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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the revenue is directed against the order dated 16-06- 2014 passed by Ld CIT(A)-29, Mumbai and it relates to the assessment year 2010-11. The revenue is aggrieved by the decision of Ld CIT(A) in holding that the gains arising on sale of shares is assessable as Short term capital gains instead of business income.
The assessee declared short term capital gains on purchase and sale of shares and units of Mutual fund as detailed below:- Gains on sale of shares - 88,10,874 Gains on redemption of units - 2,28,22,833 ------------------ 3,16,33,707 =========
2 Shri Ramesh Kumar Gupta The assessee had brought forward short term capital loss of the earlier years and hence adjusted the same against the short term capital gain of the current year. The AO, however, took the view that the gains arising on sale of shares is assessable as Business income and accordingly assessed the same. The AO took into consideration, the volume and frequency of transactions, funding position, repetitive nature of transactions, quantum of dividend receipts etc. to support his conclusion. In the appeal filed by the assessee, the Ld CIT(A) agreed with the contentions of the assessee and accordingly directed the AO to assess the gains arising on sale of shares as Short term capital gain. Aggrieved by the order passed by Ld CIT(A), the revenue has filed this appeal before us.
We heard the parties and perused the record. The solitary issue urged in this appeal relates to the nature of gains arising on sale of shares and mutual fund units. The assessee’s claim was that he has carried on the activity of purchase and sale of shares/mutual fund units as his investment activity, while the assessing officer has taken the view that the assessee has carried on the same as his trading activity. It is well settled proposition that the tax authorities have to take into various criterion to decide this contentious issue. The Courts as well as the CBDT have listed out certain important criteria in this regard. However, the question should be resolved on a cumulative consideration of various criteria and most important one is the intention of the party at the time of purchase of shares. If the intention was to hold the shares as his investment, then the gains shall be assessable as Capital gains only. On the contrary, if the intention was to hold the shares as his trading stock, then the gain is assessable under the head Business. The intention of the assessee should be gathered by examining the activities of the assessee in the light of various criteria listed out by Hon’ble Courts and CBDT.
3 Shri Ramesh Kumar Gupta
We notice that the assessee has made gains mostly on purchase and sale of mutual fund units, i.e., out of Rs.316.33 lakhs of gains, the assessee has earned a sum of Rs.228.22 lakhs from purchase and sale of mutual fund units. We notice from the details of mutual funds investments that the assessee has invested huge amounts in certain schemes and redeemed the same on making certain gains. We notice that that the assessee has made investments in different schemes of various mutual fund companies and there is repetition only in respect of two schemes. The prices of mutual fund units move in tandem with the movement of index of share markets and hence the assessee appears to have sold the units of mutual fund on making certain gains. The only negative factor in this group is the low holding period.
In respect of share transactions, we notice that the assessee has dealt with a number of shares. The repetition is mostly in the form of purchases in installments and sales in installments.
We notice that the Ld CIT(A) has taken into consideration following facts relating to the case under consideration. We notice that the Ld CIT(A), while analysing the various factors, has also addressed the issues considered by the AO:- (a) The assessee is a director of a company, which is engaged in the business of manufacture and sale of stainless steel bars. Hence the activity of investing in shares is not the only activity of the assessee.
(b) With regard to the low holding period, the Ld CIT(A) noticed that the assessee has offered gains arising on intraday transactions as business income. In respect of inter day transactions, the Ld CIT(A) has observed that the assessee has sold the shares upon prices reaching the target levels.
(c) The assessee’s objective was to get maximum gains out of investments. Hence there was churning of the capital to achieve that objective.
4 Shri Ramesh Kumar Gupta (d) Volume and frequency of the transaction alone cannot lead to the conclusion that the assessee has acted as trader. In this regard, the Ld CIT(A) has taken the support of Shri Bahrat Kunverji Kenia Vs. ACIT (ITA No.6544/Mum/2008 dated 15.5.2009 and other decisions)
(e) Hence the volume of transactions cannot alone be taken into consideration to come to the conclusion that the assessee has acted as a trader.
(f) The borrowings have been used to give advances. The analysis of balance sheet of the assessee shows that the advances given by the assessee are always in excess of the borrowings. During the year under consideration, the borrowings were Rs.8.26 crores and the amount lent by the assessee was Rs.11.39 crores.
(g) The assessee is having own capital of RS.18.21 crores and the investments balance available at the year end is Rs.16.12 crores. Thus, the personal capital has been used to make investments.
(h) The assessee has disclosed purchase of shares as his investment in the books of account.
(i) In the past years also, the assessee has declared gains arising on sale of shares under the head “Capital gains” only. The AO has accepted the same in the assessment orders passed u/s 143(3) of the Act in AY 2005-06, 2006-07 and 2009-10.
(j) The assessee has been consistently earning dividend income year after year.
(k) The assessee has declared sizeable amount of Long term capital gains on purchase and sale of shares and the same has been accepted in all the years since AY 2005-06. The AO has just taken figure of AY 2007-08 and 2008-09 to suit his observations to take an adverse view.
(l) The AO has accepted short term capital loss arising on sale/ redemption of shares/mutual fund units in the earlier years. The AO cannot take a different view in the current year, simply for the reason that the assessee has made gains.
5 Shri Ramesh Kumar Gupta (m) There is no material change in the facts of the case during the year under consideration vis-à-vis the facts prevailing in the earlier years. Hence, under the principle of consistency, the claim of the assessee should be accepted. In this regard, the Ld CIT(A) has taken support of the decisions rendered by Hon’ble jurisdictional Bombay High Court in the case of CIT Vs. Gopal Purohit (336 ITR 287), Aroni Chemicals Ltd Vs. DCIT (362 ITR 403) and the decision rendered in other cases, viz., ACIT Vs. Shri Satpal Singh Sethi (ITA No.3650/Mum/2010) and M/s SMK Shares & Stock Broking pvt Ltd (ITA No.799/Mum/2009 dated 24.12.2010).
(n) In support of Principles of Consistency, the Ld CIT(A) has relied upon the decision rendered by Hon’ble Supreme Court in the case of Radhasoami Satsang Vs. CIT (1992)(193 ITR 321).
Accordingly the Ld CIT(A) held that the assessee is an investor and not a trader during the year under consideration Accordingly he allowed the appeal of the assessee.
5. We heard the parties and perused the record. The Ld D.R strongly supported the order passed by the AO and contended that the assessing officer has analysed the facts prevailing in the instant case in a proper perspective. On the contrary, the Ld A.R supported the order passed by Ld CIT(A) by submitting that the Ld CIT(A) has addressed each and every observations made by the AO. He submitted that the Ld CIT(A) has followed the binding decision of Hon’ble Bombay High Court in deciding this issue in favour of the assessee. He further submitted that the SLP filed in the Supreme Court against the decision rendered by Hon’ble Bombay High Court in the case of Gopal Purohit (supra) has since been dismissed by Hon’ble Supreme Court.
6. Having heard rival contentions and upon perusal of the record, we are of the view that there is no reason to interfere with the order passed by Ld CIT(A) on this issue. We have earlier noticed that the Ld CIT(A) has analysed the facts
6 Shri Ramesh Kumar Gupta prevailing in the instant year and has shown that the observations made by the AO on various criteria were not correct. Further the assessee’s income in the earlier years has been accepted by the AO in the scrutiny proceedings including the loss declared by the assessee. Accordingly the Ld CIT(A) has held that the principle of consistency should be applied in the present year also, since the assessing officer has not made out a case of change in facts. Accordingly, we do not find any reason to interfere with his order.