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D C I T - 17(2) Mrs. Nancy B. Mody Room No. 217, 2nd Floor 6-B Chetan, Next to Aurora Cinema Piramal Chambers, Parel Vs. Matunga (CR), Mumbai 400019 Mumbai 400012
November, 13th 2013
                           "B" Bench, Mumbai

                 Before Shri D. Manmohan, Vice President
                  and Shri Rajendra, Accountant Member

                          ITA No. 6334/Mum/2011
                          (Assessment Year: 2008-09)

     D C I T - 17(2)                Mrs. Nancy B. Mody
     Room No. 217, 2nd Floor    Vs. 6-B Chetan, Next to Aurora Cinema
     Piramal Chambers, Parel        Matunga (CR), Mumbai 400019
     Mumbai 400012                  PAN - AAHPM 3435E
             Appellant                         Respondent

                    Appellant by:     B.P.K. Panda
                    Respondent by:    None

                    Date of Hearing:       11.11.2013
                    Date of Pronouncement: 11.11.2013


Per D. Manmohan, V.P.

      This appeal is filed at the instance of the Revenue and it is directed
against the order dated 16.06.2011 passed by the CIT(A)-29, Mumbai.

2.     Following grounds were urged by the Revenue: -

      "1. On the facts and in the circumstances of the case and in law, the
          Ld. CIT(A) erred in directing the Assessing Officer to treat the
          assessee's income from share transaction as STCG u/s. 45 of the
          I.T. Act, 1961.
      2.   On the facts and in the circumstances of the case and in law, the
           Ld. CIT(A) has ignored the facts brought by Assessing Officer on
           record that short period of holding of shares establishes the
           intention of selling at profit and not keeping the share for long
           term appreciation or earning dividend."

3.     None appeared on behalf of the assessee. We have heard the learned
D.R. and carefully perused the record.

4.     Facts necessary for disposal of the appeal are stated in brief. For the
assessment year under consideration the assessee declared total income of
`36,67,810/-, which included income in the form of short term capital
                                     2                  ITA No. 6334/Mum/2011
                                                             Mrs. Nancy B. Mody

gains. The assessee had also declared dividend income which was claimed
as exempt. During the course of assessment proceedings the assessee was
called upon to file details of the share transactions. Assessee furnished
relevant details wherefrom the AO noticed that the assessee carried out the
activities of purchase and sale of shares on a large scale and had also
utilised borrowed funds to the tune of `1,13,75,000/-. In the opinion of the
AO the aforementioned circumstances indicate that the assessee was
engaged in the business of purchase and sale of shares and the income
arising therefrom is assessable under the head `profits and gains of

5.    In response to the show cause notice the assessee submitted that she
was merely an investor, investing in shares through primary market or
through secondary market. Delivery was taken immediately and as and
when there is appreciation in the value of shares the same were sold and her
motive was to treat them as investment and to earn dividend which is tax
free but as a necessary consequence she had taken the benefit of
appreciation in the value of shares by selling them at appropriate time. It
was also contended that she was mainly investing in shares from her own
funds and sometimes had temporary/interest free loans from family
members; there was no payment of interest on borrowed funds. The number
of transactions of short term capital gains on sale of shares during the
previous year relevant to the assessment year under consideration are only
15 out of which five transactions are of sale of shares of Tata Steel Ltd.
which was invested by the assessee by way of share application. It was thus
contended that the assessee was essentially an investor and never
purchased shares with an intention to carry on business.

6.    The AO observed that mere entries in the books of accounts showing
shares as `investment' is not determinative as to the nature of transactions.
He had taken note of the fact that the major activity undertaken by the
assessee was dealing in shares wherefrom she has earned huge income
compared to very nominal income earned from other activities. The AO
therefore assumed that the assessee was indulging in share trading activity
                                      3                  ITA No. 6334/Mum/2011
                                                              Mrs. Nancy B. Mody

and shares were not purchased as investment. He further observed that one
of the tests with regard to verifying the intention of purchases was to look to
the intention of the assessee. In the instant case the sole intention was to
sell the shares at profit. Since the assessee held many shares for a short
period, it established the intention of selling the shares at profit. In other
words, it was not for keeping the shares for long term appreciation or
earning dividend. In his opinion the holding period and substantial amount
involved in purchase and sale of shares are sufficient to prove that the
assessee was a trader in purchase and sale of shares. He further observed
that the assessee raised borrowed funds of `1,13,75,000/- whereas in order
to prove that the shares were purchased with a view to deal with them as an
investor it has to be shown that the shares were purchased with her own
capital. Having regard to the overall circumstances the AO observed that the
predominant activity was share trading and hence the proceeds on sale of
shares are assessable to tax under the head `business income'.

7.    Aggrieved, assessee contended before the CIT(A) that only 15
transactions of sale of shares had taken place during this year out of which
12 transactions give rise to short term capital gains. The volume of
transactions means purchase and sale of number of scrips whereas in the
instant case the "large scale" appears to be with regard to the large value
and not with reference to the number of scrips transacted. It was also
contended that the AO assumed that the purchase of shares were made
through borrowed funds whereas the fact remains that the investments were
made from her own funds or the interest free borrowings from the family
members only and no interest bearing funds from an outsider were utilised
for acquisition of shares. In this regard a chart was furnished before the
CIT(A) which reveals that the assessee used interest free borrowings from
the family members and no other interest bearing funds were utilised. In
fact, out of the 12 scrips only two scrips were purchased by borrowing
money from family members and the rest of the scrips were purchased out
of own funds. The assessee also submitted that the investments were made
over a period of time and they were consistently recorded under the head
                                       4                  ITA No. 6334/Mum/2011
                                                               Mrs. Nancy B. Mody

`investments' and, in fact, they were meant for the purpose of achieving
capital appreciation only.

8.    Having regard to the circumstances of the case the learned CIT(A)
agreed with the claim made by the assessee. In this regard he observed as
under: -

     "3.3    I have carefully considered the facts of the case, arguments of
     the Assessing Officer and the written submissions of the Authorised
     Representative of the appellant. I find that the entire capital generated
     is only from 12 scrips. Out of this the gain is arising from IPO
     subscription in 10 scrips. The subscription in IPO is a primary
     investment activity. The only other transaction is in a scrip i.e., TATA
     Steel which is again sale of rights issue of shares. Hence, there is
     overwhelming evidence that the activities were investment activities in
     nature. The borrowal of funds have been used only for subscribing two
     IPOs. The borrowal is interest free borrowings from family members.
             As regards the holding period, more than `30,34,414 of STCG
     arises from only three scrips which have been held for a period of more
     than 30 days but less than 180 days. Here again there is good
     evidence that shares have been held for a considerable length of time.
     This covers 85% of the gain. As can be seen the investments are
     primarily in IPOs and rights issues. It cannot be said that appellant
     was engaged in an organized business activity. Apart from this the
     investments have been disclosed in the Balance Sheet as investment
     and not as stock-in-trade. All most 75% of the STCG are from shares of
     only one company i.e., TATA Steel Ltd., which were from rights issue.
     About 20% of STCG are from two other companies, i.e., Power Grid
     Corporation and Mundra Port which are subscribed through IPO. From
     theses facts it can be seen that the short term capital gain disclosed is
     out of investment activities and not out of business activities. The
     Assessing Officer is directed to teat the disclosed STCG accordingly.
     This ground of appeal is allowed."

9.    Aggrieved by the order of the learned CIT(A), Revenue is in appeal
before us. The learned D.R. submitted that the volume of transactions, in
terms of value of shares, is high and the assessee having borrowed funds for
purchase of shares, the activity has to be considered as trading activity. He
thus strongly supported the order passed by the AO. With regard to the
query as to whether the assessee was involved in purchase and sale of
shares in the previous or subsequent years and what is the treatment given
by the AO in those years, the learned D.R. submitted that such facts were
not available on record. When pointed out that the learned CIT(A)
                                       5                 ITA No. 6334/Mum/2011
                                                              Mrs. Nancy B. Mody

categorically stated that out of the 12 scrips 10 scrips were purchased out of
own funds and even the balance two scrips were purchased through IPO
with funds borrowed from relatives on which no interest was paid, the
learned D.R. could not contradict the findings of the learned CIT(A).

10.     We have considered the submissions of the learned D.R. and perused
the record. In our considered opinion the learned CIT(A) has considered the
facts in the proper perspective while coming to the conclusion that the
assessee had purchased the shares in her capacity as investor and not with
a view to trading in purchase and sale of shares. Since no evidence,
whatsoever, was furnished by the learned D.R. to contradict the findings of
the learned CIT(A), we do not find any infirmity in the order passed by the
learned CIT(A). We, therefore, sustain the order of the learned CIT(A) and
dismiss the appeal filed by the Revenue.

Order pronounced in the open court on 11th November, 2013.

                  Sd/-                                   Sd/-
               (Rajendra)                           (D. Manmohan)
           Accountant Member                        Vice President

Mumbai, Dated: 11th November, 2013

Copy to:

   1.   The   Appellant
   2.   The   Respondent
   3.   The   CIT(A) ­ 29, Mumbai
   4.   The   CIT­ 17, Mumbai City
   5.   The   DR, "B" Bench, ITAT, Mumbai

                                                      By Order

//True Copy//
                                                   Assistant Registrar
                                           ITAT, Mumbai Benches, Mumbai
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