IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G' NEW DELHI
BEFORE
SHRI N.K.SAINI, HON'BLE VICE PRESIDENT
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No.6064Del/2014
Assessment Year: 2010-11
ACIT Shri Finance
Circle-31(1) 4, Scindia House
Vs.
New Delhi New Delhi
PAN : AACFS9120K
Appellant Respondent
Revenue by : Shri K. Tiwari, Sr. DR
Assessee by : Shri U.N.Marwah, CA
Date of hearing : 25.07.2018
Date of pronouncement : 23.10.2018
ORDER
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER :
This appeal has been preferred by the department against
order dated 14.08.2014 passed by the Ld. Commissioner of
Income Tax (Appeals) -XXVI, New Delhi for assessment year
2010-11 and the sole issue in dispute is whether the gain of Rs.
2,14,75,356/- from the sale of shares was to be assessed under
capital gains or under business income .
2.0 Brief facts of the case are that the assessee is a partnership
firm and derives income from investment activities. The return of
ITA No. 6064/Del/2014
(Shri Finance)
income was filed declaring income of Rs. 19,96,804/- which
included Short Term Capital Gains of Rs. 19,22,796/- and
interest of Rs. 74,008/-. The Short Term Capital Gains were
arrived at after claiming set off of brought forward short term
capital loss of Rs. 19,53,229/- pertaining to assessment year
2007-08. The assessee had also claimed income of Rs.
1,75,54,960/- exempt under section 10(38) of the Income Tax
Act, 1961 (herein after called as `the Act') and dividend income of
Rs. 26,36,252/- claimed as exempt u/s 10(34)/(35) of the Act.
The Assessee also claimed carry forward of long term capital loss
amounting to Rs. 41,247/-. The case was selected for scrutiny
and during the course of scrutiny assessment proceedings, the
AO formed the opinion that the share transactions entered into
by the assessee were in the nature of business operations and
not in the nature of investment as claimed by the assessee.
Accordingly, the AO proceeded to assess the gains derived from
the share trading as `business income' as against `capital gains'
as claimed by the assessee. The assessment was completed at an
income of Rs. 2,15,49,360/- wherein the long term capital gain
of Rs. 1,75,54,960/- claimed as exempt u/s 10(38) and short
term capital gains of Rs. 19,22,796/- were assessed as business
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income. The consequential effect was that the set off of short
term capital loss of Rs. 19,53,229/- was also not allowed.
2.1 Aggrieved, the assessee approached the Ld. CIT (A)
challenging the treatment of capital gains as business income.
The Ld. CIT (A) directed the AO to assess the gains of Rs.
2,14,75,356/- from sale of shares under the head `capital gain'
instead of `business income' and thus allowed relief to the
assessee.
2.2 Now the department is before the ITAT and has challenged
the order of the Ld. CIT (A) by raising the following grounds of
appeal:-
(i) The Ld. CIT (A) has erred in directing the AO to assess
profit of Rs. 2,14,75,356/- from sale of shares under
the head Capital Gain instead of Business Income
despite the fact that the assessee was engaged in the
business of trading in shares and it was the sole
activity of the assessee which is also an admitted
object of assessee firm as per Partnership Deed.
(ii) The CIT (A) has erred in not correctly appreciating the
facts of the case that the statement of purchase and
sale and also activity of the assessee proved that he
was engaged in the business of purchase and sale of
securities in an organized and regular manner and
showing income therefrom under the different head is
just a strategy to avoid tax.
(iii) The CIT(A) has not appreciated that the turnover of
the assessee was Rs. 27.5 crores and in the light of
guidelines provided by CBDT Circular No. 4/2007
dated 15.06.2007, the substantial nature of
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transactions entered into by the assessee can be
classified as business activity only."
3.0 The Ld. Sr. Departmental Representative submitted
that the assessee firm had used a colourable device to avoid
tax or pay tax at a lower rate by claiming business income as
income from capital gains. It was submitted that the assessee
firm consisted of six partners who had come together to put
their funds in a collective manner for better utilisation and,
therefore, the activity was purely of business and not of
investment. He referred to the objects, as mentioned in the
partnership deed, and submitted that even the objects of the
partnership firm mentioned that the object of the firm was to
carry on business of funding and investments and, therefore, it
was very much clear that the partnership had been constituted
to carry on business. The Ld. Sr. Departmental Representative
also submitted that the transactions were huge and, therefore,
it was evident that the nature of activity was in the nature of
business and not investment. The Ld. Sr. Departmental
Representative also placed reliance on the following judicial
precedence in support of his contention that the nature of
activity of the assessee firm was in fact in the nature of
business activity --:
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1. Manoj Kumar Samdaria Vs. CIT [2014] 45 taxmann.com
394 (Delhi) / [2014] 223 Taxman 245 (Delhi)(MAG)
2. Manoj Kumar Samdaria Vs. CIT [2014] 52 taxmann.com
247 (SC) /[2015] 228 Taxman 63 (SC)
3. Sadhana Nabera vs. ACIT (ITA No. 2586/Mum/2009)
4. CIT Vs. Gopal Purohit ([2010] 188 Taxman 140
(Bombay)/[2011] 336 ITR 287 (Bombay)/[2010] 228 CTR 582
(Bombay)
5. Dalhousie Investment Trust Co. Ltd. Vs. CIT [1968] 68 ITR
486 (SC)
4.0 In response, the Ld. Authorised Representative submitted
that presence of commercial motive is a primary legal
requirement for trade whereas in the case of the assessee the
period of holding of the investments and earning of substantial
dividend income substantiate the assessee's claim that the
shares were not acquired with the intention of trading but were
held for investment purposes. It was submitted that the holdings
shares which were sold during the year under consideration were
held by the assessee firm between a period of one year to five
years and, therefore, it could not be said that the activity was in
the nature of business or trade. It was also submitted that the
assessee firm has been maintaining two portfolios viz.
`investment' and `trade' and this has been accepted by the
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department since assessment year 2002-03 onwards. It was also
submitted that during the year under consideration or in earlier
years, the portfolios of the shares have not been inter-changed. It
was further submitted that once the segregation of shares under
two different portfolios has been made and accepted, the mere
quantum of turnover and frequency of the transactions will not
decide the nature of transactions. Reliance was placed on the
judgment of the Hon'ble Apex Court in the case of Pr.
Commissioner of Income Tax vs. Bhanuprasad D. Trivedi (HUF)
reported in (2018) 95 taxmann.com (SC) wherein the Hon'ble
Apex Court had dismissed the department's Special Leave
Petition against the order of the Hon'ble High Court wherein the
Hon'ble High Court, by the impugned order, had held that the
intention of the assessee at the time of purchase of shares is
paramount and where the assessee had clear intention of being a
investor and had held shares by way of investment, the assessee
was to be treated as investor and any gain arising out of transfer
of shares was to be treated as `capital gains' and not `business
income'. The Ld. Authorised Representative also placed reliance
on CBDT Circular no. 6 dated 29.02.2016 wherein it has been
stated in Para 3(b) that where in respect of listed shares and
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securities held for a period of more than 12 months immediately
preceding the date of transfer, 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. The Ld.
Authorised Representative also supported the order of the Ld. CIT
(A) and submitted that department's appeal deserved to be
dismissed.
5.0 We have heard the rival submissions and have also perused
the material available on record. It is undisputed that 7 scrips
under 10 separate transactions were sold which had holding
periods ranging between 370 days to 1738 days. Thus, all the
scrips were held for more than 1 year and up to approximately 5
years. It is also undisputed that the shares sold by the assessee
and treated as long term capital gains were duly disclosed in the
assessee's balance sheet under the head `investment'. Apart from
this, the assessee also undertook 20 transactions of purchase
and 13 transactions of sale of shares which have been duly
disclosed under Short Term Capital Gains taxable at the normal
tax rate of 30%. It is also not established by the department that
the assessee has made repetitive transactions of purchase and
sales of shares. It is also undisputed that the assessee has
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earned substantial dividend income by holding investments and
the dividend income during the year amounted to Rs.
26,36,252/-. It is also to be noted that the assessee's two
portfolios have been accepted by the department since
assessment year 2002-03. The Ld. CIT (A) has given due credence
to all these facts and the Ld. Sr. Departmental Representative
has not been able to point out any factual error in the findings so
recorded by the Ld. CIT (A). We also note that the judicial
precedents relied upon by the Ld. Sr. Departmental
Representative are distinguishable on facts. It is our considered
opinion that on the facts of the case, the adjudication by the Ld.
CIT (A) cannot be interfered with. We find support from the
judgment of the Hon'ble Delhi High Court in the case of CIT vs.
Vinay Mittal reported in (2012) 22 taxman.com 151 (Delhi)
wherein the Hon'ble Delhi High Court had dismissed the
department's appeal against the order of the Tribunal on an
identical issue after duly noting that in the earlier assessment
years transactions in the investment portfolio by the assessee
were accepted by the Assessing Officer. While dismissing the
department's appeal, the Hon'ble Delhi High Court also duly
noted the fact that the assessee had been maintaining two
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separate portfolios viz. investment portfolio and trading portfolio.
The Hon'ble Delhi High Court also observed that the quantum or
total number of transactions may not be determinative but in a
given case, keeping in view the period of holding may indicate
intention to make investment. We also find that CBDT Circular
no. 6 dated 29.02.2016 also comes to the aid of the assessee
wherein it has been clarified by the CBDT that where the
assessee treats the securities as investment and not has stock-
in-trade in earlier years, the revenue is not permitted a contrary
view. It is evident from this Circular that CBDT has given
instructions to the Assessing Officers to treat capital gains on
listed shares and securities held for a period of more than 12
months as income from capital gains if the assessee so desires.
The dismissal of the Special Leave Petition of the department by
the Hon'ble Apex Court in the case of Pr. Commissioner of
Income Tax vs. Bhanuprasad D. Trivedy (HUF) (SC) also comes to
the aid of the assessee wherein the Hon'ble Apex Court upheld
the Hon'ble High Court's impugned order that intention of the
assessee at the time of purchase of shares is paramount.
Accordingly, in view of our above observations, we find no reason
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to interfere with the findings of the Ld. CIT (A) from this issue
and we dismiss the grounds raised by the department.
6. In the final result, the appeal of the department stands
dismissed.
Order pronounced in the open court on 23rd October, 2018.
Sd/- Sd/-
(N.K.SAINI) (SUDHANSHU SRIVASTAVA)
VICE PRESIDENT JUDICIAL MEMBER
*BR*
Dated: 23rd October, 2018
Copy forwarded to: -
1) Appellant
2) Respondent
3) CIT(A)
4) CIT
5) DR
True Copy
By Order
ASSTT. REGISTRAR
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ITA No. 6064/Del/2014
(Shri Finance)
Date of dictation 22.10.2018
Date on which the typed draft is placed before 23.10.2018
the dictating Member
Date on which the typed draft is placed before 23.10.2018
the Other Member
Date on which the approved draft comes to the 23.10.2018
Sr. PS/PS
Date on which the fair order is placed before the 23.10.2018
Dictating Member for pronouncement
Date on which the fair order comes back to the .10.2018
Sr. PS/PS
Date on which the final order is uploaded on the .10.2018
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant
Registrar for signature on the order
Date of dispatch of the Order
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