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Dy. Commissioner of Income Tax Circle2(2), Aayakar Bhavan 101, M.K. Road, Mumbai 400020 VS. M/s. Jeet Machine Tools Ltd.25, Ambalal Doshi Marg Hamam Street, Fort Mumbai 400023
July, 06th 2012
                    ,   `' 

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                               "I" BENCH, MUMBAI

    ..  ,                                     ,     

            BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER, AND
                SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER


                    . / ITA no. 5814/Mum./2009
                   (   / Assessment Year : 2005-06)


Dy. Commissioner of Income Tax
Circle­2(2), Aayakar Bhavan                             .......................  /
101, M.K. Road, Mumbai 400 020                                              Appellant

                                     v/s

M/s. Jeet Machine Tools Ltd.
25, Ambalal Doshi Marg
Hamam Street, Fort                                           ...................    /
Mumbai 400 023                                                          Respondent

   ./ ./PAN/GIR no.AAACJ0252A



                 / Revenue by             : Mr. Parthasarathi Naik
                 / Assessee by : Mr. J.P. Bairagra



    /                                                    /
Date of Hearing ­ 13.06.2012                       Date of Order ­ 04.07.2012






                                   / ORDER


PER B.R. MITTAL, J.M.


      The present appeal preferred by the Revenue, is directed against the
impugned order 17th August 2009, passed by the Commissioner (Appeals)­
II, Mumbai, for assessment year 2005­06. The only ground raised by the
                                                      M/s. Jeet Machine Tools Ltd.

                                                                               2
Revenue is, as to whether the Commissioner (Appeals) has erred in facts and
on the circumstances of the case in holding that the short term capital shown
by the assessee is assessable under the head "Business Income".


2.    The relevant facts are that the assessee is a public limited company
engaged in the business of trading in machinery. For the assessment year
under consideration, the assessee filed return of income declaring total
income of ` 30,86,808.


3.    In the assessment year under consideration, the assessee has declared
short term capital gain of ` 18,17,014, on sale of shares. The Assessing
Officer has stated that on verification of the details furnished, the frequency
of sale and purchase of shares is very high and also the quantum of shares
purchased in some cases are very high. The Assessing Officer has given the
details of the shares for which the assessee has accounted for short term
capital gain at Page­9 in Para­3.25 of the assessment order, which is as
follows:­


                 Scrip's Name          Date of       Date of Sale
                                      Purchase
              TCFC ­ 100000         10.2.2004 /       6.4.2004
              SHARES ­ 3 lots        3.3.2004
              Allahabad Bank ­       16.4.2004        27.6.2004
              2000
              TCS ­ 5 lots           26.8.2004       20.9.2004 /
                                                     21.9.2004 /
                                                      29.9.2004
              Bharati Shipyard       24.12.2004       10.1.2005
              Indian Seamless ­      26.1.2005        27.1.2005
              2000
              NTPC ­ 9 lots          27.10.2004      2.12.2004 /
                                                     6.12.2004 /
                                                     14.12.2004



4.    The Assessing Officer has also discussed the principles of the decided
cases and has held that the income of ` 18,17,014, from its activity of
                                                         M/s. Jeet Machine Tools Ltd.

                                                                                  3
dealing in shares is business income instead of capital gains as claimed by
the assessee.


5.    Being aggrieved, the assessee carried the matter before the first
appellate authority, wherein, on behalf of the assessee, it was contended
that the assessee has shown long term capital gain and short term capital
gain on sale of shares and the Assessing Officer accepted the long term
capital gain but treated the short term capital gain as "Business Income". It
was contended that the share transactions entered into by the assessee were
so few and small that it cannot be held that there were business transactions
in themselves. It was also contended that the Memorandum of Article and
Association of the assessee allows the assessee to make investment in
shares. The investment in securities have always been characterized as
investment by the assessee in its books of account and in the balance sheet
drawn up by it year after year. It was also contended that in the assessment
of earlier years, both the short term capital gain and long term capital gain
had been assessed as capital gains. It was also contended that purchase and
sale of shares are neither allied to or incidental to carrying on assessee's
business of dealing in machinery.


6.    The Commissioner (Appeals) considered the submissions of the
assessee and vide Para­6 of the impugned order, directed the Assessing
Officer to treat the income of the assessee under the head "short term
capital gain", which reads as follows:­


      "6.    I have duly considered the submissions of the A.R. and I find
      that the A.O. has accepted the long term capital gain but treated the
      short term capital gain as business income of the assessee. The
      appellant has filed the details of short term capital gain which shows
      that the assessee has purchased and sold shares of only 10 companies
      during the year in question which cannot be regarded as frequent sale
      and purchase of shares. Besides the intention of the assessee is
      evident from the balance sheet in which the assessee has shown the
      shares as investments and not as stock in trade. In view of these
      factual findings, the decision of Mumbai ITAT in the case of Janak S.
      Raangwala v/s ACIT, 11 SOT 627, will hold good wherein it was held
      that mere magnitude of transaction would not change the nature of
      transaction. Respectfully following the decision of ITAT, Mumbai, I
      direct the A.O. to treat the income of the assessee as short term
      capital gain. This ground of appeal is allowed."
                                                          M/s. Jeet Machine Tools Ltd.

                                                                                   4
     Hence, the Department is in appeal before the Tribunal.





7.   At   the   time of   hearing,   before   us,   the   learned    Departmental
Representative relied on the order passed by the Assessing Officer. He
submitted that the assessee's activity of dealing in shares continued
regularly throughout the year. Hence, the assessee is a "Dealer" in shares.


8.   On the other hand, the learned Counsel for the assessee supported the
order passed by the Commissioner (Appeals). He submitted that the
Assessing Officer himself treated the assessee as "Investor" in shares. The
learned Counsel submitted that there was a short term capital loss claimed
for the transaction entered into before 1st October 2004 and loss of ` 53,467,
has been accepted by the Assessing Officer. He referred to Page­25 of the
paper book and submitted that there were only five scrips which were dealt
with by the assessee before 1st October 2004, and the Assessing Officer
accepted the transactions as "Investment". The learned Counsel submitted
that there was long term capital gain amounting to ` 7,46,715 before 1st
October 2004 and the Assessing Officer accepted the same as long term
capital gain. He further submitted that there was a long term capital loss
after 1st October 2004, amounting to ` 4,12,208, and the same has also
been accepted by the Assessing Officer. The learned Counsel referred to
Pages­22 to 24 of the paper book which contain the details of long term
capital gain / long term capital loss claimed by the assessee. The learned
Counsel further referred to Page­26 of the paper book and submitted that
there is a short term capital gain of ` 18,17,014, in respect of shares sold
after 1st October 2004 and there are only five transactions. He submitted
that the major short term capital gain is in respect of shares of Infosys
Technology of ` 13,94,737, out of total short term capital gain of `
18,17,014. He submitted that the said shares were purchased on 6th July
2004, and were sold on 24th March 2005 i.e., after a period of more than
eight months. He further submitted that the assessee also purchased shares
of NTPC on 27th October 2004, and sold said shares on 2nd December 2005,
6th December 2004, 7th December 2004, and 14th December 2004 and there
was short term capital gain of ` 3,46,461. Therefore, 96% of the capital gain
                                                      M/s. Jeet Machine Tools Ltd.

                                                                               5
is only in respect of these two scrips. The learned Counsel submitted that the
assessee also purchased and sold shares of TCS which were also purchased
on 26th August 2004, and sold on 1st/7th October 2004. The learned Counsel
submitted that in respect of shares of Indian Semless, the assessee has
incurred short term capital loss of ` 19,865, but in respect of said shares,
there was a mistake as the assessee purchased the said shares in the year
1994 and sold on 24th January 2005. He submitted that, by mistake, once
again the shares of Indian Semless sold on 27th January 2005 and thereafter
the said shares were purchased in auction at the Stock Exchange on 28th
January 2005. The learned Counsel submitted that the assessee has also
purchased shares of Bharti Shipyard on 24th December 2004, and sold on
10th January 2005, showing short term capital gain of ` 20,050. He
submitted that the observation of the Assessing Officer that there were
repeated purchases and sales of shares or there is high frequency of share
transactions is not factually correct, as there were only five scrips in which
the shares were purchased and sold. The learned Counsel further submitted
that the Assessing Officer, in the assessment order, has only discussed
theoretical part but nowhere has stated, as to how the instances mentioned
by him fit to the case of the assessee. The learned Counsel further submitted
that the assessee had been dealing in machinery and making investment in
shares right from the assessment year 1994­95 and the same has been
accepted as investment in the preceding assessment years as well as the
succeeding assessment year to the assessee year under consideration. To
substantiate his submissions, the learned Counsel referred to Page­29 of the
paper book, which contains the details of investment in shares from the
assessment year 1995­96 to 2005­06. The learned Counsel submitted that
scrutiny assessments had also taken place in the assessment year 1994­95,
1995­96, 1998­99, 2006­07 and 2007­08, wherein the assessee's claim of
short term capital gain and long term capital gain in respect of transactions
in shares was accepted. To substantiate his submissions, the learned
Counsel referred to Pages­67 to 76 of the paper book, which is a copy of
assessment order for assessment year 1994­95, Pages­154 to 157, which is
a copy of assessment order for assessment year 2006­07 and Pages­167 to
170, which is a copy of assessment order for assessment year 2007­08 of
                                                      M/s. Jeet Machine Tools Ltd.

                                                                               6
the paper book. He submitted that in the assessment year 2006­07, the
Assessing Officer treated the short term capital gain as business income but
the Commissioner (Appeals) reversed the assessment orders and accepted
assessee's claim of short term capital gain and referred to Pages­158 to 163
of paper book. That Department has not disputed the said order of the
Commissioner (Appeals) in further appeal. The learned Counsel submitted
that the Commissioner (Appeals), following the rule of consistency, has
rightly accepted the short term capital gain in the assessment year under
consideration. The learned Counsel referred to the table given by the
Assessing Officer at Page­9 of the assessment order which is reproduced
herein above in Para­3 and submitted that first three transactions of shares
mentioned by the Assessing Officer are prior to 1st October 2004 and same
have already been accepted by the Assessing Officer as short term capital
gain. The learned Counsel submitted that the principle laid by various
judgments of the Hon'ble Supreme Court and High Courts justify the claim of
the assessee as short term capital gain and, therefore, the order of the
Commissioner (Appeals) be confirmed.


9.    We have considered the orders of the authorities below and the
submissions of learned Representatives of the parties. We have also carefully
considered the relevant pages of the paper book. On perusal of the details of
shares placed at page­26 of the paper book, we agree with the learned
Counsel for the assessee that there are only five scrips of shares which have
been purchased by the assessee and sold in the assessment year under
consideration after 1st October 2004. The details of shares given by the
Assessing Officer in Para­3.25 of the assessment order at Page­9, is not
factually correct as the Assessing Officer himself has accepted first three
share transactions which were completed before 1st October 2004, as
investment and the short term capital loss declared by the assessee of `
53,467, has not been disputed by the Assessing Officer. We also observe that
out of short term capital gain of ` 18,17,014, the short term capital gain of `
17,41,000 (approximately) relates to only two scrips namely Infosys
Technology and NTPC. We observe that the shares of Infosys Technology,
there are no repetitive transactions. All the shares were purchased on the
same day i.e., on 6th July 2004, and were also sold on 24th March 2005. The
                                                        M/s. Jeet Machine Tools Ltd.

                                                                                 7
said shares were held by the assessee for a period of more than eight
months. Similarly, the shares of NTPC were also purchased on 27th October
2004, and were sold in December 2004. In that scrip also, it cannot be said
that the assessee has repetitively entered into the transactions of purchase
and sale of shares. We observe that there are also three other scrips and in
respect of one of the scrips namely Indian Semless, there is short term
capital loss of ` 19,865, and the assessee stated that this transaction took
place because of some mistake. We observe that the Department has not
disputed the said fact. It is also observe that the assessee has been dealing
in shares as an investor from assessment year 1995­96 and the Department
has accepted the same as investment except in the assessment year under
consideration. It is relevant to state that in the assessment year 2006­07, the
Assessing Officer did not accept the short term capital gain but the first
appellate authority accepted the claim of the assessee and the Department
did not dispute the same.


10.   Considering the facts of the case, we are of the considered view that
the discussion made by the Assessing Officer does not fit into the facts of the
case of the assessee before us. There is no dispute to the fact that the
Hon'ble Supreme Court has held in CIT v/s Holck Larsen (H.), [1986] 160 ITR
67 (SC) that question as to whether the transaction of sale and purchase of
shares is a trading transaction or whether it is in the nature of investment, is
a mixed question of law and fact. Therefore, all the relevant factors have to
be taken into consideration to decide as to whether the person is a "Dealer"
in shares or an "Investor". In the case before us, we observe that it is not a
case where the assessee is holding large number of shares or volume of
transaction is high or the assessee is carrying on the sale and purchase of
shares activity in an organised way to characterise it as a trading activity.
Not only this, out of the total capital gain of ` 18,17,014, the short term
capital gain of ` 13,94,737, is in respect of only one scrip where the holding
period is more than eight months. Therefore, on the facts of the case before
us, we hold that the transaction in the year of sale and purchase of shares as
in the preceding years and/or in the succeeding year are on the same basis
and   the   Commissioner    (Appeals)   has   rightly   treated   the   same     as
"Investment". Accordingly, the profit thereon has rightly been considered on
                                                      M/s. Jeet Machine Tools Ltd.

                                                                               8
short term capital gain. Hence, we uphold the order of the Commissioner
(Appeals) and reject the ground of appeal taken by the Department.


11.              

10.   In the result, Revenue's appeal is dismissed.

               th
              4 July 2012    
      Order pronounced in the open Court on 4th July 2012


              Sd/-                                                 Sd/-
                                                             ..  
                                                                 
      N.K. BILLAIYA                                         B.R. MITTAL
   ACCOUNTANT MEMBER                                     JUDICIAL MEMBER



MUMBAI,     DATED:      4th July 2012

Copy to:

(1)   The Assessee;
(2)   The Respondent;
(3)   The CIT(A), Mumbai, concerned;
(4)   The CIT, Mumbai City concerned;
(5)   The DR, "I" Bench, ITAT, Mumbai.


                                                  TRUE COPY
                                                  BY ORDER



Pradeep J. Chowdhury                           ASSISTANT REGISTRAR
Sr. Private Secretary                    ITAT, MUMBAI BENCHES, MUMBAI
 
 
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