DCIT 4(2)(2), MUMBAI vs. VIMLA S. JAJOO, MUMBAI

This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-8, Mumbai [hereinafter referred to as the CIT(A)] dated 14.11.2014 for the assessment year 2011-12.

The only issue in the appeal of the Revenue is that the Ld. CIT(A) erred in holding that the gain on sale of shares is assessable as short term capital gain and not as business income.

The Ld. Counsel for the assessee at the outset submits that the Assessing Officer while completing the assessment treated the gain on sale of shares as income from business of the assessee under the head “Income from business” as against the short term capital gain shown by the assessee. The Ld. Counsel submits that an identical issue has been decided in assessee’s own case for the assessment years 2005-06 to 2008-09 wherein the co-ordinate bench of the Tribunal Bench in of 2008, 2469 of 2009, 4476 of 2012 & 5302

The Ld. D.R. places reliance on the orders of the Assessing Officer.

We have perused the orders of the authorities below and the co-ordinate bench decision in assessee’s own case and also one Mr. Suresh K. Jajoo which is the combined order of the co-ordinate bench relating to both these assessees and found that the co-ordinate bench held that the gain on sale of shares in both these assessee’s cases has to be assessed under the head “Short/Long term capital gains” and not under the head “Business income”. We observe from the order of the co-ordinate bench that in the case of “Suresh K. Jajoo” in of 2008 for the assessment year 2005-06 the co-ordinate bench held as under: 8. We have considered the rival submissions. There is no dispute relating to the fact that the assessee in earlier years has been treated by the department as an investor. The assessee, as discussed above, has been continuously allowed the set off of short term capital loss and long term capital loss in the earlier assessment years. The assessee had been dealing in two types of transactions in securities. The assessee had shown investments and had claimed capital gains relating to the shares. It is also a fact on the file that by the amendment brought by Finance Act, 2004, by insertion of provisions of section 111A and section 10(38), the levy of tax has been reduced to 10% on short term capital gains and long term capital gains have been made exempt. Under the old provisions of the Act, profits or gains arising to an investor from the transfer of securities were charged depending on the period of holding of the said securities. Short term capital gains were taxed at applicable rates (normal rates) and long term capital gains were taxed at the rate of 20% after adjusting for inflation by indexing the cost of acquisition. For listed securities, the tax payer had an option to pay tax on long term capital gains at the rate of 10% but without indexation. In case of trader in securities, however, the capital gains were taxed as any other normal business income. Thus, tax liability on the income for sale and purchase of shares as regards to short term capital gains and business income was at par. The issue of treatment of income from share transaction as short term capital gains or business income has in fact arisen after the amendment brought with Finance Act, 2004 w.e.f. 01.10.2004. It is an admitted fact on the file that prior to the amendment when the tax of short term capital gains, as discussed above, was at par with that of business income, the department has been consistently accepting the treatment of income by the assessee as capital 3 Smt. Vimal S. Jajoo gains. Merely because the rate of tax has been reduced in respect of short term capital gains and long term capital gains have been exempt during the year by way of an amendment to the provisions as discussed above, that itself, cannot be a ground for the AO to depart from its consistent stand of treating the assessee as an investor and thereby to charge the income earned by the assessee from share transactions as business income. As discussed above, at the time of purchase of shares even during the year but prior to 01.10.2004, the assessee was not guided or influenced by lower tax rate in case of short term capital gains as the rate for business income and short term capital gains was at par. The assessee, however, was treating himself as an investor and keeping the shares as investments in his account irrespective of the probable tax implication as there were no such tax implications as discussed above. The intention of the assessee, while purchasing the share, is the important and guiding factor as to whether the same was purchased with an intention of investment or for trading. The facts of the case as discussed above, clearly reveal that the assessee had treated the shares as investments in his account. As discussed above, if during the mid of the relevant Financial Year, certain tax benefits have been given in respect of capital gains, that cannot, in any way, lead to an assumption or presumption that the intention of the assessee at the time of purchase of shares was that of a trader and not of an investor. The treatment of the investment in the account books of the assessee was also a relevant guiding factor. The AO has also not pointed out as to in what manner the activity of the assessee for the year under consideration had been changed from investor to that of a trader especially when the department had consistently been treating him as an investor. It is also pertinent to mention here that as discussed above, in subsequent assessment years the department has again accepted the assessee as an investor. It is for the first time that in this year under consideration i.e. A.Y. 2005-06 the assessee had been treated as a trader because of certain tax benefits granted to an investor in securities by way of amendment in the relevant provisions of the Income Tax Act and subsequently for the A.Ys 2006- 07 to 2008-09, the assessee was treated as trader. However, the Ld. CIT(A) following the principle of consistency has held the assessee for the impugned assessment years i.e. A.Y. 2005-06 to A.Y. 2008-09 as investor. Though the principle of resjudicata is not applicable in income tax proceedings but the principle of consistency requires that the view taken in one year should be followed in subsequent years unless the facts or the legal position justify departure there from; reliance can be placed in this respect on the authorities of the Hon’ble Bombay High Court in ‘CIT vs. Darius Pandole’ [(2011 330 ITR 485 (Bom.)] and in ‘CIT vs. Gopal Purohit [(2011) 336 ITR 287 (Bom.).

In view of our above discussion of the matter, we are of the view that the assessee is to be treated as an investor for the A.Y. 2005-06 to A.Y. 2008-09 also. We hold accordingly. The AO, therefore, is directed to treat the income from sale and purchase of shares as short term capital gains and long term capital gains according to the period of holding as per the provisions of law for these assessment years also.”

This decision in the case of Suresh K. Jajoo (supra) was followed in assessee’s own case for the assessment years 2005-06, 2006-07 & 2008-09 and 4 Smt. Vimal S. Jajoo held that the gain on sale of shares is to be assessed as capital gains and not business income as the facts being identical to that of the case in Suresh K. Jajoo (supra) the co-ordinate bench observed as under: “ITA Nos.5441/M/2008 (A.Y. 2005-06) & 4476/M/2012 (A.Y. 2006-07) Revenue’s appeals)

In the result, Revenue’s appeal is dismissed.