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ACIT Circle-31(1) New Delhi vs Shri Finance 4, Scindia House New Delhi
October, 24th 2018
            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


                                  2
                                                    ITA No. 6064/Del/2014
                                                         (Shri Finance)

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






                                    3
                                             ITA No. 6064/Del/2014
                                                 (Shri Finance)

      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 --:

                             4
                                                             ITA No. 6064/Del/2014
                                                                 (Shri Finance)

  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

                                      5
                                                 ITA No. 6064/Del/2014
                                                     (Shri Finance)

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


                                 6
                                                ITA No. 6064/Del/2014
                                                    (Shri Finance)

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







                                7
                                                        ITA No. 6064/Del/2014
                                                            (Shri Finance)

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


                                    8
                                                  ITA No. 6064/Del/2014
                                                      (Shri Finance)

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




                                 9
                                               ITA No. 6064/Del/2014
                                                   (Shri Finance)

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




                               10
                                                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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