ACIT 25(2), MUMBAI vs. JAGDISH MASTER HUF, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 30.04.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The sole issue taken by the Revenue in this appeal is as to whether the income earned by the assessee from purchase & sale of shares is to be taxed as under the head ‘Capital Gains’ or ‘Business Income’ of the assessee.

The brief facts of the case are that the assessee is a HUF and derived income from house property, interest income and income from share transaction activity. The assessee treated the income from share transaction activity as short term and long term capital gains. During the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO), however, noted that the assessee had dealt in total 23 scrips regarding which he claimed LTCG and with regard to 26 scrips, income was claimed as STCG.

The assessee made detailed submission before the Ld. CIT(A). The Ld. CIT(A), after considering the overall facts and circumstances of the case, observed that on the identical facts, the Department had treated the assessee as an investor in the past in the assessee’s own case for A.Y. 2006-07. However, in appeal, on the identical issue and in the identical facts and circumstances, his predecessor CIT(A) had decided the issue in favour of the assessee and that finding holding the assessee as an investor was also upheld by the Tribunal. Even in the assessment year 2009-10, the AO himself had accepted the assessee as an investor and accepted the short term and long term capital gains returned by the assessee as such, in the scrutiny assessment proceedings under section 143(3) of the Act. He, further observed that the principles of consistency should be applied and the short term capital gains declared in the year under consideration should also be accepted as such. He, further observed that almost identical patterns including the holding period of shares, the volume of investment and the number of transactions carried out etc. were there in assessment years 2006-07 and A.Y. 2009-10. He, adopting the principle of consistency and taking into the overall facts and circumstances of the case, held that the assessee an investor and directed the AO to treat the income earned from the share transactions as under the head ‘Capital Gains’. The Revenue has, thus, come in appeal before us.

We have heard the rival contentions and have also gone through the records. The Ld. D.R. has vehemently contended that the volume of transactions in the case of the assessee was very high and that in relation to certain scrips, there was churning of the portfolio i.e. the assessee has purchased, sold and then repurchased and resold certain scrips which showed that the assessee was acting as a trader and not an investor. He has further stated that in some of the scrips, the holding period was very low and that the volume of the investment was very high. He, therefore, has submitted that the income from the share transactions is required to be treated as business income of the assessee.

On the other hand, the Ld. A.R. of the assessee has reiterated his submissions as were made before the Ld. CIT(A). He has further submitted that the assessee from the investment activity had earned sufficient dividend income. Apart from short term capital gains of Rs.1,79,75,676/-, the assessee had earned long term capital gains of Rs.1,89,59,879/- which showed that the intention of the assessee was of investment and not of trading as many scrips were held for a much longer period. He has further stated that the assessee had his personal capital at Rs.25,41,57,149/- whereas the investment in shares as on 31.03.10 was at Rs.19,19,46,641/-. Further, the investments in FDR and units on MF, PPF, LIC bonds etc. was at Rs.2,26,48,989/-. Further, the dividend income earned during the year was at Rs.33,59,489/-. He has further stated that almost same pattern of investment was made by the assessee in the earlier assessment year. He has further submitted that average holding period of the scrips in case of short term capital gains was 191 days and in case of long term capital gains was 960 days. No borrowed funds were used by the assessee for purchasing the shares. Assessee, since long, has been treated as an investor and the income from the shares has consistently been offered and accepted as short term and long term capital gains. He has further relied upon the decision of the Tribunal in the own case of the assessee for A.Y. 2006-07 dated 18.05.11 passed in and ITA No.3420/M/09 vide which the Tribunal has dismissed the appeal of the Revenue agitating the action of the Ld. CIT(A) in treating the income from share transactions of the assessee as capital gains. Further, in the immediate preceding year, the assessee under the same facts and circumstances has been treated as an investor.

Fro the appraisal of above factual aspects, in our view, the Ld. CIT(A) has rightly treated the share transactions activity of the assessee as investments. Moreover, the Department’s conduct of changing its stand in every year is not appreciable as it would not only create uncertainty each year about the ‘Head’ of such income but may deprive the assessee from claiming set off of capital losses of a previous year in the subsequent year because of change of Head of such income. The Hon’ble Bombay High Court in the case of “CIT vs. Gopal Purohit” (2011) 336 ITR 287 (Bom.) has held that though principle of resadjudicata is not applicable to income tax proceedings, as each year is a separate year, however, the principle of consistency is to be followed, if there is no change in fact and circumstances in the subsequent year.

In view of the above, we do not find any merit in the appeal of the Revenue and the same is accordingly dismissed.