ADIT, NEW DELHI vs. MS. ASHA KUMAR AGGARWAL, NEW DELHI

Date of hearing 28.02.2019 Date of pronouncement 08.03.2019 ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 19/12/2011 passed by the Ld. Commissioner of Income-tax (Appeals)-XXIX, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09 raising following grounds: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the voluminous shares trading as ‘business in nature’ and holding that in the light of circular no.1827 dated 31.08.1989 or CBDT, the assessee’s activities of sale/purchase of shares can only be considered under the head ‘Capital Gain’ whereas considerations dealt with in the circular are totally different from the ones in the instant case.

2. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.

2. Briefly stated facts of the case are that the assessee, an individual was pursuing her teaching profession abroad. For the year under consideration, she was non-resident and filed her return of income on 06/09/2008 declaring total income of Rs. 73, 75, 240 which included income from house property, capital gain on sale of securities and income from other sources. The case was selected for a scrutiny and notice under section 143(2) of the income tax act, 1961 (in short ‘the Act’) was issued and complied with. During the course of assessment proceeding, the Ld. Assessing Officer noticed that the assessee had entered into frequent sale and purchase of shares and therefore he drew a presumption that the assessee was engaged in the business of trading of shares/securities. The Assessing Officer issued a show cause notice to the assessee as why the income from trading in securities should not be treated as income under the head “profit and gains of the business or profession”. The Ld. CIT(A) has summarized the submission of assessee before the Assessing Officer in para 3.1 of the impugned order as under: “3.1 It was contended by the appellant that she was a non-resident Indian pursuing her teaching profession abroad and has been investing her surplus savings in the shares of companies for the last many years to earn the capital gains/dividends. She has been regularly disclosing the income from sale purchase of securities under the head ‘capital gain’ and the same has been accepted in the assessments till the A.Y. 2008-09. There was no intention to venture into business of purchase and sale of shares and the shares were shown as investment in her books and valued at cost. It was also contended that the intention of the assessee should be read from its conduct and not on the basis of assumptions. The appellant placed reliance on the following decisions: • H Hoick Larsen v. CIT (1972) 160 ITR 67 (Bom)

AAR (288 ITR 641) • CIT v. Gopal Purohit-ITA No. 1121/09 dated 6.01.2010 • J.M. Stock Broking v JCIT )ITAT Mumbai) • DC IT v SMK Shares and Stock Broking • Shri Janak S. Rangwalla v ACIT • Fidelity Northstar Fund • CIT v PNB Finance Ltd. 2.1 The assessee in support of the above claim relied on the decisions of the Hon’ble Bombay High Court in the case of Naishadh V Vachharajani, (2011) TIOL 633-HC-MUM-IT and and CIT Vs Gopal Purohit in ITA No. 1121/09 dated 06/01/2010. 2.2 The Assessing Officer, however, was not satisfied with the submission of the assessee and he relied on the decision of the Hon’ble Supreme Court in the case of G. Venkataswami Naidu and Company Vs. Commissioner of Income Tax, 35 ITR 594 and CBDT Circular No. 4 of 2007 alongwith Instruction No.1827, dated 31st of August 1989. In view of the principles laid down in the decision of the Supreme Court and the CBDT circular, he made following observations on the facts of the case: “1. It is submitted by the assessee that she is a school teacher. So trading activity with regard to securities is independent of her profession. However it is relevant to note that the assessee has furnished no evidence in support of her claim of being otherwise engaged in excersize of any profession. As per return of income and also as per other records in this office, there is no indication that the assessee is engaged in any other business except trading in securities.

3. As is evident from details of sale purchase of shares filed by the assessee scale of trading activity is substantial. The assessee has traded in around 100 securities .

6. Assessee has not furnished any information in this regard. However upon perusal of details of securities traded filed by the assessee it is seen the average holding period is less than 3 months. 7. Time devoted to the activity by the assessee is substantial, having regard to nature of activity and the scale of the activity. 8. The assessee has claimed that she has in her books treated the shares as investment and not as stock in trade. 9. Assessee has traded in stocks of over a 100 companies. 10. Details of whether monies have actually been received are not available with this office. However there is nothing on record to indicate the contrary.” 2.3 In view of the above observation, the Assessing Officer concluded that income from purchase and sale of securities by the assessee was taxable under head “profit and gains of the business of profession”. 2.4 Aggrieved with the above findings, the assessee filed appeal before the Ld. CIT(A) and submitted that intention of the assessee was to invest in the shares and to earn dividend and not to trade in the shares. The assessee also submitted that long-term capital gain of Rs.14,55,376/- included on sale of 500 bonus shares of M/s L & T Limited, which were allotted on 03/10/2006 in lieu of the original investments/holding. The assessee submitted that the sale of the original shareholding was assessed as capital gain in respective years and thus sale of bonus shares in view of the holding the investment should not be treated as businesses. The assessee also submitted that she has been consistently declaring income from sale/purchase of securities as capital gain and the Department in past has never rejected her claim.

2.5 After considering the submission of the assessee in the light of the CBDT Circular (supra) and the decisions of the Hon’ble Bombay High Court cited by the assessee before the Assessing Officer, the Ld. CIT(A) reversed the finding of the Assessing Officer and directed him to assess income from sale of shares under the head capital gain. 2.6 Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal raising the grounds as reproduced above.

4. On the other hand, the Ld. counsel of the assessee relied on the order of the Ld. CIT(A) and submitted the assessee was engaged in teaching profession and was not pursuing business or profession and she invested in shares out of her savings only and no borrowed funds have been utilized. He submitted that the assessee invested in the shares mainly to earn dividends and capital gains and not for doing trading in the shares. According to him in totality of the circumstances as laid down in the CBDT Circular (supra) and the decision of the Hon’ble Bombay High Court in the case of Naishadh v Vachharajani (supra) and Gopla Purohit (supra), the activity of the purchase and sale of the shares has rightly been directed by the Ld. CIT(A) to be assessed under the head capital gain.

5. We have heard the rival submissions and perused the relevant material on record. The assessee was engaged in the profession of teaching and made investment in shares out of her saving. There is no dispute on the fact that no borrowed money has been utilized for investment in shares. Further, in earlier years, the transaction of the purchase and sale of shares have been assessed by the Department under the head capital gain. According to the Assessing Officer, volume and frequency of the transaction is very high and average holding period is less than three months. The Assessing Officer has also observed that transaction of sale and purchase were continued throughout the year. The issue in dispute before us is whether merely on the volume and frequency of the transactions or period of the holding of the shares, activity of purchase /sale of the shares can be taxed under the head profit in gains of the business of profession or under the head capital gain. The Ld. CIT(A) has analyzed the CBDT circular (supra) and decision of the Hon’ble Bombay High Court in the case of Naishadh v Vachharajani (supra) and Gopla Purohit (supra) and arrive at the conclusion that income from purchase/sale of the shares is to be assessed as capital gains and not as business profit. According to the Ld. CIT(A) the intention of the assessee is paramount in deciding whether it wanted to invest in shares or trade in shares . The Ld. CIT(A) has observed that intention of the assessee was to invest in shares is borne out from the facts of the case. The relevant finding of the Ld. CIT(A) is reproduced as under: “4. I have considered the submissions of the appellant. From the facts narrated in the above paragraphs, one thing becomes very clear that the intention of the appellant was to invest in shares and not to trade in shares. This is borne out by several facts, viz., (a) In her earlier returns of income, the income from sale purchase of shares has consistently been shown as capital gains/loss and department has never disputed the appellant’s claim.

(b) The appellant has never claimed any expenses which are otherwise normally allowable as deduction u/s 30 to 37 of the Act. (c) The appellant has also not claimed any rebate u/s 88E for the security transaction tax paid by her. (d) The appellant was engaged in teaching profession and was not doing any business. Being engaged in the teaching profession she could not have devoted time required for trading in shares as a trader.”

Order pronounced in the open court on 8th March, 2019.