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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 06.08.2012 of Commissioner of Income Tax (Appeals)-24, Mumbai (Hereinafter called as the CIT(A)) for assessment year 2008-09. The assessee has raised the following grounds of appeal:
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT
1. “On the facts, circumstances and legality of the case, the Hon’ble C.I.T.(A) erred in confirming the short term capital gain amounting to Rs.7,79,403/- as business income while in fact, the same is taxable under the head “Capital Gain”.
The Short term capital gain amounting to Rs.7,79,403/- treated as a business income be treated as short term capital gain.”
The issue raised in ground no.1 is against the confirmation of short term 2. capital gain of Rs.7,79,403/- as against the business income by ld. CIT(A).
The brief facts of the case are that the assessee filed her return of income on 31/07/2008 by declaring income of Rs.17,61,946/-. The return was processed u/s 143(1) of the Act and subsequently selected for scrutiny. Statutory notice u/s 143(1) were duly issued and served on the assessee. During the year the assessee has shown income inter alia of short term capital gain of Rs.7,79,403/-, long term capital gain of Rs.6,29,952/-, speculation gain of Rs.5,06,094/- and income from business from proprietary concern of the assessee of M/s. S.V. Traders at Rs.11,42,340/-
The ld. AO during the course of assessment proceeding raised query as to why the assessee’s share transaction activity should not be treated as business activity instead of investment activity. Finally the AO framed the assessment at Rs.
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT 31,71,300/- while treating short term capital gain of Rs.7,79,403/- and long term capital gain of Rs.6,29,952/- from sale of shares by treating the same as business income of the assessee vide order dated 24/12/10.
The assessee aggrieved by the order of the AO preferred an appeal before the CIT(A) who while deleting the addition in respect of long term capital gain of Rs. 6,29,952/- sustained the addition of short term capital gain of Rs. 7,79,403/- by holding that the income from long term capital gain could be treated as income from investment as investment were held more than 1 year by the assessee while upholding the order of the AO of treating the short term capital gain as business income by holding as under:
“From the details of the short term capital gains filed by the assesee, it is seen that she had entered into 98 transactions of sale of shares on which gains have been made. Almost all the shares which have been sold have been bought during the current year itself and, therefore, could not have been disclosed as investments in the Balance Sheet of the preceeding year. Of the 98 transactions of the sales, 86 transactions relate to shares which were held for less than 30 days. Hence, a huge 88% of the transactions relate to shares which were held for less than 30 days.22 transactions out of the 98 transactions relate to shares which were held for only 1 day while 62 out of 98 transactions of sale relate to shares which were sold within 10 days of their purchase. This translates into 63.25%
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT of the sales transactions where the shares were sold within 10 of their purchase. This shows that the intention of the assessee was not to hold the shares for appreciation or for the purpose of earning dividend income. Once the intention of the assesee that she did not purchase the shares for holding them for a period of time, which is the classic example of an investor, itself, is clear, the assessee cannot be held as an investor in shares in question. The question of showing these shares as investments in the earlier years does not arise since almost all the shares barring a few were bought and sold within the current year itself. There may be a few shares which have been held for a period of time. However, the single activity of the assessee cannot be compartmentalized and it is the overall impression which will decide whether the assessee is an investor or a trader. Since the intention of the assesee was not to hold the shares for a longer period to earn income from appreciation in the value of shares as is evident from the facts available on record, and the conduct of the assessee shows that she has acted as a trader in respect of the shares in question, she has to be held as a trader and not as an investor in respect of the shares on which short term capital gains has been claimed by the assessee. The action of the Assessing Officer of treating the gains of Rs.7,79,403/- as business income is, therefore, upheld. This ground of appeal filed by the assessee is partly allowed.”
The ld. AR submitted before us that in all the proceedings and succeeding years the similar income from the short term capital gain was accepted as such by (A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT the department. The ld. AR brought to our notice that holding of the assessee in mutual funds and debentures were duly shown as “investment in mutual funds” and “investment in shares/debentures” which is placed at pg no. 3 of the paper book. The ld. Counsel also drew our attention to pg.no.5 & 6 showing details of investments, pg.no.7 long term capital gain/ loss and on pg. no. 8 &9 short term capital gain/loss. It was also submitted before us that the assessee had not borrowed funds and all these investments were made out of his assessee’s owned funds and the assessesee had been showing the income from sale of shares as short term capital gain for the last more than 15 years consistently and it was only during the current year that the AO treated the said short term capital gain from shares as business income because of heavy transactions of sales and purchase of shares. The ld. AR vehemently argued that similar short term capital gain on sale of shares was accepted by the department in the earlier years and succeeding years in the case of the assessee and also brought to our notice that the assessment orders for Assessment Years 2006-2007, 2009-2010 & 2011-2015 passed u/s 143(3) of the Act which are placed at pg. no. 154-161 of the paper book. The ld. Counsel relied on the some decisions of the Tribunal in defence of the assessee namely:-
Shri Mahendra C Shah, Mumbai vs. ACIT in ITA No. 6289/Mum/2008
(A.Y. 2005-06) dated 18/05/2011.
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT
Mr. Hitesh Satishchandra Doshi, Etemia vs, The Jt. CIT in ITA No.
6497/Mum/2009 (A.Y. 2003-04) dated 15/06/2011 and others.
The ld. Counsel finally submitted that in order to ascertain whether income from sale of shares falls under business income or short term capital gain, is to be determined on the conduct of the assessee and not otherwise and finally prayed that the order of CIT(A) be set aside and AO be directed to treat income from sale of shares as short term capital gain as returned by the assessee. The ld. DR on the other hand relied on the order of the authorities below.
We have heard the rival submissions and perused the material on record. We find from the assessment orders passed u/s 143(3) in the case of the assessee for the assessment years 2006-07, 2009-10 & 2011-12 placed at pg. no. 152-161 that income from short term capital gain from shares was accepted as such by the department itself. Further, we also note that assessee has used her own funds for the purpose of investments in mutual funds and investments in shares/debentures as shown in the balance sheet which is placed on pg.no.03 of the paper book. The conduct of the assessee is clear from the details of shares held by the assessee as on 31.03.2008 that the assessee had held the investments in shares for fairly long period of time ranging from 17 days to 2971 days which is placed at pg. no. 5&6 of the paper book. Similarly the period of holding in the case of long term capital gain
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT from the shares ranged between 740-239 days. We are in agreement with the plea of the ld. AO that during the year there was heavy activity by way of sale and purchase of shares in which the period of holding ranged between 1-356 days but that in itself is not enough to treat the income from sale of shares as income from the business contrary to what had been shown by the assessee. In the case of Shri Mahendra C Shah, Mumbai vs. ACIT in (A.Y. 2005-06) dated 18/05/2011 and In the case of Mr. Hitesh Satishchandra Doshi, Etemia vs. The Jt. CIT in ITA NO. 6497/Mum/09 (A.Y. 2003-04) dated 15/06/2011 and others, co-ordinate bench have decided the similar issue in favour of the assessee.
The relevant para no. 10 of and others is extracted as under:
“The Hon’ble Supreme Court in the case of CIT vs Associated Industrial Development Co P Ltd reported in 82 ITR 586 as well as in the case o CIT vs. H Holsck Larzen reported in 160 ITR 67 has laid down various principles, which has been considered by the CBDT for issuing the circular no. 4/2007 dated 15.6.2007. In short, the principles laid down in those cases for deciding the question of nature of the transaction as trading or investment, mainly/broadly are:- what is the intention of the assessee at the time of purchase of shares; whether the assesee has borrowed money to purchase and paid interest thereon; what is the frequency of such purchase and disposal in that particular item; whether the purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value; how the value of items has been (A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT taken in the balance sheet. Thus, no single factor can be said to be decisive factor and no single principle can be laid down to determine the nature of the transaction i.e. trading activity or investment,. Each case has to be decided based on the particular facts of the said case. Therefore, there cannot be any precedent in the matter of adjudication of the issue of nature of transaction with regard to purchase and sale of shares and securities. The issue can be determined only by taking into account al the relevant facts and principles as laid down by the Hon’ble Supreme Court and other High Courts. Thus, principles are taken as guidelines to be applied in the facts of each case and cannot be taken as strict jacket/formula. Therefore, the bifurcation of the short term capital gain and treating the transaction as investment in the cases where the holding period of more than 30 days and as business transaction in the case where the holding period is less than 30 days, in our considered opinion, is not justified on the part of the CIT(A). since there cannot be a single criteria for judging the transaction as capital asset or trading asset; the CIT(A) adopted only holding period as a sole criteria for bifurcating the transactions relating to the short term capital gain, which is neither proper and nor justified.” In our opinion the case of the assessee is squarely covered by the above decision.
We, therefore, respectfully following the decision of the co-ordinate bench decide the issue in favour of the assessee and direct the AO to treat the income from sale of shares as short term capital gain and not as business income.
In the result, the assessee’s appeal is allowed.
(A.Y. 2008-09) Smt. Sonal Vipul Shah, Vs.ACIT
Order pronounced in the open court on 5th February, 2016
Sd/- Sd/- (C.N. Prasad) (Rajesh Kumar) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated :05.02.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT – concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,