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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the Revenue against the order of ld. CIT(A)XXVII, New Delhi dated 08.03.2010 for the assessment year 2007-08 on the following grounds : “
1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in treating the business income from the sale/purchase of the shares, as capital gain specially when there is no clear cut demarcation in stock and investment of shares.
2. The Ld. CIT(A) has wrongly applied thedecision of Bombay High Court in the case of Gopal Purohit vs. JCIT, IT Appeal 1121 of 2009 on 6th January, 2010 as the facts are different in from the present case. In this case the assessee has declared his income from salary, business or profession capital gain (short term as well as long term) and income from “other sources”.
2. The brief facts of the case are that the assessee filed return of income on 17.07.2007 declaring total income at Rs.10,47,950/-. The return was processed u/s. 143(1) and later on it was selected for scrutiny and notice was issued u/s. 143(2) dated 22.07.2008 which was duly served upon the assessee. The assessee has shown income from short term capital gain of Rs.9,85,531/- from purchase and sale of various securities and interest income of Rs.1,62,423/- as income from other sources. The assessee in his written submissions before the Assessing Officer on 04.11.2009 submitted that the income under the head ‘capital gains and interest income’ was inadvertently filed in the return of income by the husband of the assessee. He further submitted that the assessee derived long term capital gains of Rs.40,32,189/-, short term capital gain of Rs.10,74,502/- and saving bank interest of Rs.29,242/- instead of Rs.39,84,301/-, Rs.9,85,531/- and Rs.5000/- respectively. The Assessing Officer asked to justify why its income from dealing in securities not be treated as income from business or profession instead of income from capital gains. The assessee has earned Rs.40,32,189/- towards long term capital gain and claimed exemption u/s. 10(38) of the IT Act, 1961 since the transactions were entered through recognized Stock Exchange & Securities transactions tax was paid. After going through the detailed examination done by the AO and relying upon various case laws, the capital gain shown by the assessee was treated as income from business and profession. Aggrieved by the order of the AO, the assessee appealed before the first appellate authority, who deleted the additions. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before the Tribunal.
3. The ld. DR basically relied on the order of the Assessing Officer and submitted that the ld. CIT(A) has deleted the addition without distinguishing the case laws relied by the Assessing Officer. The assessee has done transactions in frequency. Receiving of dividend is not a matter for determination whether the assessee is holding the shares as investment or as business transactions.
4. The ld. AR, on the other hand, relied on the order of the ld. CIT(A) and submitted that the ld.CIT(A) has made reasoned order and it does not require any interference. The assessee was a teacher in DPS, Bokaro Steel City from 10.07.1987 to 08.07.2002. She had filed her returns regularly and does not have any business activities except small trading in derivatives. During the course of hearing, the ld. AR filed a circular issued by CBDT bearing No. 6/2016 dated 29.02.2016 which reads as under : Circular No.6/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of February, 2016 Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the Income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past.
Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT) has also, through Instruction No. 1827, dated August 31, 1989 and Circular No.4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations .
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 (ie. whether the same is in the nature of capital gain or business income), CBDT 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 – a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, 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.
It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain / Short Term Capital Loss or any other sham transactions.
It is reiterated that the above principles have been formulated with t he sale objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. (Rohit Garg) Deputy Secretary Government of India F.No.225/12/2016-ITA-II The ld. AR submitted that the assessee is investing her own funds since long back and generating income and filing the return of income regularly on the same pattern. In the identical facts and circumstances of the case, similar income returned by the assessee for the assessment year 2006-07 has been accepted by the Assessing Officer u/s. 143(3) without raising any query on the nature of income shown under the head “capital gains”. In support of his arguments for justifying the return of income filed by the assessee, the ld. AR relied on the judgment of ITAT, Mumbai in the case of CIT vs. Gopal Purohit in dated 18.02.2015.
5. After hearing both the parties and perusing the materials available on record as well as the orders of the authorities below, we find that the ld. CIT(A) has made good order. For the sake of convenience, we are reproducing the findings set out in para No. 7 to 7.2 at page 22 & 23 of the impugned order as under : “7. I have carefully gone through the submissions made bythe appellant as well as the findings of the Assessing Officer. I am not in agreement with the Assessing Officer that the appellant has under taken an activity in the nature of business. 7.1. The reliance placed by the appellant in the following case carries fare GOPAL PUROHIT vs. JOINT COMMISSIONER OF INCOME TAX ITAT, MUMBAI "G" BENCH (2009) 122 TTJ (Mumbai) 87: and upheld by Hon'ble HIGH COURT OF JUDICATURE AT BOMBAY IT APPEAL NO 1121 OF 2009 on JAN 6, 2010. 7.2. In the appellant's case, it is noticed that the assessee has derived income from Short Term Capital Gains & Long Term Capital Gains. The appellant has earned dividend on the shares purchased on delivery business which goes to prove that the shares were held as capital asset & not as stock in trade. Substantial part of the income from gains consists of Long Term Capital Gains & hence it is clear that the sole intention of the appellant was to earn on investment. 7.3. I also notice that for earlier Assessment Years i.e 2005-06 & 2006-07, based on identical facts, the Assessing Officer has completed the assessment by accepting the claim of the assessee which is similar as in the present appeal. 7.4. I have gone through the detailed submission made by the appellant. There has been no change in the facts & circumstances of the case. Therefore, I hold that the appellant's transactions represent investment & therefore is to be taxed as capital gains. The Assessing Officer is, therefore, directed to treat the income under capital gains instead of treating the same as business income.”
In view of the clarification issued by the CBDT regarding determination of income under the head business income or capital gains, it stands clarified that it is upto the assessee as to how he derives income from share transactions- whether as business income or as capital gains. This clarification has been given by the CBDT with the sole objectives of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. In view of this clarification, the decisions relied upon by the AO are distinguishable on facts. The AO itself has accepted the identical nature of income in the assessment year 2006-07 u/s. 143(3). Therefore, there being no change in the facts and circumstances of the case and adopting the rule of consistency as also clarified by the CBDT Circular above, there appears to good reason to give a different treatment to the income shown by the assessee. Accordingly, the appeal of the Revenue has no force and is liable to be dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 12.07.2016.