RAJEEV NADKARNI,MUMBAI vs. ASST CIT 11(3), MUMBAI

The present appeal has been preferred by the assessee against the order dated 30.06.2011 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09.

The sole issue raised in this appeal as to whether the income earned from the share transactions is to be taxed as capital gains or business income of the assessee. The brief facts of the case are that the Assessing Officer (hereinafter referred to as the AO) noted that during the assessment proceedings, the short term capital gains were of Rs.5321625/- on sale of shares. The AO called for the necessary details. After going through the said details, the AO observed that there was repetition of transactions in relation to same scrips, the volume of the transactions were very high and the holding period was less. Further, the assessee had made investments out of borrowed funds. He, therefore, concluded that the assessee was in fact trading in shares and not an investor. He accordingly taxed the capital gains claimed by the assessee as business income of the assessee. The assessee carried the matter in appeal before the Ld. CIT(A).

The Ld. CIT(A) also did not agree with the contentions of the assessee and upheld the order of the AO. The assessee has, thus, come in appeal before us.

The Ld. A.R., before us, has submitted that the assessee is a doctor (dentist by profession) and his wife is also a doctor. Both husband and wife are running a clinic at Andheri. Apart from doing the profession of the doctor, the assessee is also used to invest in shares as an investor. In the earlier years, the assessee has consistently been treated as investor and the income earned from share transactions has always been treated as capital gains. The AO during the year, had treated the income from share transactions as business income on the ground that the assessee earned huge profit in comparison to earlier years. The Ld. A.R. of the assessee has explained that the investment pattern of the assessee in relation to all scrips, except one, has remained the same. One scrip namely ‘Wall Chand’ was showing excessive rise, hence the assessee made investments in view of growth pattern in the said scrip and earned huge profit of about Rs.50 lakhs. Except the said scrip of ‘Wall Chand’, the assessee did not earn any much capital gains in relation to other scrips. The Ld. A.R. has submitted that though there were some repetitive transactions but the said pattern was adopted by the assessee in earlier years also. The Ld. A.R. of the assessee has invited our attention to page 10 of the paper book which is a chart showing the details of the investment, capital gains earned etc. From the said chart, we find that out of the total short term capital gains of Rs.5231625/-, the gains of about Rs.50 lakhs are shares to be out of the share transactions relating to the scrip of ‘Wall Chand’. Further, we find that the investment pattern and the income earned during the earlier assessment years is on similar pattern except in the scrip of ‘Wall Chand’. The Ld. A.R. of the assessee has further stated that the income earned by the assessee during the year from the scrip of ‘Wall Chand’ has been invested by the assessee in the shape of FDR in the subsequent year. The assessee did not indulge in any share transaction during the subsequent Assessment Year 2009-10. Even during the Assessment Year 2010-11, the assessee had shown capital gains of Rs.5.28 lakhs only, the transactions relating to which have been accepted as investment activity of the assessee. The Ld. A.R. has relied upon the decisions of the Hon’ble Delhi High Court in the case of “CIT vs. Ashok Wadia” (2014) 45 taxman.com 182 (Del.) wherein the Hon’ble Delhi High Court has held that there was no bar in law in liquidating the investments based on the market factors. The Ld. A.R. has submitted that the assessee was tempted to make investments in one scrip of ‘Wall Chand’ and his decision to sell the shares of the ‘Wall Chand’ to earn quick profit was tempted by the market conditions and the growth in the said scrip. Except the said scrip, the assessee otherwise had been consistent in making his investments. He has further relied upon the decision of the Hon’ble Gujarat High Court in the case of “CIT vs. Neeraj Amidhar Surti” (2012) 20 taxman.com 579 wherein in almost similar circumstances, it was held that where the assessee after the sale of shares had made investments in bonds of NABARD, it indicated that the assessee’s intention was of investment and not adventure in the nature of trade in the share transactions. The Ld. D.R., on the other hand, has relied upon the findings of the lower authorities and has stated that the assessee was to be treated as a trader.

After considering the overall facts and circumstances, we find that the assessee is not devoting his full time to the share transactions. The assessee is a dentist by his profession and is running a clinic with his wife. He has showed income from profession in his return of income. The assessee has gained a huge profit relating to one scrip only. He was tempted by the upward trend of the market in relation to the said scrip. The assessee has consistently been treated as an investor in earlier assessment years. Except the said one scrip of ‘Wall Chand’, the investment pattern of the assessee has remained the same. Only because the assessee has gained huge profits in one scrip that does not make the assessee a trader, especially when the assessee in the subsequent year did not make any transaction in shares and had invested the money so earned in the FDRs. When the assessee had consistently been an investor, merely because in one year the assessee got a chance to make profits in relation to one scrip tempted by the growth in the said scrip, that itself is not sufficient to hold the assessee a trader. The case laws relied upon by the assessee in the cases of “CIT vs. Ashok Wadia” (supra) and “CIT vs. Neeraj Amidhar Surti” (supra) are squarely applicable in the case of the assessee. We, therefore, do not find any justification on the part of the lower authorities in treating the assessee as a trader and assessing the income earned by the assessee on share transactions as business income. We, therefore, set aside the impugned order and direct the AO to assess the income earned by the assessee from share transactions as capital gains.

In view of the above, the appeal of the assessee is hereby allowed.