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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-VI, Kolkata dated 30.03.2013. Assessment was framed by DCIT, Circle-5, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2010 for assessment year 2008-09.
In this appeal three grounds have been raised out of which ground No.2 was not pressed and, therefore, same is dismissed as not pressed. The ground No. 3 is consequential and does not require separate adjudication. Hence, sole ground raised by assessee is as under:-
Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 2 “1. On the facts and in the circumstances of the appellant’s case and in law, the learned Commissioner of Income Tax (Appeals), VI, Kolkata [CIT(Appeals)] has erred in upholding the assessment of the sum of Rs.88,05,787 as income under the head of “Profits Gains of Business or Profession” as against the appellant’s claim in the return of income under the head “Short Term Capital Gains”. Shri Miraj D Shah Ld. Authorized Representative appeared on behalf of assessee and Shri P.K.Chakraborty, Ld. Departmental Representative appeared on behalf of Revenue.
Sole ground raised by assessee is that Ld. CIT(A) erred in confirming the action of Assessing Officer by treating the income of assessee under the head “profit & gains of business occupation” against the claim of assessee in its returned income under the head “short term capital gains (STCG for short)”.
Facts in brief are that assessee in the present case assessee is a Private Limited Company and engaged in business of investment and finance. The assessee for the year under consideration has field its return of income declaring total income of ₹69,44,430/- on 31.03.2010. Thereafter the case was selected for scrutiny under CASS and accordingly notice u/s 143(2) of the Act was issued. The assessee has declared its income from STCG at ₹ 88,05,787/- and Long Term Capital Gains (LTCG for short) of ₹8,45,589/-. The AO, during the course of assessment proceedings observed that the assessee has done dealing in more than 251 scripts involving frequent transactions of purchase and sale of share. Besides the AO observed that the purchased value of shares and securities is at ₹ 6.85 crores and sale consideration of shares sold to ₹5.89 crores during the year. In many cases, the sale and purchase of share has taken place on same date but assessee has declared its income / loss from such transactions under the head “capital gains”. Accordingly, AO sought clarification from the assessee as to why STCG income declared by assessee should not be treated as “business income”. In response to the notice, assessee submitted that sale-purchase of share has been shown in its books of account as investment in the year under consideration and same was the position in the past years. However, AO disregarded the plea of assessee by observing that in most of the cases, sale-purchase of shares transactions have been Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 3 completed in a period within one month to three months. The sale-purchase of shares indicates that this activity has been carried from systematically for making profit from the dealing with the shares. Accordingly, AO treated the income of ₹88,05,787/- showed as STCG as “business income” of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A), whereas assessee submitted that assessee has been showing its income under the head STCG from the activities of sale-purchase of the shares and no adverse view had been made in the earlier year with regard to sale-purchase of the share. However, Ld. CIT(A) rejected the plea of assessee and upholding the action of AO by observing as under:- “36. On the analysis of the various decisions relied upon by the appellant and the Assessing Officer it is observed that there is no specific terms and conditions, which can be applied mechanically to come to a conclusion. The issue regarding taxation of gains from shares depends upon the facts and circumstances of each case. The Hon'ble appellate Courts have determined the issue on the facts of each case giving the various points/issues considered for coming to a conclusion regarding the head of income under which the share profit is to be taxed.
The frequency of buying and selling of shares by the appellants were high; only one demat account; the period of holding was less in the case of short term capital gain; interest being paid by appellant on borrowed money in common kitty for investments; the high turnover was on account of frequency of transactions; the assessees had dealt in delivery trading purely with the intention of making quick profits on a huge turnover; the period of holding of a majority of the stock was few days; in most of the transactions" the assessees did not even hold on to at least some part of the huge purchases and had engaged in the same scrips frequently; the intention of the assessees in buying shares was not to derive income by way of dividend on such shares but to earn profits on the sale of the shares; the assessees had indulged in multiple transactions of different quantities with high periodicity. These periodic transactions, selecting the time of entry and exit in each scrip, called for regular direction and management which would indicate that it was in the nature of trade; repeated transactions, coupled with the subsequent conduct of the asses sees to re-enter the same scrip or some other scrip, in order to take advantage of market fluctuations lent the flavour of trade to such transactions; the assessee was purchasing and selling the same scrips repeatedly, and was switching from one scrip to another; the dominant impression left on the mind was that the assessee had not invested in shares; mere classification of these share transactions as investment in the assessee's books of accounts is not conclusive; the intention of the assessee at the time of purchase was only to sell Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 4 the shares immediately after purchase; frequency of purchase and sale of shares showed that the assessees never intended to keep these shares as investment; and it is only for the purpose of claiming benefit of lower rate of tax, under Section 111A of the Act, that they had claimed certain shares to be investment, though these transactions were only in the nature of trade. The character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case.
The investments have been accepted by the Assessing Officer earlier Assessment Years u/s 143(1) and this is the first year of the scrutiny. The Assessing Officer has also accepted the closing balance to be investments for short term capital gain by the Assessing officer. There are peculiar facts and circumstances where in the earlier assessment years and even in the Assessment Year 2009-10 the investments shown by the appellant have been upheld as investments by the Assessing Officer in the order u/s143(1) except in current year As per the various facts & circumstances mentioned in the above Para 37 and after considering the observations of the Assessing Officer in the assessment order and submissions of the appellant and aforesaid discussion on this issue in detail, the short term capital gains on sale of shares is being held to be business income. It is held that the sale and purchase of shares shown in the investments portfolio as short term capital gain is treated as business income under the head of "Profit & Gains of Business" for the current assessment year i.e. 2008-09. It is held that the sale and purchase of shares shown in the investments portfolio except long term capital gains is treated as business income under the head of 'profits & gains of business' for current assessment year. The gain on sale of shares having short term capital gains is held to be assessed as business income. The long term capital gain shown by the assessee is accepted as long term capital gains amounting to Rs.8,45,589/-. The appellant will not get the benefit of closing stock of investments shown in the final accounts as on 31st March 2008 to be considered as capital gains in the Assessment Year 2009-10 merely because it has been accepted so in this appellate order. The appeal on issue of short term capital gain to be treated as short term capital gain instead of business income is dismissed.
The Hon'ble appellate Courts have determined the issue on the facts of each case giving the various points/issues considered for coming to a conclusion regarding the head of income under which the share profit is to be taxed. The long term capital gain amounting to Rs. 8,45,589/- is held to be long term capital gain exempted u/s 10(38) of the Income-tax Act, 1961. The amount of Rs.88,05,787/- is held to business income instead of short term capital gain and Rs.8,45,589/- as long term capital gain as declared by the appellant. These grounds of appeal are accordingly decided and order of the Assessing Officer is upheld partly on this issue.”
Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 5 Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Before us Ld. AR submitted that assessee has been filing its returned income from the aforesaid source under the head “STCG” which were also processed u/s. 143(1) of the Act but no question with regard to head of the “income” was raised by the lower authorities and prayed before Bench to quash the order of Authorities Below. On the other hand, Ld. DR relied on the order of Authorities Below.
We have considered the rival contentions as well as relevant material on record. We have also carefully perused the various decisions relied upon by the parties. Though the arguments for both sides were also addressed on the merits of the issue, however, from the foregoing discussion, we find that AO has treated the STCG of assessee as “business income” on the ground that there were numerous and systematic transactions which were settled within a period of one to three months. The Ld. CIT(A) confirmed the action of AO. At this stage, we find that activity of sale- purchase of share has been the subject-matter of numerous disputes so as to treat the same as “business transactions or capital gain transactions”. Various courts have held the issue in favour of assessee and at the same time, various courts have also decided the issue in favour of Revenue. However, to stop the litigation between the Department and assessee, the CBDT very recently has came out with a Notification No.6/2016 dated 29.02.2016 and relevant portion of the said Notification reads as under:- “3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e., whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gin or Business Inc, shall take into account the following- Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 6 a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.”
From the plain reading of clause (a) of the said Notification, we find that it has been instructed that if the assessee is irrespective of the period of holding treat the transaction for sale-purchase of the share as stock-in-trade then the Department shall not dispute on this matter. Accordingly, in this case, assessee has been treating the income arising from the sale-purchase of the share as STCG, therefore, lower authorities cannot dispute the same as “business income”. In this connection, we also rely in the judgment of Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Gopal Purohit (2010) 228 CTR 0582 : (2010) 34 DTR 0052 : (2011) 336 ITR 0287 : (2010) 188 TAXMAN 0140 where it was held as under :
“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. The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, 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. The Tribunal has observed in 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 Tribunal correctly accepted the position that the principle of res judicata is not attracted Sh Padmasagar Exports Pvt. Ltd. vs. DCIT, Cir-5, Kol Page 7 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. There cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal under s. 260A. No substantial question of law is raised.—Gopal Purohit vs. Jt. CIT (2009) 122 TTJ (Mumbai) 87 : (2009) 20 DTR (Mumbai)(Trib) 99 affirmed. Tribunal having entered a pure finding of fact that the assessee is engaged in two different types of transactions namely, investment in shares and dealing in shares for the purposes of business and held that the delivery based transactions are to be treated as investment transactions and the profit received therefrom is to be treated as short-term or long-term capital gain depending on the period of holding of shares and that there ought to be uniformity in treatment and consistency in various years when the facts and circumstances are identical, no substantial question of law arises.” In view of the above, we find that magnitude of the transactions do not alter the nature of the transactions. Therefore, magnitude of transactions carried out by the assessee in our view should not be very material in coming to the conclusion that income in question is income from business. Though the res judicata is not applicable but the principal of consistency will definitely apply and on that basis the claim of the assessee should be held proper. Accordingly we are inclined to reverse the order of authorities below and ground raised by assessee is allowed.