ATUL MADHURSINH RAMAIYA,MUMBAI vs. ASST CIT RG 24(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 26.02.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The effective grounds in this appeal are as under: “1. The Commissioner (Appeals) erred in upholding the assessing officer’s view of treating Short Term Capital Gain on sale of investment in shares amounting to Rs.1,55,16,538/- as Business Income.

The brief facts of the case are that the assessee is engaged in business of trading of shares and also made investment in shares and securities prior to 2001. The assessee had filed the return for A.Y. 2010-11 declaring total income of Rs.61,20,500/- comprising of (i) Business income of Rs.64,35,087/- (ii) STCG from securities (STT paid) of Rs.1,55,16,538/- and (iii) Income from other sources of Rs.9,11,765/- aggregating to Rs.2,28,63,390/- against which brought forward losses of Rs.1,66,42,871/- were adjusted. The Assessing Officer (hereinafter referred to as the AO) treated short term capital gain on sale of shares aggregating to Rs.1,55,16,538/- reflected by assessee as business income on the ground that value of transaction is very high and holding period was low. Further, the assessee was a trader and dealers in shares, therefore, AO treated this income as business income.

The matter carried to the Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal. Aggrieved, the assessee is in further appeal before us.

During the course of hearing, the Ld. A.R. has drawn our attention to the transaction chart which contained various details viz. frequency of purchases and sales of shares on investment account and also gives the details of period of holding of these shares which 3 M/s. Atul Madhursinh Ramaiya were held on investment account. The Ld. A.R. submitted that the assessee dealt in 11 scrips only. These shares were held as investment and holding period was more than one month. The assessee has made investment in shares by using capital of members of his family and assessee has not paid any interest on capital against the same. Assessee has earned major profit from Reliance Industries and assessee had 12000 shares of Reliance Industries on which 12000 bonus shares were issued on 26.11.09 which were sold by the assessee. The Ld. A.R. also relied upon the decision of the Tribunal in assessee’s own case for A.Y. 2006-07 in ITA No.5081/M/09 dated 23.09.2012 wherein the Tribunal has accepted that assessee’s income on shares under the head ‘Capital Gains’. Similarly, in A.Y. 2008-09 the Tribunal in ITA No.3053/Mum/12 dated 28.10.15 has taken the same stand. Moreover, in A.Y. 2009-10, the assessee submitted short term capital loss on investment in shares which was accepted by Revenue is an assessment u/s 143(3).

On the other hand, the Ld. D.R. relied upon the order of the Revenue Authorities.

We have heard the rival contentions of both the parties. Looking into the facts and circumstances of the case, we find that assessee has given the chart of shares which he held as investment account which reads as under: Sr. Name No. of Purchased No. of Sold on Holding Frequency Frequency No. Shares on Shares Period of of Sale Month- Purchase days

We find that assessee, at the time of purchase of these shares, kept them in an investment portfolio. We find that as per circular No.4/2007 by CBDT assessee is at liberty to maintain two portfolios viz. one as trading portfolio and another as an investment portfolio. We find that the shares were treated as investment in 2006-07 by the Tribunal and also in 2008-09 the Tribunal has treated assessee’s 12 scrips as investment by observing as under: "We have perused orders passed by the authorities below, the paper book filed by the assessee. It is observed that during the year under consideration the assessee had traded in shares as well as made investments in certain shares. The assessee has been showing the transactions in shares under two heads (i) shares held as investments under the head "investments" shown in the balance sheet and (ii) shares in which trading is conducted for the purpose of earning income as business income shown in the Profit & Loss account. The appellant is a dealer in shares and also investor in shares once such shares held as investments are separately identifiable, which treatment has been accepted in the past, then the claim made by the appellant be accepted as such. The Id. CIT(A) in his order at page 2 lists down the scrips purchased and held as investment by the assessee. The Id. CIT(A) records that in respect of 12 scrips the frequency of sale and purchase does not exceed more than 2 times. He therefore concluded that these 12 scrips has been held as investment by the assessee and any gain or loss arising from the sale of these scrips must be considered under the head income from capital gains. We do not find any infirmity with the findings of the Ld.CIT(A) in this respect. Therefore the ground raised by the Revenue, stands dismissed."

Respectfully following the same, we are of the view that resultant gain, being arisen out of investment portfolio, is liable to be treated as capital gains. Resultantly, we allow the appeal of the assessee.