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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI B. R. BASKARAN, AM
O R D E R
Per Mahavir Singh, JM:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-34, Mumbai (‘CIT(A)’ for short) in Appeal No. CIT(A)/34/IT- 279/08-09 dated 13.08.2009, dismissing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 26.12.2008.
The only issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the A.O. in treating the gain arising out of the sale and purchase of shares as ‘business income’ instead of ‘long term capital gain’ (LTCG) or ‘short term
(A.Y.2006-07) Mehraboon J. Irani vs. Asst. CIT capital gain’ (STCG), declared by the assessee. For this, the assessee has raised following ground no. 1:
‘1.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the action of the Assessing Officer of assessing the gains from sale of shares as income from business instead of long term capital gains of Rs.4823/- and short term capital gains of Rs.7,08,553/-.’
Briefly stated facts are that the assessee is a salaried employee and also engaged in purchase and sale of shares. The assessee has disclosed the following income in its return of income: Short term capital gains (equity) 7,31,901 Long Term capital gains (equity) 4,823 Speculation Profit 64,784 Dividend on shares 15,022 Bank interest 6,039 Salary from M/s. Darashaw 25,23,689
The Assessing Officer (A.O.) analysis the assessee’s trading of shares, STCG declared and LTCG declared as under: Trading: i) In the Share trading/speculation transactions that assessee has purchased 23 scrips and sold these 23 scrips during the year. ii) The number of shares purchased were 64,189 and the same 64,189 shares were also sold during the year. ~ iii) The value of the purchase transactions amounts to Rs.84,47,165/- and the total value of the sale transactions amounts to Rs.85,11,949/-. The difference of Rs.64,784/- is declared as the business income and the same is set-off against last years brought forward speculation loss. iv) Out of the 23 traded scrips loss has been booked in 06 scrips Short term capital Gain: As per the STCG statement filed by the assessee, the following is observed:- i) In the S.T.C.G. transactions that assessee has purchased 144 scrips and sold these 43 scrips, during the year. ii) The opening stock of shares is 20,336 valued at Rs.18,44,196/-. iii) The number of shares purchases are 23,895 and the number of shares sold are 30,195. iv) Out of the 43 scrips sold losses have been booked in 08 scrips. v) The value of the purchase transactions amounts to Rs.35,33,186/- and the total value of the sale transactions amounts to Rs 47,07,438/-.
(A.Y.2006-07) Mehraboon J. Irani vs. Asst. CIT Long term capital gain: i) In the LTC.G. transactions, that assessee has transacted in 34 scrips. ii) The opening stock of shares is valued at Rs.7,55,433/- iii) The number of shares sold are 7752 valued at Rs. 7,60,257/-. iv) Out of the traded scrips losses have been booked in 09 scrips v) Long term capital gains shown is Rs. 4824/- Dividend received is of Rs 15,022/- only. vi)
Finally, according to the A.O., the assessee is only engaged in share trading in view of volume of transactions, magnitude of transactions and amount of investment in shares. According to the A.O., the assessee is engaged himself in an organized manner in purchase and sale of shares, therefore, he treated the entire activity of assessee as ‘business income’.
Aggrieved, the assessee preferred an appeal before the CIT(A).
The CIT(A) confirmed the action of the A.O. by observing that the profits resulting from sale proceeds of shares was revenue receipt, as the purchases were made in several lots and past records of the assessee also shows that he was engaged regularly in purchasing and selling of shares mostly of those companies of which it or its associate companies were managing. According to the CIT(A), the finding of the A.O. is of finding of fact and, hence, he confirmed the action of the A.O.
Aggrieved, now the assessee is in second appeal before the tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee is an individual and salaried employee for the last twenty years. The assessee has detailed out the fact regarding holding of shares, number of scripts in which he dealt with and percentage of total as under:
Holding period No. of Scripts % of total STCG Less than 1 week 2 4% 1 week to 1 month 9 21% 1 month to 3 months 12 29%
(A.Y.2006-07) Mehraboon J. Irani vs. Asst. CIT 3 months to 6 months 12 29% More than 6 months 7 17% 42 100% LTCG Less than 3 years 6 17% 3 years to 5 years 2 6% 5 year to 10 years 16 44% 10 years & above 12 33% 36 100%
The ld. Counsel for the assessee stated that for treating the assessee’s activity from sale and purchase as ‘business income’ by A.O. as well as CIT(A) recorded the reasons that there is high frequency of transactions, low period of holding of scrips, low income from dividend, loss incurred in main scrip traded during the year and it has maintained books of accounts. According to the ld. Counsel for the assessee all these factors were considered by various courts and Hon’ble Bombay High Court in the case of CIT vs. Gopal Purohi (2010) 336 ITR 287 (Bom) has considered this aspect and held in favour of the assessee. The ld. Counsel by the assessee also argued that more volume of transaction transacted by the assessee would not alter the nature of the transaction and head of income is to be determined with regard to the facts relating to the transactions. The ld. Counsel for the assessee explained that out of 42 scrips sold on account of STCG, only 2 scrips were sold within a week from the date of its purchase and 40 scrips were sold after a week from the date of its purchase. As regards to LTCG out of 36 scrips sold, 30 scrips were held by the assessee for more than 3 years and only 6 scrips were held for less than 3 years. The ld. Counsel for the assessee also stated that the assessee has earned dividend income for these scrips held for 3 to 6 years, and also from the scrips held for short term period. He also explained that in short term capital investment, the assessee has incurred loss only in 8 scripts out of 42 and loss in 9 scrips out of 36 scrips on account of long term capital investment. He also explained that in earlier years, and in the future years, the Revenue itself has accepted even though the assessment was framed u/s. 143(3), the purchase and sale of purchase as STCG or LTCG, as the case may be. The ld. Counsel for the assessee also displayed from the accounts of the assessee that these shares were held as investment and kept the same in investment portfolio and not in stock-in-trade. The ld.
(A.Y.2006-07) Mehraboon J. Irani vs. Asst. CIT Counsel for the assessee drew our attention to the accounts statement filed before us and argued that once these shares were held in investment portfolio, the income arising from the same are treated as ‘business income’.
On similar facts, the Hon'ble Bombay High Court in the case of Gopal Purohit (supra) has held as under:-
“2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate port folios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment transactions and the profit received therefrom should be treated either as short term or, as the case may be, long term capital gain, depending upon the period of the holding. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions namely, those by way of investment on one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law.
3. In so far as Question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a divergent approach for the Assessment Year in question. Question (b), therefore, does not also raise any substantial question.”
In view of the above facts and circumstances, we are of the view that mere volume or magnitude does not alter the nature of transaction, which are consistently assessed as income from capital gains from past years and even in future years by revenue. Where the assessee was holding large magnitude of shares as investment from year to year and transaction of shares in preceding years as well for the future years had been held as income from capital gains both on long term and short term basis, there was no basis for (A.Y.2006-07) Mehraboon J. Irani vs. Asst. CIT holding assessee as trader in shares for the year under consideration when his intention is clear that he want to hold the shares as investment and not stock in trade. Accordingly, we are of the view that the Revenue has wrongly treated profits or gains arising out of the transaction of sale and purchase of shares as business income, whereas actually it is an investment and income arising out of the same is capital gains. We direct the Assessing Officer to treat the gains arising out of sale and purchase of shares as ‘STCG’ or ‘LTCG’, as the case may be. Accordingly, this issue of the assessee is allowed.
In the result, the assessee’s appeal is allowed. प�रणामतः �नधा�रती क� अपील �वीकृत क� जाती है । Order pronounced in the open court on August 30, 2016 Sd/- Sd/- (B. R. Baskaran) (Mahavir Singh) लेखा सद�य / Accountant Member �या�यक सद�य / Judicial Member मुंबई Mumbai; �दनांक Dated : 30.08.2016 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,