ITO 25(2)(4), MUMBAI vs. RENU GUPTA, MUMBAI

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner (Appeals)-35, Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

“The allegation of the revenue authorities is that the assessee has indulged in to high frequency transaction. This in itself could not mean that trading activities have been carried out. A prudent investor always keep a watch on the volatility of the market and makes sound investment decision in accordance with such market fluctuation and has the liberty to liquidate its investments in shares as and when necessary. The law itself has recognised this fact by treating the same as short-term capital gains for shares held less than 12 months and long-term capital gains where the shares are held for more than 12 months.”

4.1 The ld. CIT(A) also observed that the assessee has income from other heads over the years and as far as share trading income or loss is concerned, she has consistently booked it as capital gains from the time she started the portfolio. The department has been accepting her losses and gains under the heads capital gains. Therefore, the ld. CIT(A) held the activity of dealing shares by the assessee as capital gains.

7.1 Now we turn to the decisions relied on by the ld. counsel of the assessee. In the case of Amit Jain (supra), the Hon’ble High Court held as under:

“What appears to have weighed almost conclusively with the tax authorities in the first and second instance is the value and frequency of the transactions. As underlined by us, that factor alone cannot be conclusive and would have to be weighed along with the totality of facts. An important detail which cannot be overlooked by High Court is that in all past periods and even subsequent periods, similar income reported by the assessee was accepted by the Revenue as short term capital gain. In fact for A.Y. 2005-06, the scrutiny assessment under section 143 (3) accepted the sum of Rs.1.02 crores as short term capital gain. In the circumstances, it was all the more necessary for the Revenue to point to some unique feature or distinctive material to differentiate the assessee’s activities for the subject assessment year, since they fundamentally remained the same and unchanged.” 7.2 In the case of Smt. Datta Mahendra Shah (supra), the reasons for considering the short term capital gain as business income by the AO were the following: a) The assessee dealt with more than 60 companies during the year. b) Holding period of shares is less than 30 days in more than 30% cases. c) ¼ of the transactions involving 1/5th of the turnover was done in one month only. d) There are five speculative transactions and the assessee filed 3CD report accepting the nature of transactions as ‘trading in shares’. e) The assessee is a Director in M/s Jayanand Securities Ltd. which is engaged in share business. f) Dividend income is very small compared to gains earned”.

The Tribunal upheld the order of the ld. CIT(A) in holding the gains arising from sale purchase of shares as capital gains. The ld. AR submits during the course of hearing that the facts in the instant appeal are same as delineated in the above case. The appeal filed by the Revenue against the above order of the Tribunal was dismissed by the Hon’ble Bombay High Court in CIT vs. Datta Mahendra Shah (2015) 378 ITR 304 (Bom.)

7.3 In the case of Mahendra Kumar Bader (supra), the ITAT examined the case in the light of CBDT Circular No. 6/2016 dated 29.2.2016 and held that since the assessee has treated the securities as investment and not as stock- in-trade in all the years, therefore, the revenue is not permitted to take a contrary view in the present year and therefore, the profit/gain of the assessee is to be treated as business income.

7.4 In the case of Tarujyot Investment Ltd. (supra), the assessee was incorporated to carry on the business of an investment company and to invest in and acquire and hold shares, stocks, debentures, etc. The AO held that since the assessee had undertaken a large number of transactions, its activities were to be treated as in the nature of business instead of investment. This was confirmed by the ld. CIT(A) holding that the gains arising to the assessee on sale of shares were to be treated as business income. The Tribunal held that “the assessee paid securities transaction tax. Therefore, its transactions should be treated as those of an investor. Though it is not a direct circumstance, it could be one of the cumulative factors, among others to give a pointer to the nature of transactions. The assessee took delivery of shares and, thereafter, sold them. The only circumstance which was against the assessee was the number of transactions. But that was only one circumstance, amongst others, required to be appreciated by the adjudicating authority to collect the intention of the assessee while making investment. The Department had not appreciated the transactions in the right perspective. Even in subsequent years, the transactions of investment by the assessee had not been disturbed. Therefore, the Assessing Officer was to treat the assessee as investor and the gains arising to the assessee on transfer of shares were to be treated under the head ‘Capital gains’.”

7.5 We find that the facts in the instant case are distinguishable from the case of Shri Sanjay Marwah (supra) relied on by the ld. DR as in the latter case the assessee carried out 1409 transactions in derivative trade having trade amount of Rs. 3,25,43,062/- which is absent in the present case. Also in the instant case, the AO has not come to a finding whether the assessee has carried out repetitive transactions of same share as found out in Shri Sanjay Marwah (supra)

7.6 The instant case is also distinguishable from Jaysree Pradip Shah (supra) mentioned in the grounds of appeal in view of the fact that investment in shares as on 31st March 2010 was Rs.3,14,60,011/- in the present case. Also in the instant case, the AO has not established whether the transactions were continuous and regular besides being systematic as found out in Jaysree Pradip Shah (supra)

7.7 We observe that the AO has made scrutiny assessment of the assessee u/s 143(3) of the Act for the A.Y. 2012-13 and 2013-14. The treatment given by the assessee to its capital gains has not been disturbed by the AO for the above two assessment years.

7.8 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, each essentially a fact specific determination. The AO has not come to finding whether the assessee has carried out repetitive transactions of same share. The AO has also not established whether the transactions were continuous and regular besides being systematic. We follow the decision in CIT vs. Amit Jain (2015) 374 ITR 550 (Delhi), CIT vs. Datta Mahendra Shah (2015) 378 ITR 0304 (Bom) and confirm the order passed by the ld. CIT(A).