest and dividend as well as from, sale and purchase of shares. During the year, the assessee declared long-term as well as short-term gains from purchase and sale of shares. The Assessing Officer treated the income declared by the assessee under the short-term capital gains as business income on the following grounds: “a) The assessee had indulged in multiple transactions of large quantities with very high periodicity. These periodic transactions, selecting the time of entry and exit in each script, called for regular direction and management which would indicate that it was in the nature of trade; b) Repeated transactions, coupled with the subsequent conduct of the assessee to re-enter the same script or some other script, in order to take advantage of market fluctuations lent the flavour of trade to such transactions; c) The dominant impression left on the mind was that the assessee had not invested in shares; d) The intention of the assessee at the time of purchase was only to sell the shares immediately after purchase to maximize its profit and not to wait for dividend which strength the fact that it is not investment but trading;
2 Modern Gears (P) Ltd Assessment Year: 2010-11 e) The shares were all purchased during the year except Indusland Bank Ltd whose trade date is 31.3.2009, and none of these shares were shown as investment; f) Frequency of purchase and sale of shares showed that the assessee never intended to keep these shares as investment; but g) It is only for the purpose of claiming benefit of lower rate of tax, u/s 111A that he had claimed certain shares to be investment, though these transactions were only in the nature of trade.”
Aggrieved, the assessee carried the matter in appeal without success.
Further, aggrieved the assessee is in appeal before us. The ld. Counsel for the assessee, Mr. Somnath Ghosh, submitted that the assessee was always an investor in shares and has in all the previous years as well as in the subsequent years declared investments in its accounts and balance sheet and has been declaring the gains received on sale and purchase of shares as capital gains and that the revenue has neither in the past many years and in the subsequent assessment years disputed the head of income under which the assessee was declared income. He relied on the rule of consistency laid down by the Hon’ble Supreme Court in the case of Radhasoami Satsand [1992] 193 ITR 321 (SC) and the judgment in the case of CIT vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC) and argued that the revenue cannot take a different stand on the same facts only in this year. 5. He further submitted that the assessee had just 16 transactions of purchases for the whole year and only 33 transactions of sale in the year and that too in only 15 scrips. He argued that this demonstrates that the assessee is not a dealer or trader in shares but only an investor. He argued that the main object of the assessee is to carry on business of trading in painting and sculptures and it cannot extended in carrying on the business of treating in shares. He relied on the judgment of Jurisdictional High Court in the case of Shikha Holdings Pvt. Ltd. in of 2006. He further relied on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Gopal Purohit (2011) 336 ITR 287 and also many other case laws in support of his arguments. 6. The ld. DR, Mr. C. J. Singh, on the other hand, submitted that the assessee had turnover from purchase and sale of shares during the year. He submitted that the gain 3 Modern Gears (P) Ltd Assessment Year: 2010-11 that was received from sale and purchase of shares was Rs.4,03,87,444/- whereas income from sales of paintings, etc was only Rs.4,67,600/-. He submitted that the Assessing Officer pointed out that the assessee has been dealing in 12 scrips involving separate transactions of purchase and sale and the cost of purchase of shares was Rs.7,23,11,514/- and sale consideration received was Rs.11,26,98,957/-. He relied on the CBDT Circular on this issue and argued that the order of the Assessing Officer as well as ld. CIT(A) may be upheld. In reply, the ld. Counsel for the assessee submitted that long term capital gains earned by the assessee was accepted by the Assessing Officer and only dispute that was raised is regarding short-term capital gains, where the Assessing Officer treated the same as business income. He disputed such splitting of transactions into long-term capital gains and business income as arbitrary.
We have heard rival contentions and perused the papers on record. We find that the assessee has been consistently holding the shares in question as investments in its balance sheet. These are being valued at cost. The assessee has been earning long-term capital gains (LTCG) as well as, short-term capital gains (STCG) over years and has been declaring the same as such, in its return of income. This declaration as LTCG and STCG is not disputed by the revenue though it is a fact that no scrutiny assessment had taken place for the previous assessment years and subsequent assessment years. Be as it may, we find that the assessee has only two transactions of sale in the month of April 2009 and two each in the months of September 2009 & October 2009. Similarly, he has one transaction in the month of July 2009 and one transaction in the month of August 2009. Only in the month of May 2009, the assessee had 17 transactions.
A perusal of the same does not lead to the conclusion that the assessee is a dealer or trader in shares. A trader and dealer in shares, have transactions of purchase and sale almost on daily basis. One transaction a month does not made an assessee a trader in shares, the Assessing Officer has also given a table at Para 3 of its order giving period of holding of shares. In all there are 16 scrips of purchase and sale by the assessee and the period of holding is generally from 22 to 49 days. Only, in the case of a couple of scrips, the holdings is for a period of 2 days and only in one scrips, the purchase and sale had taken place on the sale day. An analysis of the above, leads to our conclusion
4 Modern Gears (P) Ltd Assessment Year: 2010-11 that the intention of the assessee is not to be a trader in shares but only an investor. Stray and isolated instances cannot take us to a conclusion that the assessee is a trader in shares. This proposition was laid down by the Jurisdictional High Court in the case of Shikha Holdings Pvt. Ltd. (supra). It is also not correct on the part of the Assessing Officer as well as the ld. CIT(A) to hold that the income from LTCG is to be assessed as much and that only income from STCG is to be earned a business income.
The value of the transaction does not alter the nature and classification of the transaction as held by the Kolkata ‘B’ Bench of the Tribunal in the case of Padmasagar Exports Private in order dated 12.08.2016. The Hon’ble Calcutta High Court in the case of CIT vs. H K Financiers (P) Ltd. [2015] 375 ITR 577 (Calcutta) held that when, there is not dispute that the assessee had valued the investments at cost and as classified the shares as investments, then the Assessing Officer is not correct to treat the short-term capital gains arising out of the purchase and sale of shares as business income. This Bench of the Tribunal in the case of ACIT vs. Amitbh Sonthalia ITA No.1750/Kol/2010 order dated 20.03.2013 wherein it was held that:
“6. We have heard rival submissions and gone through facts and circumstances of the case. The assessee has disclosed income from short term capital gains at Rs.1,03,78,826/- derived from transfer of shares on which STT was paid, further, a sum of Rs.38,577/- was disclosed as short term capital gains on transfer of units on which no STT was paid. Apart from this, Long Term Capital Gains was disclosed at Rs.4,36,66,128/-, which was derived from transfer of Amitabh Sonthalia AY. 2007-08 & 2008-09 shares on payment of STT and this Long Term Capital Gains was claimed exempt u/s. 10(38) of the Act. The AO assessed this income under the head profit and gains of business thereby denying benefit of concessional rates prescribed u/s. 111A of the Act. The assessee before us contended that IT assessment of past years, the AO accepted the assessee to be investor in shares as per past years' audited accounts, where shares were disclosed under the head investments. The assessee's books of account maintained always disclosed fund deployed in shares under the head investments and income derived from variations made in investment portfolio was disclosed under the head capital gains. This fact was narrated by assessee before us that this position was never disputed by revenue authorities in the assessment orders passed for earlier years. The assessee has adopted the method and basis for recording transactions in investment in accounting shares in the books of account consistently and in all past assessments income derived from investment in shares was assessed under the head capital gains either as short term or long term depending upon the period of holding. The assessee before us filed complete details of assessments and accounts i.e. copies of assessment orders for AY 2004-05 to 2006-07 in its paper book which clearly reveals that the variation in investment is accepted by the revenue as income from capital gains. Once this is an established position, that assessee maintained the distinction in books of account between its investments and stock in trade and also maintained distinction of short term investment as well as long term investment and such investments were accepted by revenue in earlier years all along, now they cannot take u-turn and change the head of income without any basis. Accordingly, we are of the 5 Modern Gears (P) Ltd Assessment Year: 2010-11 view that CIT(A) has rightly upheld the claim of the assessee in accepting the sale of investments as short term capital gains or long term capital gains, as the case may be. Both the appeals of revenue are dismissed.”
Applying the proposition of law laid down in these case laws to the facts of this case, we have no hesitation in upholding the contentions of the assessee and the income of the assessee from the sale and purchase of shares should be assessed under the head of ‘short-term capital gains’ and not business income both on facts as well as on the principle of consistency. We direct the Assessing Officer to assess this gain under the head ‘short-term capital gain’.
In the result, the appeal of the assessee is allowed.
Kolkata, the 20th February, 2019.