IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI J.S. REDDY : ACCOUNTANT MEMBER
AND
SHRI C.M. GARG: JUDICIAL MEMBER
ITA no. 3490/Del/2013
Asstt. Yr: 2008-09
DCIT, Circle 10(1), Vs. M/s Discover India Tours Pvt. Ltd.,
New Delhi. D-21, Kalkaji, New Delhi.
PAN: AAACD 0675 K
( Appellant ) (Respondent)
Appellant by : Smt. Parwinder Kaur Sr. DR
Respondent by : Shri Rakesh Kumar CA
Date of hearing : 13/08/2015.
Date of order : 14/08/2015.
ORDER
PER C.M. Garg, J.M:
This appeal, by the department, is preferred against the order of the
CIT(A)-VI, New Delhi dated 08-03-2013 in appeal no. 115/12-13 for
assessment year 2008-09.
2. The sole ground raised by the revenue reads as under:
"Whether the CIT(A) under the facts and circumstances of the
case and in law was justified in treating the income from sale &
purchase of shares as "Long Term Capital Gain" instead of
`business income' as assessed by the Assessing Officer."
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3. Brief stated facts, giving rise to this appeal, are that the case was
selected for scrutiny under CASS and a notice u/s 143(2) and another notice
u/s 142(1) of the Income-tax Act (for short "the Act"), along with
questionnaire was issued to the assessee on 1-7-2010. The AO finalized the
assessment by observing that the alleged long term capital gain, earned on
entire sale/ purchase of shares, deserved to be treated as `business income'
and, thus, he treated the same as `business income' by rejecting the special
tax treatment as per section 111(A), denying exemption u/s 10(38) of the
Act.
3.1. Aggrieved, the assessee carried the matter to the first appellate
authority i.e. CIT(A), which granted relief to the assessee by passing the
impugned order. Now, the aggrieved revenue is before this Tribunal in
second appeal with the sole ground as reproduced hereinabove.
4. We have heard arguments of both sides and carefully perused the
material available on record, inter alia, assessment order, impugned order of
the CIT(A) and paper book of the assessee, spread over in 161 pages.
5. Ld. DR, supporting the assessment order, submitted that a Portfolio
Manager is an agent of the investor and though he may carry on certain
transactions in his own name, such transactions are in his capacity as an
agent of the investor. Ld. DR further submitted that, therefore, such
transactions are the transactions of the investor, carried out through an agent
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and the income from such transactions is liable to tax as the income of the
investor, and would take its colour from the circumstances surrounding the
actions of the investor. Ld. DR further submitted that similarly, dividends
received by the Portfolio Manager is received by him in his capacity as an
agent of the investor and, accordingly, such dividends are taxable or exempt
in the hands of the investor as dividends.
5.1. Ld. DR further submitted that the assessee has wrongly interpreted the
meaning of investments and capital assets and utilized it for its benefit to
avoid tax incident. Therefore, the AO was right in treating the income
therefrom as `business income'. Ld. DR vehemently contended that the
impugned investment shown by the assessee was not actually an investment,
but a wrong interpretation adopted by the assessee. Therefore, the action of
the AO was correct which was wrongly demolished by the CIT(A).
5.2. Ld. DR parted his argument with the final submission that impugned
order may be set aside by restoring that of the AO.
6. In reply to the above, ld. authorized representative of the assessee
("AR" in short), supported the impugned order of CIT(A) and submitted that
the assessee company has earned dividend income during the year on shares
purchased by it and since shares have been purchased under investment
portfolio, therefore, the decrease in value as against cost has not been
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claimed as loss, which otherwise would be available to the assessee if the
shares are held as stock in trade.
6.1. Ld. AR strenuously contended that the assessee has shown shares
under the head `investment' in the audited balance-sheet, prepared in
accordance with the provisions of the Companies Act, 1956. Ld. AR further
pointed out that the assessee utilised its own funds and not the borrowed
funds for the purpose of investment in quoted shares, which were actually
investments and, therefore, the CIT(A) was correct in directing the AO to
treat the impugned income/ profit as `long term capital gain' instead of
`business income'.
6.2. Ld. AR took us through the operative paras from 5.3 to 5.5 of the
impugned order and submitted that there were no multiple transactions or
multiple sales/ purchases of shares and the frequency and magnitude of sale/
purchase was also very low and observations of the AO in this regard are
contrary to the facts of the case and hence the AO grossly erred in treating
the long term capital gain on the sale of quoted shares as `business income'
of the assessee.
6.3. Ld. AR finally submitted that the issue/ ground raised by the revenue
is without merits and the same may kindly be dismissed.
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7. On careful consideration of submissions of both the sides and very
careful reading of the impugned order, we note that he CIT(A) granted relief
to the assessee with following observations and conclusions:
"5.3. It is observed that The appellant has shown the shares
under the head 'investments' in the audited balance sheet and
prepared in accordance with the provisions of Companies Act,
1956. The appellant had invested in the quoted shares only. The
appellant has utilized its own funds and not borrowed funds for
the purpose of acquiring the shares As on 31.03.2007 & 2008,
the appellant company had reserve and surpluses of
Rs.16,30,95,849.20/- and Rs.20,48,20,824.34/- respectively
where as the investments as on 31.03.2007 and 31.03.208 were
of Rs.15,48,07,722.57/- and Rs 19,39,93,223.13/- respectively.
The appellant company has paid the interest of Rs.14. 31 only
during the year. The infrastructure of the appellant company IS
also very small which represents the Investment activity rather
than a trading activity which would require a much bigger
infrastructure. The appellant company have earned dividend
income during the year on shares purchased by it. Since the
shares have been held under investment portfolio thus the
decrease in value as against cost has not been claimed as loss
which otherwise would be available if the shares are held as
stock in trade. There are no multiple transactions or multiple
sales and purchase of shares and the frequency and magnitude
was also very less in contrary to the observation of the AO.
Therefore, in my opinion, the AO has erred in treating the long
term capital gain on the sale of equity shares as business
income of the appellant.
While it is a fact that res-judicata is not applicable in income
tax proceedings, the principal of consistency is accepted by
now In Radhasoami Satsang Vs. CIT [1992] 1931TR 321 (SC),
it was held that:
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"We are aware of the fact that, strictly speaking,
res judicata does not apply to IT proceedings.
Again, each assessment year being a unit, what is
decided in one year may not apply in the following
year but where a fundamental aspect permeating
through the different assessment years has been
found as a fact one way or the other and parties
have allowed that position to be sustained by not
challenging the order, it would not be at all
appropriate to allow the position to be changed in
a subsequent year. "
In other words, the rule of consistency had already been
accepted by the Hon'ble Apex Court.
5.4. The appellant's case is further strengthened by the reliance
placed on Gopal Purohit vs. JCIT (2009) 20 DTR 99 (Mumbai
Tribunal). The Hon'ble High Court in the aforesaid case had
held as under:-
a) Whether, on the facts and circumstances of
the case and in law, the Hon'bfe ITAT was justified
in treating the income from sale of 7;59,003/- .
shares of Rs. 5,00, 12,879/- as an income from
short them capital gain and sale of 3,88,797 shares
for Rs. 6,65,02,340/- as long term capital gain as
against the "Income from business" assessed by
the A O?
b) Whether, on the facts and circumstances of
the case and in law, the Hon 'ble ITAT was
justified in holding that principle of consistency
must be applied here as authorities did not treat
the assessee as a share trader in preceding year, in
spite of existence of similar transaction, which
cannot in any ~ay operate as resjudicate to
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preclude the authorities from holding such
transactions as business activities in current year?
2. The Tribunal has entered a pure finding of fact
that the assessee was engaged in two different
types of transactions. The first set of transactions
involved investment in shares The second set of
transactions involved dealing in shares for the
purpose of business (described in paragraph 8.3 of
the judgment of the Tribunal has correctly applied
the principle of law in accepting the position that it
is open to an assessee to maintain two separate
port folios, one relating to investment in shares
and another relating to business activities
involving dealing in shares. The Tribunal held that
the delivery based transactions in the present case,
should be treated as those in the nature of
investment transactions and the profit received
there from should be treated as short term or, as
the case may be, long term capital gain, depending
upon the period of the holding. A finding of fact
has been arrived at by the Tribunal as regards the
existence of two distinct types of transactions
namely, those by way of investment on one hand
and those for the purposes of business on the other
hand. Question (a) above, does not raise any
substantial question of law
3. In so far as Question (b) is concerned, the
Tribunal has observed in paragraph 8.1 of its
judgment that the assessee has followed a
consistent practice in regard to the nature of the
activities, the manner of keeping records and the
presentation of shares as investment at the end of
the year, in all the years. The revenue submitted
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that a different view should be taken for the year
under consideration, since the principle of res-
judicata is not applicable to assessment
proceedings The Tribunal correctly accepted the
position, that the principle of res judicata is not
attracted since each assessment year is separate in
itself. The Tribunal held that there ought to be
uniformity in treatment and consistency when the
facts and circumstances are identical, particularly
in the case of the assessee. This approach of the
Tribunal cannot be faulted The revenue did not
furnish any justification for adopting a divergent
approach for the Assesment Year in question.
Question (b), therefore, does not a/so raise any
substantial question"
5.5. In my view, the case of the appellant company is squarely
covered by the judicial pronouncement of the Hon'ble rv1umbai
High Court and further confirmed by Hon'ble Supreme Court in
the case of CIT vs. Gopal Purohit
5.6 In view of the discussion above and the facts of the case,
I am of the considered opinion that the. AO has erred in not
appreciating the facts correctly. The income of RS.13,79,138/-
should be determined as long term capital gain and not
business income. Therefore. the AO IS directed to delete to
addition of Rs 13,79,138/- as business income of the
appellant."
7.1. In view of above, at the very outset, we note that the AO has not
demolished the fact that the assessee utilized its own funds for the purpose
of acquiring quoted shares, which were also shown as investment in the
balance-sheet. The assessee also earned dividend income therefrom and the
shares have been held under investment portfolio, which were valued at the
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end of the year in the audited balance-sheet at the cost of acquisition and the
same were not held as stock-in-trade. The AO has also not controverted the
fact that there were no multiple transactions of sale/ purchase of shares and
the frequency and magnitude was also very low. The observations of the AO
in this regard are baseless, which were rightly demolished by the CIT(A).
7.2. In view of above noted facts and circumstances, we are of the
considered opinion that the view taken by the CIT(A), treating the impugned
income as long term capital gain, is sustainable in accordance with law and
provisions of the Act and, thus, we uphold the same. We are unable to see
any valid reason to interfere with the first appellate authority and hence sole
ground of the revenue, being devoid of merits, is dismissed.
8. In the result, revenue's appeal is dismissed.
Order pronounced in open court on 14/08/2015.
Sd/- Sd/-
(J.S. REDDY) (C.M. GARG.)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14-08-2015.
MP
Copy to :
1. Assessee
2. AO
3. CIT(A)
4. CIT
5. DR (ITAT)
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-+ Date Initial
1. Draft dictated on 14-08.2015 PS
2. Draft placed before author 14 .08.2015 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second JM/AM
Member.
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.
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