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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP GOSAIN
The captioned are three appeals relating to the same assessee for Assessment Years 2006-07 and 2008-09 and since they involve common issue, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
We may first take-up the appeal for Assessment Year 2006-07 preferred by the Revenue, which is directed against the order of CIT(A)-29, Mumbai dated 12.10.2009, which in turn has arisen from the order dated 25.11.2008 passed by the Assessing Officer, Mumbai under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, the short-point of appeal raised by the Revenue reads as under :-
i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to treat income of Rs.61,00,839/- from Capital Gains as against business income treated by the AO without considering the concrete reasoning given by him in body of order. ii) the appellant prays that the order the CIT(A) on the above ground be reversed and that of the Assessing Officer be restored.
Briefly put, the relevant facts are that assessee is an individual who filed her return of income for Assessment Year 2006-07 declaring an income of Rs. 60,64,790/- which, inter-alia, included ‘Short Term Capital Gains’ on sale of shares of Rs. 61,00,839/- and ‘Income from Other Sources’ of 3 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 Rs.(-) 36,052/-. In the assessment finalised u/s 143(3) of the Act dated 25.11.2008, the Assessing Officer differed with the assessee only on the assessability of the Short Term Capital Gains declared by the assessee. As per the Assessing Officer, the Short Term Capital Gains declared by the assessee on purchase and sale of shares was liable to be assessed as ‘Business Income’ and not as income under the head ‘Capital Gains’. Pertinently, so far as the action of the assessee of declaring the gain on purchase and sale of shares as Long Term Capital Gains is concerned, the same was accepted as such. The relevant discussion in the assessment order reveals that the Assessing Officer treated the Short Term Capital Gains as ‘Business Income’ noticing that assessee had purchased and sold number of scrips involving multiple transactions and the holding period of the shares and securities was less than a year. Noticing that the only source of income of assessee was ‘Capital Gains’ and ‘Income from Other Sources’, the Assessing Officer inferred that assessee had spent most of her time for carrying out share transactions and thus, it was assessable as ‘Business Income’.
Before the CIT(A), assessee assailed the order of CIT(A) on facts and in law. Firstly, assessee pointed out that since the past, income from purchase and sale of shares has been declared by assessee as investment income liable to be taxed as ‘Capital Gains’ and such a position was also accepted in assessment finalised u/s 143(3) of the Act for the Assessment Year 2003-04. Secondly, assessee pointed out that she has been reflecting the shares and securities as part of investment in the Balance-sheet since earlier years. Even on the issue of the number of scrips and the volume of transactions, assessee pointed out that the same was not too huge to be considered as 4 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 ‘Business Income’. The CIT(A) not only analysed the factual matrix, but also referred to the decision of the Mumbai Bench of the Tribunal in the case of Gopal Purohit, dated 10.02.2009 and held that the Short Term Capital Gains of Rs.61,00,839/- was liable to be assessed as ‘Capital Gains’ and not as ‘Business Income’. The relevant discussion by the CIT(A) is as under :-
“5. I have carefully considered the facts of the case, arguments of the Assessing Officer and the submissions of the AR of the appellant. I find that the appellant remains an investor and cannot be classified as engaging herself in share trading activity. The number of scrips in short term amount to only 78 and in the long term there are only 8 scrips. Turnover of about Rs.5 crores is not unreasonable as the gain declared is about Rs.61 lakhs. Most important aspect of the transactions of the appellant is that the holding period has been very high. Only in 19 scrips there is a holding period of less than one month. In most of the scrips the holding period is exceeding 3 months and sometimes exceeding 6 month and 9 months. The average holding period in the year works out to 156 days. Therefore looking at long holding period of shares it cannot be said that these are day-to-day business transactions. As regards the employment of fund the investment is out of the appellant's capital and family owned funds. There is no claim for payment of interest except Rs.54,000/- which has been claimed against income from other sources. The capital of the appellant stands at Rs.1,60,36,634/- at the end of the year and the shares / debentures have been disclosed as investments in the Balance Sheet. The appellant has been disclosing the shares held as investment in the earlier years. The AO has also assessed it as investment in AY.2003-04 in an order u/s. 143(3). Looking at the Balance Sheet it can also be seen that the appellant is an investor with substantial investments of Rs.49,00,000/- in SBI Relief Bonds. The appellant is a house wife and does not have any business or professional engagement. The appellant had relied on the decision of jurisdictional ITAT in the case of Gopal Purohit in dated 10.2.2009 wherein similar circumstances the tribunal has allowed the claim of the appellant to treat the gains as capital gains. Considering the entirety of facts it can be concluded that the appellant is 5 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 not a trader in shares and there is sufficient evidence to show that she is a short term and long term investor. In view of this the AO is directed to treat the declared income of Rs 61,00,839/- as capital gain and not as business income. This ground of appeal is allowed.”
In the above background, Revenue is in appeal before us.
In the Grounds of appeal, the only point raised by the Revenue is that CIT(A) has not considered the reasons advanced by the Assessing Officer in treating the share transactions as ‘Business Income’.
7. At the outset, we find that the said plea of the Revenue is quite misplaced inasmuch as the relevant discussion in the order of CIT(A), which we have reproduced in the earlier paras, clearly brings out that each and every point made out by the Assessing Officer has been dealt with. Firstly, the CIT(A) noted that the number of scrips transacted by the assessee for earning Short Term Capital Gains was 78 and that the total turnover was about Rs. 5 crores, which cannot be considered as unreasonable for earning a gain of around Rs.61 lacs. The CIT(A) further notes that in majority of transactions, the holding period is quite high and it is only in 19 scrips that the holding period is less than one month. It is also brought out that in most of the scrips, the holding period extends to three months and sometimes, six to nine months also. Before us, the learned representative for the assessee had furnished a Chart showing the working of average holding period which works out to 156 days. In this background, the CIT(A) came to conclude that it is not a case where any day-to-day transactions have been carried out in the shares and securities which could be termed as a ‘Business activity’. It has also been brought out by the CIT(A) that the investments have been 6 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 made out of assessee’s own Capital and family owned funds and there is no borrowing. More importantly, the CIT(A) noted that the assessee has been accepted as an investor in an assessment u/s 143(3) of the Act for Assessment Year 2003-04 also. For all the said reasons, the CIT(A) found it expedient to uphold the plea of the assessee.
8. At the time of hearing, the learned representative had referred to a fact-sheet placed in the Paper Book, as also the comparative Chart of past four years to demonstrate that there is a similarity in the manner in which assessee has purchased and sold the shares in this year, including the period of holding. Apart therefrom, it has also been pointed out that the parameters laid down by the CBDT in its Circular no. 4/2007 dated 15.06.2007 are fully complied with in assessee’s case and, therefore, on this point also, the gains have been rightly assessed as ‘Capital Gains’ by the CIT(A). In this context, reference has been made to page 7 of the Paper Book wherein the Chart showing compliance with Circular no. 4/2007 dated 15.06.2007 (supra) has been brought out.
9. In our considered opinion, the manner in which the matter has been analysed by the CIT(A) does not leave any doubt that the assessee cannot be perceived as a trader in shares per se, ostensibly when the Long Term Capital Gains declared by the assessee on purchase and sale of shares has been accepted as such. Further, the assessee is not carrying out any other business activity so as to construe any business motive in carrying out the transactions of purchase and sale of shares. In fact, before the Assessing Officer, assessee had filed written submissions, which have been reproduced in para 3 of the assessment order. In terms of such submissions, assessee
7 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 pointed out that she was a regular investor in shares and securities, and such investments were made out of her own funds with the intention of not only earning dividend, but also seeking capital appreciation in the long run. So far as the Short Term Capital Gains was concerned, assessee specifically pointed out that such transactions were undertaken keeping in view the market volatility and the specific situation of investee-companies, but otherwise the intention has been to make long term investments in shares and securities. All these aspects have been merely brushed aside by the Assessing Officer, an action which, in our view, has been rightly negated by the CIT(A). Thus, we hereby affirm the order of CIT(A) and accordingly, Revenue fails in its appeal for Assessment Year 2006-07.
Now, we may take-up the cross-appeals by the assessee and the Revenue for Assessment Year 2008-09 which is directed against the order of CIT(A)-34, Mumbai dated 30.07.2012, which in turn has arisen from the order dated 27.12.2010 passed by the Assessing Officer, Mumbai under section 143(3) of the Act.
In these cross-appeals, the primary issue arises from the action of the Assessing Officer in treating the Short Term Capital Gain on purchase and sale of shares as ‘Business Income’. This aspect is similar to what has been considered by us in the appeal of the Revenue for Assessment Year 2006-07 in the earlier paras, where the CIT(A) held such transactions to be assessable as Capital Gains only. The only distinction in Assessment Year 2008-09 is that the CIT(A) treated the gain arising out of purchase and sale of shares both as trading activity as well as Short Term Capital Gains depending on the period of holding. In other words, for the gain arising from the sale of scrips
8 Smt. Murti A. Gopani 6059 & 6155/Mum/2012 where the holding period was less than 90 days, it was treated as ‘Business Income’ whereas the gain arising from sale of scrips where the holding period was more than 90 days but less than one year, it was held to be assessable as Short Term Capital Gains. So far as the former aspect is concerned, assessee is in appeal before us, whereas the Revenue in its cross- appeal is assailing the latter aspect of the decision of the CIT(A).
It may be noted that it was a common point between the parties that so far as the facts and circumstances in the instant assessment year are concerned, they stand on an identical footing to those considered by us in the appeal for Assessment Year 2006-07 in the earlier paras, therefore, our decision therein shall apply mutatis mutandis to the said cross-appeals also. Resultantly, whereas the appeal of the Revenue is dismissed, that of the assessee is allowed for Assessment Year 2008-09.
Resultantly, the captioned appeals of the Revenue are dismissed and that of the assessee is allowed.
Order pronounced in the open court on 23rd March, 2018.