MOHAN KAPOORCHAND JAIN,MUMBAI vs. ASST CIT 21(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B”, BENCH MUMBAI BEFORE: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM Shri Mohan Kapoorchand Vs. ACIT, 20(2), Mumbai Jain C/4, Jeevan Sudha, S.D.Barfiwala Marg, Juhu Lane, Andheri (W), Mumbai – 400 058 PAN/GIR No. : AABPJ7629P (Appellant) .. ( Respondent) & Shri Mohan Kapoorchand Vs. ACIT, 20(2), Mumbai Jain C/4, Jeevan Sudha, S.D.Barfiwala Marg, Juhu Lane, Andheri (W), Mumbai – 400 058 PAN/GIR No. : AABPJ7629P (Appellant) .. ( Respondent) & Shri Mohan Kapoorchand Vs. ACIT, 20(2), Mumbai Jain C/4, Jeevan Sudha, S.D.Barfiwala Marg, Juhu Lane, Andheri (W), Mumbai – 400 058 PAN/GIR No. : AABPJ7629P (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. & ACIT, 20(2), Mumbai Vs. Shri Mohan Kapoorchand Jain C/4, Jeevan Sudha, S.D.Barfiwala Marg, Juhu Lane, Andheri (W),

2 ITA No.3541,3542,3543,4571-2012, Mumbai – 400 058 PAN/GIR No. : AABPJ2629P (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. Assessee by : Shri S.L.Tiwari and Ms. Rutuza N. Pawar Revenue by : Neil Philip सुनवाई की तायीख / Date of Hearing : 11/07/2016 घोषणा की तायीख/Date of Pronouncement 30/09/2016 आदेश / O R D E R PER R.C.SHARMA (A.M): These are the cross appeals filed by the assessee and revenue against the order of CIT(A) for the Assessment Year 2007-2008, 2008- 2009 & 2009-2010. 2. Common grievance of assessee in all the years pertains to treatment of gains arising out of sale of shares, whether short term capital gains or business profit. 3. At the outset, learned AR placed on record the order of the tribunal for the assessment year 2006-2007 dated 21/02/2014 in assessee’s own case wherein Tribunal observed as under:- “11. Rival contentions have been heard and record perused. We have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as decision cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. The question as to whether the assessee has earned capital gain or business profits on the shares sold by him depend on the facts and circumstances of each case. Such decision is Shri Mohan K.Jain, Mumbai 27 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 to be arrived at by taking into account the intention of the assessee while purchasing the shares, as to whether the same was acquired for holding as investment or for doing business therein. The treatment given by the assessee in its books of account is also one of the decisive factors to find out whether the shares were held as investment or stock in trade. If the shares are bought with the 3 ITA No.3541,3542,3543,4571-2012, intention of earning capital gains thereon and also dividend income by keeping the same as investment, the gain arising there from is required to be treated as capital gains. On the other hand, if the shares are purchased with the intention to earn profit thereon and the same is treated as stock in trade in the books of account, the profit arising out of sale of such shares are liable to be treated as business income. Volume and frequency of transaction is also one of the guiding factors to find out whether the assessee is engaged in the business of purchase and sale of shares or making investment to have capital gains thereon. In the instant cases before us, we found that the assessee has invested in shares of Indian Companies in earlier assessment years, which is clear from the statement of shareholding of the assessee, such treatment of capital gains was accepted by the department and there is no material change in the method of accounting and manner of earning of income during the year under consideration as compared this earlier years. Thus, the fact of the assessee investing in shares in earlier years is not in dispute.There is also no dispute to the fact that the assessee has treated the Shri Mohan K.Jain, Mumbai 28 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 equity shares of Indian Companies as investment i.e. capital asset all along. The assessee has also valued the shares at cost thus given a particular treatment to the shares held as investment, therefore, without brining on record contrary material, the AO cannot change the intention and manner of investment being made by the assessee. Had the assessee valued the shares at cost or market price whichever is lower, the gain arising out of sale of shares could easily be treated as business income. Assessee had not valued the shares as stock but valued the same as investment. Thus, what was a capital asset will remain a capital asset unless a person holding the asset himself changes the nature by a specific action like conversion of capital asset into stock in trade. In the instant cases before us, the assessee has not treated the investment in equity shares of Indian Companies as stock in trade. In view of the decision of Hon'ble Supreme Court in the case of Ram Kumar Agarwal & Brothers, 205 ITR 251, the AO and the ld. CIT(A) was not justified in treating the capital gain earned from sale of these shares, as business profits, which were entered by the assessee as investment in books of account. There is also no dispute to the well settled legal proposition that res judicata do not strictly apply to the income tax proceedings, but at the very same time, it is well settled that principle of consistency under the same facts and circumstances is the fundamental of judicial principle, which cannot be brushed aside without proper reasoning. In this regard, reliance can be placed on the 4 ITA No.3541,3542,3543,4571-2012, decision in case Shri Mohan K.Jain, Mumbai 29 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 of S.M.K. Shares and Stock Broking Private Limited, I.T.A.No.799/Mum/09 order dated 24.11.2010. For this proposition, the decision of Hon'ble Supreme Court in the case of Gopal Purohit, 228 CTR 582, is very much relevant and important. From the record, we found that assessee was investing in shares as well as trading in shares. He has maintained two portfolios of share transactions i.e delivery based share transactions and non-delivery based share transactions. The non-delivery based share transactions were in respect of F&O and intra-day share transactions, profit of which has been shown under the head income from business. In respect of delivery based share transaction, profit has been shown as STCG or LTCG, depending upon the period of holding. However, profit or loss earned on non delivery based transactions are shown as his business income. The assessee has maintained separate ledger accounts. Transactions were recorded separately at the time of purchase of shares. In respect of shares held as investment assessee had valued the same at the year end at cost and in respect of shares held in is trading portfolio, he has valued the same at cost or market price, whichever is lower. In the assessment year under consideration the assessee had consistently followed the same system of accounting as followed in preceding years. The profit earned on investment was disclosed as STCG/LTCG, depending upon period of holding. In the scrutiny assessment, the AO has accepted assessee‟s status as investor in the assessment year 2005- 06. Only Shri Mohan K.Jain, Mumbai 30 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 during the year under consideration by referring to volume of transaction, number of shares, frequency of transaction, the AO disallowed assessee‟s claim of capital gains and treated the same as business income. The CIT(A) has analyzed the frequency of transactions in respect of each and every share and found that in respect of transactions in shares of Coromandel Fertilizers Ltd., Dharani Sugar & Chemicals Ltd., Dewan Housing Finance Ltd & Heritage Foods Ltd., frequencies were more and transactions were entered repeatedly as if the assessee was a trader in shares. The CIT(A) discussed various judicial pronouncements and the guidelines laid down therein with regard to treatment of gains arising out of sale of shares. The CIT(A) applied to the facts and circumstances as found during the year, the proposition laid down in various judicial pronouncements and reached to the conclusion that profit earned in respect of shares of the companies discussed above, amounting to Rs.18,41,027/- were business income and liable to be taxed as such, in place of assessee‟s claim for 5 ITA No.3541,3542,3543,4571-2012, treating the same as capital gains. The CIT(A) also discussed the amendment brought in byFinance Act, 2004, introduction of Security Transaction Tax(STT) on the sale & purchase of shares and other derivative transactions. The CIT(A) also discussed the exemption brought in under Section 10(38) in respect of LTCG and levy of taxation on STCG at the concessional rate of tax of 10% by this Finance Act. The CIT(A) observed that along with these amendments, the Revenue has also Shri Mohan K.Jain, Mumbai 31 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 levied security transaction tax to the effect that only after a suffering the burden of security transaction tax, such gain was held to be exempt or liable to lower rate of tax. By referring to the decision in the case of Gopal Purohit (supra), which was affirmed by the Hon‟ble jurisdictional High Court and the SLP filed against the same by the Revenue was also dismissed by the Hon‟ble Supreme Court, held that the AO was prompted to take a different view on the same sets of facts and types of transactions entered into by the assessee in the relevant assessment year and as found in its earlier assessment year. The CIT(A) also elaborately dealt with the consistency in the treatment of profit arose on similar transaction of sale and purchase of shares. The CIT(A) also considered volume, frequency and continuity of transactions, average holding period in respect of each and every shares entered into by the assessee during the year under consideration. The CIT(A) found that no interest was paid on the amount borrowed from associates. The CIT(A) had also considered different ratios viz. capital gain ratio, quantity ratio, number of transaction ratio, purchase cost ratio, so as to establish that gains on sale of shares is to be assessed as capital gains or business profits. So far as frequency of purchases and sale of shares is concerned, the same is due to the electronic system of stock exchange.A single order placed for purchases may be completed by way of small equities of shares available for sale to meet out the demand of the purchaser. Therefore, a single order is not necessary to be completed Shri Mohan K.Jain, Mumbai 32 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 by a single transaction of entire quantity of shares. Likewise, in the case of sales, the same may be divided as per the requirement of the purchaser at stock exchange; The fact that in all the preceding years, where the assessee had liquidated his investment in equity shares in Indian Companies, the Department has accepted the position except the assessment year in question, wherein the Department treated the gain from purchase and sale of shares as business income. The decision to dispose of investment at a short interval is being taken by the assessee keeping in view the eventuality of down

6 ITA No.3541,3542,3543,4571-2012, trend in the market sentiments over a particular script. Merely because the assessee was able to realize better prices of its investment at a short interval, cannot be solitary yardstick for treating such action as an adventure in the nature of trade, giving rise to business profits, when all the surrounding circumstances, indicate otherwise. No where the AO has indicated any transaction of purchase of shares without taking delivery and making full payment of such investment. Even in the case of investment it is for the assessee to decide when to dispose them off so as to have a maximum return out of them. There is no theory that the shares held as investment should be disposed of only at the time of need or in emergency. The assessee had all the rights to dispose the investment to reap the maximum benefit when the prices of scripts are high so as to earn better gain. It is true that frequency and volume of transaction is one of a guiding factors to find out as to whether Shri Mohan K.Jain, Mumbai 33 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 assessee deal in shares as trading asset or hold shares as investor, but certainly not a criteria. A prudent investor always keeps a watch on the market trend and, therefore, not barred under law from liquidating his investment in shares. The law itself has recognized this fact by taxing these transactions under the head "Short Term Capital gains" being shares which are sold within 12 months of its acquisition. Under these circumstances, if the contention of the AO is accepted, then it would be against the legislative intent itself. Here, it is pertinent to mention the intention of Government for introducing the security transaction tax and exempt the long term capital gain earned from sale of shares and levying 10 % tax on short term capital gain and earned on sale of shares. It is noted that under the old provisions of the Income-tax Act, profits or gains arising to an investor from the transfer of securities were charged to tax either as long term capital gains or short term capital gains depending on the period of holding of the said securities; Short-term capital gains arising from transfer of securities were taxed at the applicable rates (normal rate) and Long-term capital gains were taxed @ 20%, after adjusting for inflation by indexing the cost of acquisition. For listed securities, the taxpayer had an option to pay tax on long-term capital gains @ 10% but without indexation. For Foreign Institutional Investors (FIIs), the long-term capital gains and short-termShri Mohan K.Jain, Mumbai 34 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 capital gains were taxed at the rate of 10% (without indexation) and 30% respectively. In case of a trader in securities, however, the gains were taxed as any other normal business income. Thus tax liability on the income from purchase & sale of shares as regards to the 7 ITA No.3541,3542,3543,4571-2012, STCG & business income was at par. However, the issue of treatment of income from share transaction as capital gain or business income has in-fact arisen after the amendment brought with Finance Act-2004 by insertion of provisions of section 111A and 10(38) as regards to levy of Transaction tax and exemption/concession on capital gain arising from securities entered in a recognized stock exchange. With a view to simplify the tax regime on securities transactions, a tax at the rate of 0.015 per cent. (see: change in rates on securities transactions, by Finance Acts, at appropriate head) is levied on the value of all the transactions of purchase of securities that take place in a recognized stock exchange in India. This tax is collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The provisions relating to the securities transactions tax are contained in Chapter VII of the Finance (No.2) Bill, 2004, and came into effect from 01.10.2004.Further, clause (38) has been inserted in section 10 of the Shri Mohan K.Jain, Mumbai 35 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 Income-tax Act, so as to provide exemption from long-term capital gains arising out of securities sold on the stock exchange. A new section 111Ahas also been inserted and section l15AD is amended, so as to provide that short-term capital gains arising from sale of such securities to an investor including FIIs shall be charged at the rate of ten per cent. These amendments apply to assessment year 2005-2006 and subsequent years. Through Finance Act, 2008, sections 111A and 115AD have further been amended whereby the rate of tax on such short-term capital gain has been raised to fifteen percent. Thus, w.e.f. 01.10.2004; on the share transactions subjected to STT; concessional tax rate of 10% (which has been increased to 15% from AY 2009-10) are applicable in respect of STCG whereas no tax is chargeable in respect of LTCG. It is also noted that the CBDT vide its Circular no.4/2007, dated 15.06.2007 has also recognized possibility of two portfolios, i.e. one 'Investment portfolio' comprising of securities which are to be treated as capital assets and the other 'Trading portfolio' comprising of stock in trade which are to be treated as trading assets. 11.1 We have gone through the order of the Tribunal in the case of Smt. Sadhana Navera (supra) as relied by learned DR and found that Shri Mohan K.Jain, Mumbai 36 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 on the basis of finding of both the lower authorities that most of the shares were purchased and sold immediately and there were no shares which were acquired prior to 1st April, 2004 and held after 31st January, 2005, the gain arising out of sale of such shares were held to 8 ITA No.3541,3542,3543,4571-2012, be business income. However, in the instant case before us, the CIT(A) has appreciated not only frequency of transaction but also period of holding and thereafter recorded a finding to the effect that except transaction in case of four companies the profit so arose were liable to tax as capital gains keeping in view the holding period, frequency of transaction etc. Thus, the facts of the case cited by the learned DR are distinguishable from the facts of the instant case. 11.2 We have gone through decision in the case of Jayshree Pradeep Shah (supra) as relied by learned DR and found that on the basis of findings recorded by both the lower authorities to the effect that there were high number of transaction in shares with borrowed funds and the sale of shares was the only activity of the assessee within a very short holding period, it was held that the profit arose on sale of such shares were liable to tax as business income. However, the facts in the instant case before us are distinguishable and the CIT(A) has appreciated not only frequency and continuity of transactions in each shares dealt with by the assessee vis-à-vis antecedents of the assessee and the stand taken by the department in earlier year and reached to the conclusion Shri Mohan K.Jain, Mumbai 37 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 that except transaction in shares of four companies, as discussed in his appellate order, the balance gain was liable to be taxed as capital gains. 11.3 After considering the findings recorded by the CIT(A), we found that single criteria will not decide the issue but the total effects i.e. frequency and volume of transaction, intention of assessee while purchasing and holding the shares etc. are to be considered for arriving at a conclusion. Thus, it is a mixed question of law and fact to find out as to whether the assessee has earned capital gain or business income.The gain arising on delivery based share transaction are essentially in the nature of STCG and LTCG and not in the nature of business income, except where such gains or losses realized in respect of those transactions undertaken repeatedly and consistently for more than four times during the year, as discussed by the CIT(A). After discussing all the factors, the CIT(A) has recorded a categorical finding that in respect to number of transactions and frequently transaction in respect of shares of these four shares as per Annexure-A enclosed with his appellate order, which was directed to be assessed as business income. In respect of balance of gain arising on delivery based transactions were treated as STCG or LTCG depending on the period of holding. Even in respect of transaction in respect of these four companies, the CIT(A)

9 ITA No.3541,3542,3543,4571-2012, given a specific direction for recomputing the profit or loss after revaluing the closing stock held therein at cost or market price, whichever is lower. If the conclusion drawn in the Shri Mohan K.Jain, Mumbai 38 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 impugned orders, observations made from the assessment orders, assertions made by respective counsel and the material available on record are kept in juxtaposition and analyzed, we find that the assessee had been consistently investing in shares and income arising from delivery based transaction of sale and purchase of shares had been shown as capital gains i.e. LTCG and STCG depending upon period of holding. Analysis of balance sheet of assessee reflects holding of shares as investment. In the case of Gopal Purohit, 228 CTR 528 (Bom), SLP was filed by the Department against the decision of Bombay High Court and the same was dismissed by Hon'ble Apex Court vide order dated 15.11.2010. In the speech by Hon'ble Finance Minister regarding Direct Tax Cases (Union Budget - 2004-05), especially clause 111, the intention of Government for introducing the security transaction tax and exempting the long term capital gain from sale of share and levying 10% tax on short term capital gain also supports the case of assessee. The idea behind introduction of security transaction tax is to end the litigation on the issue, whether the profit earned from delivery based sale of shares is capital gains or business profit. 12. Even the Hon'ble Apex Court in the case of K.P. Verghese Vs ITO, 131 ITR 597 (SC) observed as under:- Shri Mohan K.Jain, Mumbai 39 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 „‟The task of interpretation of a statutory enactment is not mechanical task. It is more than a mere reading of mathematical formulae because few word possesses the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and, as pointed out by Lord Denning, it would be idle to expect every statutory provisions to be „drafted with divine prescience and perfect clarity.‟ We can do better than repeat the famous words of judge Learned Hand when he said.‟‟ The above observations of Hon'ble Judges of the Apex Court was reiterated by Hon'ble Apex Court in the case of Kerala State Industrial Corporation, 259 ITR 51 (SC) holding as under:- „‟That the Finance Minister‟s Speech can be relied upon to throw light on the object and purpose of the particular

10 ITA No.3541,3542,3543,4571-2012, provisions introduction by the Finance Bill has been recognized by this Court in K.P. Verghese - vs ITO 1981), 131 ITR 597 (SC), at 609. Again in the case of R & B Falcon (A) Pvt. Ltd vs CIT (2008) 301 ITR 309 (SC), it was held that (Page 323):- Rules of executive construction in a situation of this nature may also be applied. Where a representation is made by the makers of legislation at the time of introduction of Bill or construction thereupon is put by the executive upon its coming into force, the carries great weight.‟‟ 13. The Hon'ble Delhi High Court in ARJ Security Printers, 264 ITR 276 and Neo Pollypack Pvt Ltd. 245 ITR 492 (Del.) held that even when the doctrine of res judicata does not apply to income tax proceedings, where a issue has been decided consistently in earlier assessment years in particular manner, the same view should prevail in subsequent years unless there is a material change in facts, meaning thereby, there must be material change in the facts. Shri Mohan K.Jain, Mumbai 40 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 14. The Indore Bench of the Tribunal in the case of ACIT vs Om Prakash Suri (supra) held as under:- "3. We have considered the submissions put forth by the learned Senior DR and also perused the material available on record. Brief facts are that in the past the assessee was engaged in road building contractor and was deriving income from contract receipts as well as from sale of gitti and during the impugned year, ventured into investment in share market. The income arising from F&O transactions and daily trading in shares (without physical delivery) reflected as speculative business whereas the income on delivery based transactions of sale and purchase of shares, income was shown from capital gains. The learned AO considered the income which was based on purchase and sale of shares as business income on the grounds as narrated in the assessment order as well as at pages 3 and 4 of the appellate order. Broadly, the learned AO was of the view that the intention of the assessee since beginning was sale of shares as trading activities, as evident from audited profit and loss account by not showing the same as short term capital gain and also in Form 3CD the assessee has mentioned the nature of business as trading/dealing in shares/securities and mutual funds. The frequency of transactions was also considered, consequently he treated the amount of Rs.49,81,915/- as business income from share trading. However, before the learned Commissioner of Income Tax (Appeals) the basis of additions

11 ITA No.3541,3542,3543,4571-2012, was explained as evident from para 3.1.1 onwards. The crux of claim of the assessee is that in the audited accounts, the sale of shares amounting to Rs. 9.43 crores in which delivery had been taken, STT was paid and the shares were sold after holding for a few days/few weeks. The mutual funds of Rs. 2.91 lacs were sold and were treated as income from short term capital gains. Before the learned Commissioner of Income Tax (Appeals) the assessee also filed a detailed note on the purchase process for delivery base shares, details of dividend received on the basis of relevant statements by placing reliance on the decision of the Mumbai Bench of the Tribunal in the case of JM Shares & Stock Brokers v. JCIT dated January, 2009. Briefly, the claim of the assessee before the learned Commissioner of Income Tax (Appeals) was that the delivery based transactions were made with an investment motive and as such the income therefrom was in the nature of short term capital gains whereas the income arose from F&O transactions and daily trading in shares were with the business motive which were showed as business income only which was mainly through stock broker, Arihant Capital Markets Limited, registered with NSC, NSE and BSE. It is also seen that in the impugned order the board circular no. 4/2007 dated 15.6.2007 wherein it was emphasized that it is possible for a tax Shri Mohan K.Jain, Mumbai 41 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 payer to have two port folios i.e. an investment port folio comprising of securities which are to be treated as capital asset and trading port folio comprising stock in trade which are to be treated as trading asset, was considered. The Board further clarifies that no single principle would be decisive and the total proposition needs to be considered. The assessee has maintained only one port folio and claimed that to be an investment folio. Undisputedly, the period of holding is less than one year, consequently, there is no infirmity in holding that these transactions would be treated as short term capital gain on which the applicable tax is @ 10% only. In view of this uncontroverted fact, there is no merit in the appeal of the revenue and the same is dismissed. Order pronounced in open Court on 4th August, 2010." 15. The aforesaid decision was affirmed by the Hon'ble M.P. High Court and reported in (2012) 19 ITJ 326 (M.P). The Mumbai Bench of the Tribunal in the case of Shantilal M Jain vs ACIT vide order dated 27-04-2011 (ITA No. 269/Mum/2010) held that despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG. In that case, the assessee was engaged in the business of trading in shares and also investment in shares and securities offered Rs. 1.54

12 ITA No.3541,3542,3543,4571-2012, crores as short term capital gain and Rs. 2.91 crores from long term capital gain.The long term capital gain was accepted whereas short term capital gain was held to be business profit. Since in earlier assessment years the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon'ble Bombay High Court in the case of Gopal Purohit (supra), it is fairly applicable and the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (ITA Shri Mohan K.Jain, Mumbai 42 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 No.961/Mum/2010) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is further fortified by these decisions more specifically when the assessee holds the shares in his books as investor, no interest was paid on the funds. The decision in the case of Janak S Ranawala, 11 SOT 627 (Mum.) further supports the case of the assessee. Likewise, the decision from Hon'ble Madras High Court in CIT vs N.S.S. Investment Pvt Ltd. 227 ITR 149 (Mad), CIT vs Associated Industrial Development Company, 82 ITR 526 (SC) supports the case of the assessee. In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price of shares. Therefore, it cannot be said that the assessee was doing business. More specifically when, the assessee either utilised his own funds/ family funds/associate‟s funds and did not pay any interest and depicted the transactions in shares under investment portfolio. During hearing, it was also explained by the learned Counsel for the assessee that accounts were maintained by the assessee in two separate capacities i.e. trader and investor and never treated the same as holdings of shares as stock in trade which clarifies the intention of the assessee. This assertion was not controverted by the Revenue. 16. The Board Circular No. 4.2007 dated 15-06-207 also emphasizes that it is possible for a tax payer to have two portfolios namely, an Shri Mohan K.Jain, Mumbai 43 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 Investment Portfolio, comprising of Securities, which are to be treated as capital assets and „Trading Portfolio‟ comprising of stock in trade which are to be treated as trade assets. No single principle would be decisive and the fact has to be considered in entirety. The totality of facts plainly indicate that the ld. first appellate authority rightly directed the Assessing Officer to treat the short term capital gain as earned from investment in shares. Instruction No.1827 dated 31st August, 1989 was supplemented by CBDT circular no. F.No.149/287/2005-TPL

13 ITA No.3541,3542,3543,4571-2012, [reported in 210 CTR 29 (St.)], advising the Assessing Officers that the principles contained in the circular should guide them in determining whether, in given cases, the shares are held by the assessee as investment (and therefore, giving rise to capital gains) or stock-in-trade (and therefore, giving rise to business profit) by further opining that no single principle would be decisive and total effect of all the principles should be considered. If the number of transactions are analysed, we note that, in a computer based trading system/ e-filing, the figures, being split up, give misleading high figures, reflecting the individual component of the transaction but really, if these figures are synchronised then clear picture oozes out. The assessee had also earned dividend income of Rs.19,21,917/- which further fortify assessee‟s intention of investing in shares for earning fix income. 17. The CIT(A) after applying the proposition laid down in the various decisions as discussed above with respect to the facts of the instant Shri Mohan K.Jain, Mumbai 44 I.T.A.No. 1033 & 748/Mum/2010 A.Y.2006-07 case and also keeping in view frequency and continuity of transactions, it recorded categorical finding to the effect that profit earned in respect of four companies as discussed above amounting to Rs.18,41,027/-was liable to be taxed as business income rather than capital gain.However, in respect to balance of transactions, the CIT(A) has categorically recorded a finding that these were delivery based transactions, therefore, keeping in view the frequency, continuity and volume of transactions, profit arose there from are liable to be taxed as short term or long term capital gains depending on the period of holding. The findings recorded by the CIT(A) are as per material on record, therefore, the same do not require any interference.Accordingly, we do not find any infirmity in the order of CIT(A), which is being upheld. 18. In the result, both the appeals filed by the assessee as well as Revenue are dismissed.” 3. We have considered rival contentions and carefully gone through the orders of the lower authorities as well as order of the Tribunal dated 21/02/2014 in assessee’s own case, wherein exactly similar issue with regard to treatment of profit arising out of sales of shares has been dealt with to decide whether it was capital gain or business income. As the facts and 14 ITA No.3541,3542,3543,4571-2012, income. As the facts and circumstances during the years under consideration are same, respectfully following the order of the Tribunal, we direct the AO to allow assessee’s claim of capital gain in terms of observation given by the Tribunal in its order dated 21st February 2014. However, profit arising out of delivery based transactions are to be considered as capital gains as per the observation made by Tribunal in its order.

15 ITA No.3541,3542,3543,4571-2012, I have considered tile arguments of the Ld. AR. The decision of the AO is primarily, based on the findings in the assessment orders passed in the case of the assessee for earlier assessment years. Hence it is important to look into the history of the: earlier assessment made in the case of the appellant. The appellant has been held as investor in AY 2003-04, 2004-05 and 2005-06 in the scrutiny assessment order passed u/s.143(3). In the AY 2006-07 on which the AO has heavily relied, it is noted that the assessee had offered short term capital loss as well as long term capital gain in that year also and the AO assessed both short term capital loss and long term capital gains as business income. The matter was taken up by the assessee before the CIT(A) for Ay 2006-07 who vide order dared 27-11-2009 partly allowed the appeal of the assessee by holding that the profit from sale of shares whether short term or long term, was assessable as capital gains except for the shares wherein the assessee has made purchase and sales for more than 4 times in a year for any particular scrip. The scrips (whether held as short term or long term) where the appellant had made purchase and sales for more than 4 times in a year, only such profit was held to be assessable as business income. Similar additions made by the AO in AY 2007-08 and 2008-09 also and CIT(A)- 31, Mumbai vide its order dated 23-02-2012 and 24-02- 2012 for AY 2007-08 and 2008-09 respectively after analyzing the nature of transactions and once again relying upon its own order for AY-2006-07, held that the profit from sale of shares whether short term or long term, was assessable as capital gains except for the shares where in the assessee has made purchase and sales for more than 4 times. He also directed the closing stock of shares in respect of the transactions which have been treated as business income to be worked out on the basis of cost or market price whichever is lower and also to allow the credit of STT paid in respect of such shares, the profit from which has been assessed as business income. 3.4. Since there a change in address of the appellant during the relevant assessment year 2009-10, the jurisdiction over the appellant was transferred from AO of range 20 to AO of range 21 and accordingly the appeal for AY 2009-10 came to be decided under the jurisdiction of CIT(A)-32, Mumbai.

16 ITA No.3541,3542,3543,4571-2012, 3.5. For deciding the question whether the profit from sale of shares is capital gain or business income, no single thumb rule can be applied. Some of the general principles which are relevant to decide the issue are discussed as under:- The Courts as well as the CBDT in circular no. 4/2007, have held that an assessee can be investor as well as trader simultaneously. In the case of Raja Bahadur Wisheshwara Singh 41 ITR 685 (SC), it has been held that the magnitude, frequency, ratio of purchase & sales and holding will indicate the whether assessee was dealing in shares as business. Similar views have been held in 81 ITR 179(Cal), 74 ITR 692(Bom), 42 ITR 743(SC), 41 ITR' 685,692(SC). Hence the overall effect of far-t or s like volume and number of transactions, period of holding, high percentage of number of transactions as well as profits in shares held for shorter period, number of transactions where no delivery of shares was taken, repetitive dealing in same scrip, utilization of borrowed funds whether on interest or otherwise, existence of speculative activity, turnover/investment ratio, existence of business establishment and infrastructure, etc will be required to be looked into to determine whether the assessee is investor or trader. The magnitude is not to be seen in absolute terms but only in relative terms i.e it has to be seen W.r.t the total capital available, price of shares, etc. Sale and purchase of same share several times within the year would be another indication of intention of transactions to be for earning quick profit and not to enjoy appreciation of investments over a period. Where the delivery is not taken, profit from such transactions would definitely fall in business income as also held in case of Gopal Purohit(supra). However converse may not be true in all cases i.e. all delivery based transactions on which SIT is paid would not be a decisive factor alone to suggest that the shares were held as investments. This view is supported from the observation of page 8 of the ITAT order in case of V Nagesh (ITA No 5410/Mum/2008) wherein the decision of Gopal Purohit has also been referred, that “Merely because the transactions in shares delivery based it cannot be said to be investments”. The observation of the Supreme Court in case of G Venkatswami Naidu & Co. 35 ITR 584(SC) on page 610 is relevant “the presence of all the relevant circumstances mention in any of them may hold the court to draw a similar

17 ITA No.3541,3542,3543,4571-2012, inference but it is not a matter of merely counting the number of facts and circumstances pro & con; what is important to considered is their distinctive character. In each case it is the' total effect of all relevant factors and circumstances that determine the character of transaction; and so, though we may attempt to derive some assistance from decisions bearing on this point, we cannot seek to deduce any rule from them and mechanically apply it to the facts before us " . Similarly in case of PM Mohd Mirza Khan 73 ITR 735(SC) it has been held that the answer whether a transaction is adventure in nature of trade or not, must necessarily depend on each case on the total impression and the effect of the relevant factors and circumstances. In case of V Nagesh (ITA No5410/mum/2008) on page 5 of the order the Hon'ble ITAT while holding that sale and purchase of shares frequently would amount to trading, has observed that "in case of Investment, a person usually watches a market over a longer period of time before selling the shares. The earning of dividend and appreciation of shares is primary concern". Though the nature of treatment given in books would be a guiding factor but the same cannot be applied as decisive factor alone ignoring the other relevant factors. Further, the mere fact that the assessee has been treated as investor in past may not by itself be enough to hold him as investor in subsequent year on rules of consistency but if there are no material change in facts / legal position to be demonstrated by the assessee, then the rules of consistency can be applied. There can be no dispute that a person can simultaneously be a trader as well as investor in shares. Moreover when the courts as in circular no 4/2007, have also held that an assessee can be investor as well as trader simultaneously but the sanction between trading activity and investment activity has to be apparent from the relevant facts. Thus the activity of an assessee amounts to trading or investment can change from year to year depending upon various other factors' such as volume and number of transactions, period of holding, repetitive dealing in same scrip, utilization of borrowed funds, existence of speculative activity, high percentage of number of transactions as well as profits in shares held for shorter period, turnover/investment ratio, etc for each year which will determine whether the assessee is investor or trader in that particular year. In short, no single f8c:tor but it is only the cumulative effect of all relevant factors and. circumstances as discussed above that would

18 ITA No.3541,3542,3543,4571-2012, determine whether the nature of transaction of the appellant was as an investor or as a trader or both in any particular year? 3.6. If the above parameters are applied to the facts of the appellant's case then it is clear that the total transactions of sale of short term shares are 227 with a turnover of 11 Crores which will be high volume and frequency suggestive of the activities like a trader in shares and not an investor It is also noted that on large number of occasions the assessee has purchased or sold the same scrip several time in the same year which suggests that the assessee conducted himself in the manner like trader so far as the short term shares are concerned. It is also noted that out 227 transactions, the holding period in 110 transactions is Jess than 30 days and In 145 transactions it is less than 60 days. This is suggestive of the fact that in substantial number of transactions, the appellant is selling the shares after holding for smaller periods only. Thus considering the totality of facts that there are 2~;7 transactions wherein more than 50% shares being held for less than 60 days, and by repeated sales purchases on several times during the year in same scrip, the see conducted in the manner like trader in respect of the shares or less than 12 months. The closing balance out of the shares hold short term shares for quick rotation of turnover. The appellant has also done speculative transactions in the same scrips without taking delivery. Besides this, the appellant has also been done business activity of dealing in futures & options till immediately preceding years though no F&O activity has been done during current year. In all the decisions, the ITAT have held that no single factor is decisive to decide whether an assessee is trader or not and it is on analysis of the facts of those cases, the ITAT held that, assessee was an investor. There can be no dispute to this proposition. In fact these decisions support the view that mere absence of any borrowed funds as claimed by appellant alone will not be indicative of investment activity, if the cumulative effect of other factors as already discussed above indicates the appellant to be a trader. Under these circumstances, it is clear that the assessee has conducted like a trader in respect of the shares held for less than 12 months and hence the profit derived on the equity shares held for less than 12 months will have to be assessed as business income only. The action of 19 ITA No.3541,3542,3543,4571-2012, the AO in treating the Short term capital loss of Rs 1,67,02,188 as business loss is therefore confirmed. He shall however give deduction of STT paid since the income is being treated as business income. The appellant shall also be at liberty to value his closing stock of short term shares at cost or market' whichever is lower as the income from sale of short term shares have been held as business Income. 3.7. So far the question taxability of long term capital gain of Rs.3,20,34,059 on the shares held for more than 12 months is concerned, it is well known ,that the share market is highly volatile and hence no one can be expected 'to be doing trading in shares by holding the same for very long period i.e., more than 12 months. Holding period of 12 months can only be with the intention of trading. Hence for the shares held for more than 12 months there cannot be any reason to treat the same also as a part of trading activity. The mere fact that the assessee has been treated as trader for shares held for less than 12 months, doesn't mean that he is required to be treated as trader in shares in respect of shares held for more than 12 months also, if the nature of transaction, period of holing as well as other factors suggest that the assessee has acted like an investor in case of shares held for more than 12 months. In fact, various courts and as well as CBDT circulars has also made it very clear the person can have two portfolio simultaneously as trader in shares and investor in shares. It is noted that the assessee has earned dividend of 20,22,409/ - on such shares held for more than 12 months, which is suggestive of intention of investment. Further such investments have been made out of capital only and there are no borrowed funds. The period of holding is also sufficiently large i.e. from 365 days 1095 days. Most of the long term shares have been sold after holding them for 2 to 3 years. More than 85% of LTCG earned is on shares which were held from 551 days to 1095 days which clearly shows the intention of holding shares for investment only. From the perusal of the nature of income for the last 6 assessment years i.e. from 2004-05 to 2009-10 it is noted that the appellant has been having deriving substantial LTCG for all the 6 years regularly which supports the contention that for shares held for more than 12 months, the intention was to invest as it is not possible for a trader to hold shares for such long periods regularly for last so 20 ITA No.3541,3542,3543,4571-2012, many years. The AO in Ay 2003-04, 04-05 and 05-06 has also accepted the LTCG offered by assessee u / s 143 (3). In fact CIT(A) 31 Mumbai also while passing order for AY 2006-07 to 2008-09 in case of appellant has also held the profit on shares held for more than 12 months to be assessable as LTCG 'with only exception made by him in respect of scrip where the appellant had made purchase and sales for more than 4 times in a year for any single scrip. With due respect to my colleague's findings, I am unable to agree with the exception made by Ld CIT(A)-31 in treating the profits on sale of long term shares where assessee had made purchase and sales for more than 4 times in a year as business income. The classification of business income or capital gain merely on number of sale transaction in particular scrip being more than 4 times, as sole criteria may give distorted picture. The long term shares sold are sold after holding for more than 12 months hence the same were not at all purchased during the year and hence such criteria cannot be applied for long term shares. If the share are held for more than 12 months than mere fact that an assessee sells the same in more than 4 lots also does not take away the intention of investment which is evident by the fact that the shares were held for more than 12 months. If that were held to be so, than the shares of any scrip held for more even than three years will get treated as business income instead of LTCG just because it is sold in more than 4 times, thereby leading to a distorted conclusion. Thus the sale of single scrip more than 4 times after holding the same for more than 12 months cannot be a criteria to decide the issue because it is known fact in share market that when one places an order for sale of a particular number of shares at a particular price, the sale may not materialize in one lot due to lack of availability of buyers for all shares at that price. Hence such shares though placed for sale in one lot, get ultimately sold to more than one lot to several buyers in parts at different point of time on the same day depending upon the market conditions. So these transactions of sale on same day cannot be treated as separate sale transactions on the part of seller who had all the shares for sale at one lot only. Thus the intention should discernible from period of holding and not from the fact that in how many lots the shares are sold. Under these circumstances it cannot be said that the appellant was acting like a trader in respect of the shares which have peep held for very long period of more than 12 months

21 ITA No.3541,3542,3543,4571-2012, just because the shares were sold on more than 4 times in a year. Hence, the profit of long term capital gain shares of Rs. 3,20,34,067/- is to be liable to be assessed as Long term capital gain only and not as business income. 7. The detailed finding so recorded by CIT(A) has not been controverted, accordingly we do not find any infirmity in the order of CIT(A) for treating gain arising out of sale of shares held for more than 12 months as long term capital gains. This issue is also covered by the order of Tribunal dated 21.02.2014 in assessee’s own case. 8. Revenue is also aggrieved for deleting the disallowance of Rs.2,67,243/- made by AO under Section 14A.

Order pronounced in the open court on this 30/09/2016. (SANDEEP GOSAIN) (R.C.SHARMA) न्याययक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनाुंक Dated 30/09/2016 Karuna, Sr. PS

25 ITA No.3541,3542,3543,4571-2012,

आदेश की प्रयिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. आदेशानुसार/ BY ORDER, गार्ड पाईर / Guard file. 6. सत्मावऩत प्रतत //// उि/सहायक िंजीकार (Asstt.