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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI S.V. MEHROTRA : & MS. SUCHITRA KAMBLE :&
Department by : Shri Anil Kumar Sharma Sr. DR Assessee by : Shri V.P. Gupta Adv. Date of hearing : 15/09/2016. Date of order : 20/09/2016. O R D E R PER S.V. MEHROTRA, A.M:
The revenue is in appeal and the assessee has preferred cross objections against the orders of ld. CIT(A) relating to A.Y. 2006-07 and 2008-09. All these matters were heard together and are being disposed of by this consolidated order for the sake of convenience.
C.O. no. 224/Del/2010(A.Y. 2006-07): 2. Brief facts of the case are that during the year under considerations the assessee company was engaged in the business of corporate finance consulting and advisory services to companies/ groups including government of India. It had filed its return of income declaring total income of Rs. 1,46,03,588/-. The AO noticed that assessee had declared business income at Rs. 21,52,974/-, short term capital gains on sale of shares at Rs. 73,30,424/-, short term capital gains on futures at Rs. 12,47,345/-, short term capital gains on mutual funds at Rs. 5,63,033/-, long term capital gain on shares at Rs. 19,33,968/-, long term capital gains on mutual funds at Rs. 1,68,335/-. Since there were enormous transactions in sale/ purchase of shares and volume of turnover was huge, he show caused the assessee as to why income from long term capital gain and short term capital gain should not be treated as business income. The assessee in its reply, inter alia, submitted as under: i. Company had no borrowings or line of credit and needs to keep its surplus funds invested for future investments and needs from these surplus balances built from profits of the company. ii. The purpose of investment in shares was to gain dividend income on surplus funds as a substitute for fixed deposits and hopefully over long term gain some capital return as well. iii. The sales were made for the twin purposes of protection of capital and to meet its requirements. iv. Investments were held generally for long period of time with the average holding on profit making transactions of 200 days. v. In past also shares were shown as investment.
3. The AO accepted the assessee’s contention as regards mutual funds. However, as regards gain on shares i.e. short term and long term, he did not accept the assessee’s contention, keeping in view the volume of turnover. He observed as under: “During the year under consideration the assessee has traded in 325 scripts (for income declared as Short Term capital gains) on day to day basis. Total turnover during the year was Rs. 5,68,10,283/-. Period of holding varies from 3 days to three months, therefore, period of holding was not such which can said to be for earning dividend for alleged long term capital gains the assessee traded on 43 times in 10 scripts with turnover of Rs. 37,63,441/-. These shares were traded frequently with a motive to earn profit.”
After referring to various case laws and after considering the decision of Authority for Advance Rulings in the case of Fidelity Group reported in 288 ITR 641 and the guidelines laid down by CBDT, AO held that short term capital gain earned on entire sale/ purchase of shares was business income.
Ld. CIT(A) while partly allowing the assessee’s appeal held that gain earned by the company on sale of shares within a period of 30 days was in the nature of business income and the rest gain was to be assessed as long term capital gain or short term capital gain keeping in view the period of holding. Being aggrieved, the department is in appeal before us and assessee has filed cross-objection.
At the time of hearing ld. counsel for the assessee did not press cross- objection. He submitted that the assessee is holding shares as investment since 1996-97 upto AY 2013-14. He referred to page 55 of PB wherein summary of capital gain and speculative income from shares has been shown as under:
Asstt. Year Capital Capital Gains Speculative Consultancy IT Order Gains Short term Long term profit/Loss receipts 1996-97 0 0 0 23.26 143(3) 1997-98 -0.51 0 0 25.54 143(3) 1998-99 0 0 0 56.86 NA 1999-00 0.08 0 0 105 143(1) 2000-01 3.13 0 -22.88 344.4 143(1) 2001-02 -29.97 5.24 -10.41 265.2 143(1) 2002-03 -3.03 2.63 0.37 311.7 NA 2003-04 6.2 16.66 -1.57 243.8 NA 2004-05 6.41 -3.24 11.95 226.1 NA 2005-06 94.92 24.62 15.57 197.1 143(3) 2006-07 91.62 19.03 -1.41 319.89 Appeal Total 168.85 64.94 -8.38 2118.85
He further submitted that all transactions are delivery based transactions and the assessee has not made any borrowing for making investment in shares. He further referred to the CBDT Circular no. 6 dated 29.2.2016 where Board has, inter alia, given following guidelines:
“……. .
Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBOT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- …….. . b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction i.e, whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT”.
Ld. counsel referred to the order of the ITAT Delhi Bench “C” in the case of DCIT Vs. Ganesha Securities (P) Ltd. in & others dated 30.06.2016 wherein after considering this Circular and after taking note of the principle of consistency, Tribunal dismissed the department’s appeal.
Ld. counsel also referred to the order of ITAT Jaipur Bench in the case of DCIT Vs. Mahender Kumar Bader (ITA no. 605/JP/2013 dated 18.3.2016).
We have considered the submissions of both the parties and have perused the record of the case. We find that in paras 12 to 14 ld. CIT(A) has discussed all the factual aspects and has observed as under:
“12. I have carefully considered the facts of the case and also the contentions of the AO and the appellant. I have also gone through the case law relied upon by the appellant company and also the circulars of CBDT issued in this regard laying down guidelines for the purpose of holding the income as business income or capital gain. It is correct that in the instant case the appellant has been making similar investments in the earlier years and has been showing the income as long term as well as short term capital gain and the position as such, was accepted in all earlier years, including A.Y. 2005-06 for which the assessment was made under Section 143(3) of the Act after going through the details of purchase and sale of shares. Further, it has also been noted from the Memorandum of the appellant company that there is no object clause for trading in shares. The Memorandum only authorizes the company to make investment of funds not immediately required. The Company has made no borrowings for the purpose of making investment in shares. Accordingly, only surplus funds have been invested in fixed deposits, mutual funds and shares. The contention of the appellant to the effect that it had taken actually delivery of all the shares, which were purchased by it and same had been duly transferred to its D-Mat account has also been found to be correct. Further, it is also a fact that total number of .sale transactions of 325 includes 126 transactions of sale on loss, in respect of which the company had claimed that it had to dispose of the shares with a view to safe guard the principal amount of investment in the circumstances when stock market index has been going down, and it has resulted in substantially large number of transactions. There is also substance in the contention of the appellant that number of transactions have also become large for the reason that a particular quantity of shares intended to be purchased or sold cannot be purchased or sold in single transaction and it normally results multiple of transactions and in order to determine the capital gain each transaction has to be separately matched. Further, it has also been observed on the basis of facts of the case of the appellant that though there were purchases and sale of shares during the year, but total amount of investment in shares at the year end had been the same as in the last year, whereas investment in mutual funds has substantially increased during the year from 0.32 crore last year to Rs. 2.19 crores at the end of the year under appeal. On the basis of above facts the contention of the appellant that it had made investment in shares at the earlier stage but it had disposed of the same on account of fall in the market Index and had subsequently made investment in mutual funds appears to be correct. This fact is also supported by details submitted by the appellant in respect of capital gain based on period of holding on the basis of which it has been noted that in respect of shares sold having cost of Rs. 125.08 lacs there was gain of only Rs. 1,76,3611- and on sale of shares having cost of 162.36 lacs there was gain of only Rs. 4, 01,179/-. Accordingly, the number of transactions and volume of purchase and sale was higher in this year only because of initial investment in shares and sale thereof subsequently with a view to avoid loss. It is also a matter of fact that provisions regarding taxability of capital gain had been amended w.e.f. 01.10.2004 on levy of STT and the intention of the Government had to collect the tax by way of STT and grant exemption / concession in rate of tax applicable to capital gain. Decisions relied upon by the appellant, particularly, the decision of Mumbai Bench of ITAT in the case of Gopal Purohit vs. JCIT, (2009) 122 TTJ 87 (Mum), which has also been affirmed by the High Court vide order dated 06.01.2010 and also the decision of IT AT Delhi Bench in the case of Nirmal Kumar Jain Vs. Addl. CIT, copy of which has been submitted, fully supports the contention of the appellant. In fact the facts of these cases are quite similar to the facts of the case of the appellant as number of transactions and volume and magnitude of purchase and sale of share and also of amount of capital gain has also been substantial in the facts of these cases also.
Considering the facts and the case law, in my view there can be no doubt as far as long term capital gain of Rs. 19 .. 33.946/- earned on shares by the appellant company. The holding period of these shares has been from 372 days to 1867 days and sale of shares was only of nine companies. Further, cost of acquisition of these shares was only Rs. 18,29,473/- which had been sold for consideration ofRs. 37,63,4411- and capital gain of more than 100% was earned. Keeping in view the period of holding as well as gain arising on sale of these shares it cannot be said that gain was in the nature of business income. Accordingly, claim of the appellant company in this regard is hereby accepted and Assessing Officer is directed to treat the same as long term capital gain.
In regard to short term capital gain amounting to Rs. 73,48,656/- (excluding gain of sale of futures of Rs.12,47,345) also considering the facts of the case of the appellant it cannot straightway be said that it was not in the nature of capital gain and was in the nature of business income. Facts analyzed hereinabove by and large goes to support the contention of the appellant that income was in the nature of capital gain. It has been observed in the decisions that overall facts and circumstances have to be taken into consideration in order to decide whether the intention of the assessee has been to trade in shares or to hold the same as investment. It has also been held in the cases that number of transactions or volume add magnitude of purchase and sale cannot be the criteria for holding that income is in the nature of business income. Further, it has been observed that the Assessing Officer in the order of assessment has only considered the criteria of number of transactions, which cannot be sustained in view of clear
decisions in this regard particularly the decisions in the cases of Gopal Purohit (supra) and Nirmal Kumar Jain (supra). In fact in the case of Nirmal Kumar Jain ITAT Delhi Bench has specifically discussed this aspect of the matter and with reference to earlier decision of Mumbai Bench in the case of Janak S. Rangwala, it has been observed that merely on the basis of volume, magnitude and frequent transactions, the nature of transactions cannot be decided. Accordingly, the view of the Assessing Officer cannot be upheld on this ground. The Assessing Officer has also contended that the appellant company has not maintained separate books of account in respect of transactions of investment. In this regard contention of the appellant company is correct to the extent that requirement of keeping separate books of account would be there only when an assessee is having investment in shares and securities and is also a dealer in shares / securities. The appellant company is having only investment and, therefore, there cannot be requirement of keeping separate books of account. Accordingly, this contention of the Assessing Officer does not hold good. The Assessing Officer has also wrongly observed that the appellant company has been showing gain on sale of shares as business income upto Assessment Year 2001- 02. The appellant company has submitted details in respect of earlier years alongwith copies of computation of taxable income and has been shown that from A.Y. 1996- 97 onwards it had been regularly showing similar income as long term/short term capital gain. Accordingly, contentions taken by the Assessing Officer in this regard do not have force to arrive at a conclusion that income in the case of appellant was in the nature of business income. Considering the totality of facts and circumstances of the case, I am inclined to agree with the contention of the appellant principally that purchases were made by way of investment and income on sale was in the nature of capital gain and not in the nature of business income. It is however, noticed that in the case of the appellant on the basis of details called for in regard to period of holding of shares on which short term capital gain of Rs. 73,48,656/- has been earned, that there was sale of shares having cost of Rs. 1,25,08,047/- within the period of 30 days of purchased of shares. Inspite of the factual position of the case of the appellant and also the case law mentioned hereinabove, I am of the view that it cannot be said in respect of sale of shares made within a short period of 30 days of purchase of shares that these shares had also been purchased by the appellant company by way of investment and gain arising on sale of these shares should also be considered as short term capital gain. In my view it would be quite logical to hold that gain arising on sale of shares purchase within the period 30 days was in the nature of business income and not capital gain. I accordingly, hold that gain of Rs. 1,76,3611- earned by the company on sale of shares within a period of 30 days was in the nature of business income. Accordingly, I accept the contention of the appellant to the extent of short term capital gain of Rs. 71,72,295/- and hold that amount of Rs. 1,76,3611- is in the nature of business income. This ground of appeal is partly allowed”.
11. We do not find any reason to interfere with the findings of ld. CIT(A) because the facts as recorded by ld. CIT(A) have not at all been controverted by the department. Once the assessee was holding the shares as investment since 1996-97 up to 2013-14, there was no reason to treat the income from sale of shares under the head business income because the intention of assessee was manifested very clearly by its conduct. The assessee had primarily utilized its surplus funds for investing in shares and not borrowed funds. Moreover, ld. CIT(A) has also observed that in the Memorandum of the assessee company, there was no object clause for trading in shares. We, therefore, uphold the order of ld. CIT(A).
12. In the result, revenue’s appeal is dismissed and the cross objection of the assessee is dismissed being not pressed. & CO. no. 217/Del/2012 (AY 2008-09): 13. In AY 2008-09, identical grounds have been raised by the revenue as in AY 2006-07. Therefore, for the very same reasons as in AY 2006-07, we uphold the order of ld. CIT(A) holding the profit on sale of shares as long term and short term capital gain depending upon the period of holding.
14. At the hearing assessee did not press the cross objection filed by it. Accordingly C.O. stands dismissed being not pressed.
In the result, revenue’s appeal is dismissed and the cross objection of the assessee is dismissed being not pressed.
In the result, appeals preferred by the revenue as well as the cross- objections preferred by the assessee are dismissed. Order pronouncement in open court on 20/09/2016.