DCIT 4(2)(1), MUMBAI vs. S I INVESTMENT & BROKING P.LTD, MUMBAI

The present appeal by the Revenue and the cross objection by the assessee have been preferred against the order dated 27.03.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11. First we take up the Revenue’s appeal i.e. ITA No.3156/M/2015

The only ground in the departmental appeal is to treat the short term capital gain amounting to Rs.2,41,92,131/- as business income.

The short facts of the case are that assessee is the member of Bombay Stock Exchange which is engaged in stock broking business. Assessee company charges for brokerage on transactions executed on behalf of client. Assessee company also invests surplus money in shares and profit or loss on investment is offered as capital gain or loss. Profit or loss on trading is treated as business income. The assessee company’s source of income during the year under consideration was the income from capital gain and income from other source. During the course of assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) tried to verify the assessee company’s long term capital gain to tally with the date of such sale of shares submitted by the assessee. The AO has given show cause notice as to why the long term capital loss of Rs.3,15,77,417/- which the assessee has set up against short term capital gain should not be treated as nil and short term capital gain of Rs.2,41,92,131/- should not be treated as assessee company’s business income and to be taxed accordingly. The assessee has stated that the AO has referred to an analysis statement on the basis of which AO concluded that movement of shares day wise, week wise and month wise does not tally with the date of sale of shares. The assessee submitted that the analysis statement which was referred to by the AO was not attached to the letter sent by the AO. The AO, thereafter, held that the letter with the statement was provided to the assessee but assessee denied to have received this letter to avoid reconciliation regarding date of holding period of shares. Therefore, AO has treated long term capital loss as nil and short terms capital gain of Rs.2,41,92,131/- was brought to tax.

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has decided the issue in favour of the assessee by observing that similar issue was involved in the assessee’s own case for assessment year 2009-10 which was decided in favour of the assessee by his predecessor wherein the Ld. CIT(A) had observed as under: "I have considered the submissions made by the appellant carefully. It is seen that similar issue was involved in appellant's own case in A. Y 2006-07. My predecessor while deciding appeal of the appellant for A. Y. 2006-07 in Appeal No.IT/CI7"(A)-IV/Cir.41360108-09, dtd. 14.09.2009 has made following observations :- The appellant is treating the shares as 'investment' as the books of accounts and the income of Rs.3,92,84,6031- in respect of one script Sesa Goa Ltd. is after bonus share issued by the company of 36000 shares. The activity of the appellant is not different than that of A.Y. 2005-06 where the AO has accepted the appellant to be an 'investor' so far as long term capital gain is concerned. The appellant had converted its stock in trade into investment and had already paid tax on conversion which was treated as business income of Rs.1,33,28,497/- The factual position of the appellant is similar to that of A. Y. 2005- 06, except for the considerable increase in the quantum which is due to good run in the stock exchange. The appellant is maintaining an investment portfolio and has not treated the shares as stock in trade, therefore, the shares have been held as investment and not as stock in trade. The shares, therefore, are capital assets as defined in Section 2(14) of the I.T. Act and transfer of the capital assets are assessed as Long Term Capital Gain and Short Term Capital Gain u/s. 229B and 242B respectively. There is no reason, whatsoever, to treat the STCG and LTCG as business income. The AO is directed not to treat the STCG & LTCG as declared by the appellant as business income. This ground is thus allowed."

Having heard both the parties, we find that the issue in controversy is covered by the decisions of the Tribunal in and in ITA Nos.7695 & 7483/M/2010. For the sake of convenience, the relevant para of the Tribunal’s decision in ITA Nos.7695 & 7483/M/2010 is reproduced as under: “Before us, the Ld. Counsel for the assessee stated that in earlier years, this issue travelled upto the Tribunal and the Tribunal has decided this issue in favour of the assessee and against the Revenue in ITA No. 1497/M/09. Once again this issue arose in A.Y. 2006-07 and the Tribunal in ITA No. 644/M/09 following the earlier order of the Tribunal in AY 2005- 06 directed the AO to treat the capital gains under the head 'Capital Gains'. As no distinguishing decision has been brought on record by the DR, respectfully following the decision of the Co-ordinate Bench in assessee's own case (supra), we direct he AO to treat the Short Term capital gain as such. Ground No. 2 is accordingly allowed.”

Respectfully following the decision of the Tribunal, we dismiss the departmental appeal.

During the course of hearing, the Ld. A.R. has pointed out that the assessee has already deducted and paid the TDS on the impugned transaction.

In the result, appeal of the Revenue is dismissed and the cross objection of the assessee is allowed for statistical purposes.