Shri Sriram Kapur 5, Jamshedji Tata Road Churchgage Mumbai 400 020. Vs. The Asst.Commissioner of Income-tax Circle 12(3) Mumbai.
February, 26th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES " , MUMBAI
Before Shri N.K.Billaiya, AM and Shri Amit Shukla, JM
ITA No.2412/Mum/2009 : Asst.Year 2005-2006
ITA No.4534/Mum/2011 : Asst.Year 2007-2008
Shri Sriram Kapur The Asst.Commissioner of Income-tax
5, Jamshedji Tata Road / Circle 12(3)
Churchgage Vs. Mumbai.
Mumbai 400 020.
PAN : AAIPK3526B..
( /Appellant) ( /Respondent)
/Appellant by : Shri Madhur Agrawal
/Respondent by : Shri Sacchidanand Dubey
Date of Hearing : 10.02.2015 Date of Pronouncement : 25.02.2015.
Per Amit Shukla (JM) :
The aforesaid appeals have been filed by the assessee against the
order passed by the Commissioner of Income-tax (Appeals) - 23, Mumbai,
dated 27.01.2009 and 29.03.2011 for the quantum of assessment passed u/s
143(3) for the assessment years 2005-2006 and 2007-2008, respectively.
Since the issues involved in both the appeals are common, arising out of
identical set of facts, therefore, they are being disposed off by way of this
2 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
2. To understand the implication of the facts and the issues involved, we
will first take up the appeal for the assessment year 2005-2006 (ITA
No.2412/Mum/2009). In the grounds of appeal, the assessee has mainly
challenged the taxing of income by the Revenue from transaction of shares
instead of `capital gain'
as `business income' , shown by the assessee.
3. Brief facts are that the assessee is an individual, having income from
house property, short term and long term capital gain and income from other
sources. The assessee is Director in various companies, looking after the
affairs of the business carried out by such companies. The Assessing Officer
(AO) noted that, since financial year 2002-2003, 2003-2004, the assessee
had been purchasing and selling shares through portfolio management
services. He has also noted down the figures of the shares purchased, sold
and number of transactions undertaken in these years. Likewise, in the
financial year 2004-2005, also relevant to the assessment year 2005-2006,
the assessee had purchased 275796 shares of which 62462 shares were
sold directly and 213334 shares were purchased through PMS and were also
sold through PMS. The assessee had also purchased mutual funds through
PMS and also sold during the year. The figures of various purchases and
sales made during the previous three assessment years have been noted by
him in para 4 to 4.8 of the assessment order. After noting down the figures,
he analyzed the legal position with regard to the concept of business after
relying upon various decisions and held that the transaction of the assessee
in buying and selling of shares is nothing but systematic business of shares
s submission before the AO was
carried out by the assessee. The assessee'
that the assessee is mainly occupied as Director in various companies and
3 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
does not have time to do trading in shares as business. The shares were
acquired by the assessee as investment, which he has been doing since last
several years. The transactions of investment in shares have been done
through PMS and Fund Managers. The department too has been accepting
s stand that the transaction in shares undertaken by the
assessee is an investment activity and the profit / gain from the shares have
. Lastly, the investments have
been assessed under the head `capital gain'
been made out of own surplus funds and no borrowed funds were taken for
the purpose of making the investment in shares. The AO rejected the
s contention and after detailed reasoning, held that the assessee is
trader in shares, and therefore, the income claimed under the head `capital
gains'is chargeable under the head `profits and gains of business or
. Accordingly, he treated the amount of capital gain of
Rs.2,02,35,932 as income from business.
4. Before the CIT(A), the assessee rebutted the reasoning given by the
AO and also reiterated the same submissions, which were made before the
AO. Once of the other main contentions raised by the assessee was that the
earning of the assessee from PMS had been ploughed back for further
investment and the assessee has not drawn any amount for personal use or
diversion of fund into other activities. The majority of the investments have
been made in debt funds where there is a less risk as compared to equity
s submissions have been noted by the CIT(A) from
funds. The assessee'
pages 6 to 9 of the paper book. The learned CIT(A) too rejected the
s contention and upheld the action of the AO. The sum and
substance of his conclusion were as under :
4 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
(i) the principle of res judicata does not apply in the instant case,
because the assessee is not maintaining the books of account and has
not filed any capital account or balance sheet to co-relate his liabilities
with his assets. In the absence of any material, the AO has rightly
concluded that the assessee was not into investment activity;
(ii) his substantial income is from sale of shares, which is more than
Rs.2.25 crore as compared to perquisites and remuneration received
by the assessee as a Director from two companies;
(iii) it does not make any difference whether the transactions have
been undertaken through PMS or own account, because the
transactions through PMS are merely a delegation as the business can
be done through outsourcing also. Further placement of funds before
the PMS does not make the person as investor; and
(iv) the finding of the AO regarding volume, frequency and continuity
of the transaction indicates that the assessee is a trader in shares.
4.1 Accordingly, he concluded that the AO is justified in treating the
amount of Rs.2,02,35,932 as business income.
5. Before us, the learned Counsel, Shri Madhur Agarwal, submitted that
the main allegation of the AO that the transactions of shares are voluminous
or numerous is not correct. The assessee has been holding the shares from
5 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
last several years, which he has been selling from time to time. In support of
his contention, he drew our attention to statement given at pages 38 to 43 of
the paper book to point out that some of shares have been purchased in
years 1970s, 1980s, 1990s and in early decade of 2000. Some of the
quantities of shares have been sold in this year and balances have been
kept in the investment portfolio. Similarly, the purchases made during the
year have also been kept in the investment portfolio and there is no repetitive
s investment in mutual funds and
transaction. Besides this, the assessee'
debt shares are more than 72%, whereas the investments in equity shares
are around 27%. This itself goes to show that the intention of the assessee
was to kept the shares as investment and not for trading purpose. Not only
s majority of transactions are through portfolio
that, the assessee'
management services, which goes to show that the assessee is depending
upon the Fund managers to augment its wealth . He also pointed out that the
AO has made an observation that the dividend income earned by the
assessee is only 3,52,500, which fact is completely erroneous, because the
dividend income earned by the assessee is Rs.3,87,14,046. This is evident
from summary of dividend received given at page 36 of the paper book. He
further pointed out that the major gain is from the shares held for long time
and the short term capital gains is only Rs.43 lakh. Thus, on these facts, it
cannot be held that the assessee was engaged in trading of shares.
Regarding the number of transactions, as noted by the AO, he submitted that
the actual transactions are less because particular contracts of scripts have
been broken into several transactions executed on consecutive days. The
actual scrip-wise transactions would be less. Lastly, he submitted that in the
s transactions in
earlier years, in the scrutiny assessments, the assessee'
6 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
shares have been held to be assessable under the head `capital gains'
therefore, the principle of consistency should be followed.
6. On the other hand, the learned Departmental Representative, strongly
relied upon the order of the CIT(A) and submitted that the assessee has
been regularly purchasing and selling the shares, which fact have been
noted by the AO in detail. If the volume of transactions are taken into
consideration along with the other attendant facts as noted in detail by the
AO as well as CIT(A), then, the only conclusion which can be drawn is that
the assessee is doing systematic activity of selling and purchasing of shares,
which is nothing but trading in shares. Accordingly, the order of the CIT(A)
should be affirmed.
7. We have heard the rival submissions and also perused the relevant
finding given in the impugned orders as well as the material placed on
record. From the perusal of details of transactions of the shares including the
date of acquisition, it is seen that the assessee is mostly having shares of
Blue chip companies, which have been held since last 20 to 40 years. Some
of the shares are being regularly sold and the balance shares have been
s main ground is that the
kept back in the investment portfolio. The AO'
assessee has undertaken purchase of shares and mutual funds worth in
several crores and also has sold shares in mutual funds for more than Rs.16
crore. However, he has not given or analyzed the transaction, as to whether
the same shares, which have been purchased, have been immediately sold
within a short period or there is any repetition of transaction in particular
scrips. Simply noting down the figures of purchase and sales does not
7 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
convert the activity into trading activity. If the pattern of investment in shares
of the assessee is to be gauged, then it would be seen that the assessee has
made investments mostly in debt funds and debt shares. The investment in
debt funds / shares are mostly for long term investments as yield of gain is
minuscule if the same are sold within a short period. From the break up of
s investment in debt
summary of capital gain, it is seen that the assessee'
mutual funds is around 73% and also there is investment in venture funds.
The investment in equity shares is approximately 27%. From this, it can be
very well inferred that the assessee is mostly into long term investment
activity. This is also coupled with other factors like, assessee has made
investment solely from his own funds and not from any borrowed funds; he
has managed his entire investment activity, through Fund managers / PMS.
All these factors goes to show the intention of the assessee, which was to
buy the shares for investment purpose and to sell the same to maximize the
gain from such investments. Besides this, another very vital factor relevant in
s case is that, on similar nature of transactions, which fact has
been noted by the AO in the assessment order itself that in the earlier years
the department has accepted the gain from sale of shares to be assessed
under the head `capital gains'and such a view has been accepted under
scrutiny proceedings passed u/s 143(3). Thus, on the facts and
s case, we hold that the gain from transaction
circumstances of the assessee'
of shares by the assessee is to be assessed under the head `capital gains'
. Accordingly, the order of the CIT(A) is set
and not as `business income'
aside and the ground raised by the assessee is treated as allowed.
8 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
8. Regarding the alternate claim as raised in ground No.7, that expenses
should be allowed if the transaction in shares is to be assessed under the
, the same has become
head `profits and gains from business or profession'
infructuous in view of our finding given above.
9. In the result, the appeal of the assessee is allowed.
10. It has been admitted by both the parties that the facts and issues for
the appeal for the assessment year 2007-2008 are same and even the
finding and the reasoning of the Assessing Officer as well as CIT(A) are
identical to the finding given in the assessment year 2005-2006, and
therefore, our conclusion given in the appeal for the assessment year 2005-
2006 will apply mutatis mutandis in this year also. Accordingly, grounds
relating to taxability of capital gain under the head `business income'is
treated as allowed.
11. The assessee, vide Ground No.2, in the appeal for assessment year
2007-2008 has raised a legal issue of non-service of notice within the time
limit prescribed u/s 143(2). No arguments have been advanced by the
learned Counsel on this score, and therefore, the same is treated as
dismissed as not pressed. Moreover, in view of the finding on merits, this
legal ground has become academic. Accordingly, appeal filed by the
assessee for assessment 2007-2008 is treated as partly allowed.
9 ITA Nos.2412/Mum/2009 & 4534/Mum/2011
Shri Sriram Kapur.
12. s appeal for assessment year 2005-2006 is
In the result, assessee'
allowed, whereas the appeal for assessment year 2007-2008 is partly
Order pronounced on this 25th day of February, 2015.
(N.K.Billaiya) (Amit Shukla)
/ ACCOUNTANT MEMBER / JUDICIAL MEMBER
Mumbai; Dated : 25th February, 2015.
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. ( ) / The CIT, Mumbai.
4. / CIT(A) - XI, Mumbai
5. , ,
6. / Guard file.
/ BY ORDER,
/ (Dy./Asstt. Registrar)
/ ITAT, Mumbai