ITO WARD - 3(3), KALYAN, KALYAN vs. MIHIR INVESTMENT AND FINANCIAL CONSULTANTS, KALYAN

2 M/s. Mihir Investment and Financial Consultants, 3. Briefly, the facts are that the assessee, a partnership firm, is engaged in the business of sale and purchase of shares and securities, investment and financial consultancy etc. For the assessment year under dispute, the assessee filed its return of income on 29.09.2011 declaring total income of Rs.22,51,430/-. During the assessment proceedings, the Assessing Officer on the basis of details furnished by the assessee noticed that the assessee has indulged in huge number of transactions in sale and purchase of shares. Therefore, he called upon the assessee to show cause as to why the income earned from share transaction shown under the head short term and long term capital gain should not be taxed under the head ‘income from business’. In response to the said show cause notice, it was submitted by the assessee that from the very inception, the assessee has undertaken the share transaction as an investment activity and shares are valued at cost. The aforesaid method was consistently followed by the assessee over the years and the shares were never treated as stock in trade and the assessee never took the benefit of valuing the stock as on the year end, at cost or market value, whichever is lower. Thus, it was submitted, since the share transaction is an investment activity of the assessee, the income derived from such transaction has to be assessed as capital gain. In support of such submission, the assessee relied upon a number of judicial precedents laying down certain principle as to how to treat the income from share transaction as capital gain or business income. The Assessing Officer, however, was not convinced with the submissions of the assessee and held that due to number of transactions entered into by the assessee and such other factors 3 M/s. Mihir Investment and Financial Consultants, as mentioned in para 3.12 of the assessment order, the assessee is to be treated as a trader in shares and income derived from share transaction has to be treated as business income. Accordingly, he taxed the income of Rs.1,07,53,754/- derived from share transaction as income under the head business and completed the assessment accordingly.

Being aggrieved of the aforesaid decision of the Assessing Officer, the assessee preferred an appeal before the ld. Commissioner of Income Tax (Appeals).

The ld. Commissioner of Income Tax (Appeals) after considering the submissions of the assessee and analyzing the pattern of share transaction entered into by the assessee found that the assessee has consistently maintained two portfolios, one for trading and one for investment. The assessee has shown income from derivate transaction under the head business against which it has claimed expenditure. As far as investment portfolio is concerned, the assessee has shown the income under the head capital gain. He found that the share transactions under the investment portfolio are delivery based and the period of holding of shares for long term capital gain is 1000 days and for short term capital gain is 200 days. He also noted that in the assessee’s own case, under similar facts and circumstances, the tribunal has accepted assessee’s claim of income from share transaction shown under the head ‘capital gain’. Accordingly, he directed the Assessing Officer to accept the income shown by the assessee under the head ‘capital gain’.

We have heard both the parties and perused the materials on record. At the outset, the ld. Authorized Representative submitted before us that in assessee’s own case for assessment year 2007-08 under identical facts and circumstances, the tribunal has directed the Assessing Officer to assess the income derived from share transactions held under the investment portfolio under the head capital gain. He submitted there being no difference in the factual position, similar view has to be taken in the impugned assessment year. The ld. Departmental Representative has agreed that in the assessment year 2007-08, the issue has been decided in favour of the assessee by the Tribunal in similar facts and circumstances.

Having considered rival submissions, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals). As could be seen from the facts on record, from the very inception the assessee is maintaining two portfolios with regard to the share transaction, one for trading activity and one for investment activity. The income derived from trading activity has been offered as business income and the income derived from investment activity has been offered under the head capital gain.

In the result, the appeal filed by the department is dismissed. प"रणामतः राज"व क" अपील खा"रज क" जाती है ।