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COMMISSIONER OF INCOME TAX-VII Vs. AVINASH JAIN
January, 29th 2013
        IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                     Judgment delivered on : 09.01.2013
+       ITA No.703/2012
COMMISSIONER OF INCOME TAX-VII                             ..... Appellant
                                   versus
AVINASH JAIN                                              ..... Respondent
Advocates who appeared in this case :
For the Appellant       : Mr Sanjeev Rajpal, Adv.
For the Respondent      : None

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V. EASWAR

                               JUDGMENT

BADAR DURREZ AHMED, J (ORAL)
        This appeal has been filed by the revenue against the order dated

20.07.2012 passed by the Income Tax Appellate Tribunal in ITA

No.3379/Del./10. That appeal had also been filed by the revenue in

which the following ground was raised in relation to the assessment year

2007-08:-





        "The Ld. CIT(A) erred in law and on the facts in holding that
        the action of the Assessing Officer in holding short Term
        capital gain and long term capital gain be treated as business
        income has no substance and are without any cogent reason
        and thereby deleting addition of `1,38,015/- and




ITA 703/2012                                                      Page 1 of 5
        `1,07,44,493/- made by the AO on account of Short Term
        capital gain and Long Term capital gain respectively."


The assessee is engaged in sale and purchase of shares and maintains two

separate portfolios. One is an investment portfolio and the other is a

trading portfolio. This practice of the assessee has been going on for

earlier years also and this has been recognized by the revenue as also by

the Tribunal in the impugned order. It is only in this year that the

assessing officer made additions of `1,38,015/- and `1,07,44,493/- on

account of short term capital gains and long term capital gains

respectively in relation to the sale of shares out of the assessee's

investment portfolio. The assessing officer did so by treating both the

short term capital gain as well as the long term capital gain as business

income by construing the entire activity of the assessee as a business

activity.


2.      The Commissioner of Income Tax (Appeals) by an order dated

24.06.2010 allowed the appeal of the assessee. Being aggrieved thereby

the revenue preferred the said ITA No.3379/Del./10 before the Tribunal

on the above mentioned ground.




ITA 703/2012                                                     Page 2 of 5
3.      The Tribunal noted that the Commissioner of Income Tax

(Appeals) had placed reliance, inter alia, on the CBDT circular No.4/2007

dated 15.06.2007 as also upon decisions of the Supreme Court in the

cases of CIT Vs. Associated Industrial Development Co. (P) Ltd. : 82

ITR 586 (SC) and CIT Vs. H.Holck Larsen : 160 ITR 67 (SC).


4.      The said circular of the CBDT reads as under:-


        "CBDT also wishes to emphasize it is possible for a tax
        payer to have two portfolios i.e. an investment portfolio
        comprising of securities which are to be treated as capital
        assets and a trading portfolio comprising of stock in trade
        which are to be treated as trading assets. Where an appellant
        has two portfolios, the appellant may have income under
        both heads i.e. capital gains as well as business income.

        Assessing Officer are advised that the above principles
        should guide them in determining whether, in a given case,
        the shares are held by the appellant as investment (and
        therefore giving rise to capital gains) or as stock-in-trade and
        therefore giving rise to business profits). The Assessing
        Officer is further advised that no single principle would be
        decisive and the total effect of all the principles should be
        considered to determine whether, in a given case, the shares
        are held by the appellant as investment or stock-in-trade."





After concurring with the views expressed by the CIT(Appeals), the

Tribunal held as follows :-




ITA 703/2012                                                        Page 3 of 5
        "6. We have heard rival contentions and gone through the
        relevant material available on record. CBDT by way of
        above Circular has allowed the assessee to maintain two
        types of portfolios in their books of accounts - one on
        account of investment and the other on account of trading. It
        is not the case that the assessee started these activities in the
        year under consideration. The practice is supported by earlier
        years also which is not disputed. The department has earlier
        accepted the assessee's practice and treatment under heads of
        capital gains and business. Assessee's separate activities in
        share are further supported and endorsed by the fact that
        separate de mat accounts, bank accounts are being
        maintained and separate trading account and investment
        accounts ae(sic) maintained in the books. Under these
        circumstances it leaves no room for doubt that the assessee
        was dealing in different activities of trading and investment.
        In vie(sic) thereof we find no infirmity in the order of
        CIT(A) which is upheld."


5.      Before us the ld. Counsel for the revenue submitted that while the

CBDT circular only mentioned that it was "possible" for a tax payer to

have two portfolios, namely, an investment portfolio and a trading

portfolio, the Tribunal has misunderstood the said circular by holding that

the circular had "allowed" the assessee to maintain two types of

portfolios. Although technically the ld. Counsel for the revenue may be

right but that really does not make any difference when the entire circular

is considered. The intent and purport of the circular is to demonstrate that

a tax payer could have two portfolios, namely, an investment portfolio




ITA 703/2012                                                         Page 4 of 5
and a trading portfolio. In other words, the assessee could own shares for

the purposes of investment and/or for the purposes of trading. In the

former case whenever the shares are sold and gains are made the gains

would be capital gains and not profits of any business venture. In the

latter case any gains would amount to profits in business. This has been

made clear by the CBDT circular in the remaining portion of the circular

itself.


6.        On facts, the Commissioner of Income Tax (Appeals) and the

Income Tax Appellate Tribunal have held that the short term capital gains

and the long term capital gains in the present case were out of the

investment account and were not related to the trading account of the

assessee. That being the position, no interference with the decision of the

Tribunal is called for. No question of law arises for our consideration.


          The appeal is dismissed.



                                          BADAR DURREZ AHMED, J



                                                         R.V.EASWAR, J
JANUARY 09, 2013
vld


ITA 703/2012                                                     Page 5 of 5
 
 
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