Acit Circle 3 1 New Delhi v. Bulls Amp Bears Portfolio Ltd New Delhi

In The Income Tax Appellate Tribunal Delhi A Bench New Delhi Before Shri B P Jain Accountant Member And Shri Sudhanshu Srivastava Judicial Member Ita No 2727 Del 20 08 A Y 20 05 06 The A C I T Vs M S Bulls Bears Portfolios Ltd Circle 3 1 D 3 Iiird Floor Defence Colony New Delhi New Delhi Pan Aa Bcb 8436 B Ita No 3897 Del 20 10 A Y 20 0 6 0 7 The D C I T V S M S Bulls Bears Portfolios Ltd Circle 3 1 D 3 Iiird Floor Defence Colony New Delhi New Delhi Pan Aa Bcb 8436 B Appellant Respondent Date Of Hearing 09 1 1 2017 Date Of Pronouncement 21 1 2 2017 Assessee By Shri Salil Kapoor Shri Sumit Lalchandani Advs Revenue By S Hri S K Jain Sr Dr Order Per B P Jain Accountant Member Th E Above Two Appeal S Of The Revenue Are Directed Against The Separate Order Of The Ld Cit A N Ew Delhi Vide Order S Dated 16 05 2008 For Assessment Year 2005 06 And 21 0 6 201 0 For A Y 20 0 6 2 07 Respectively Since The Appeals Pertain To Same Assessee And Were Heard Together Involving Common Issues The Appeals Are Being Disposed Off By This Common Order For The Sake Of Convenience And Brevity Ita No 2727 Del 2008 A Y 2 005 06 2 The Grounds Of Appeals Raised By The Revenue Are As Under 1 The Ld Cit A Erred In Law And Facts In Directing The Assessing Officer To Treat The Sum Of Rs 2 60 49 678 As A Capital Gain Instead Of Treating It As B Usiness Income 2 The Ld Cit A Erred In Law And Facts In Directing The Assessing Officer To Allow The Payment Of Registration Fees Of Rs 27 30 Lakhs To Sebi Even When Such Fee Is Not Covered By The Provisions Of Section 43 B And Also As Such Liability Pertained To Earlier Years 3 The Ld Cit A Erred In Deleting The Addition Of Rs 1 95 Lakhs Made By The Assessing Officer By Invoking The Provisions Of Section 14 A 3 First We Take Up The Appeal In Assessment Year 2005 06 Briefly Stated The Facts Of The Case Are That The A Ssessee Is Engaged In The Business Of Stock Broking Services And Was Also Engaged In Investment In Shares And Stocks In The Return For Ay 2005 06 It Has Declared 3 Returned Income Of 2 65 91 812 Which Also Included Short Term Capital Gain Of Rs 2 60 49 812 Similarly For Ay 2006 07 It Filed The Return Of 3 45 41 714 Which Included Short Term Capital Gain Of Rs 1 96 75 256 For Both The Years The Assessing Officer Treated The Short Term Capita L Gain As Business Income The A Ssessee Succeeded In Appeal Be Fore The Ld Cit A And The Revenue Had Challenged The Order Of Cit A Before Us The Appeals Of The Revenue Were Dismissed By The Tribunal Aggrieved T He Revenue Filed Appeals Before The Honble High Court Against The Said Order Of The Tribunal By The Re Venue The Honble High Court Vide Order Dated 6 8 2014 Has Restored Back The Matter To The T Ribunal To Be Decided Afresh With The Following Observations 10 The Aforesaid Tests Also Find Reference In The Circular No 4 2007 Dated 15 Th June 2007 Issu Ed By The Central Board Of Direct Taxes The Tribunal Has Only Quoted A Part Of The Said Circular And Not Referred To The Tests Elucidated Therein 11 Looking At The Facts Stated By The Assessing Officer We Feel That The Matter Requires Deeper And Detai Led Examination The Facts Stated By The Assessing Officer Have Not Been Given Due Notice Nor Examined By The Tribunal Learned Counsel For The Respondent Assessee States That Though Some Of The Facts Were Wrongly Noticed By The Assessing Officer But These And Other Aspects Will Have To Be 4 Examined Before It Is Held That The Shares Held Were Or Were Not In The Nature Of Investments It Is Highlighted That The Shares Subject Matter Of Short Term Capital Gains Were Held For Less Than 365 Days But There Is Difference Between Short Term Capital Gains And Profit Loss From Trading In Shares 12 In View Of The Aforesaid Discussion We Feel That The Matter Should Be Remanded Back To The Tribunal For A Fresh Discussion Who In The Light Of Aforesaid Tests Shall Examine And Ascertain Whether Or Not The Shares Were Held As Investment The Question Of Law Is Accordingly Answered 13 Learned Counsel For The Respondent Assessee States That He Will Like To File An Application For Additional Documents Before The Tr Ibunal If Any Such Application If Filed The Same Will Be Considered Sympathetically By The Tribunal We Clarify That We Have Referred To The Two Orders Passed By The Assessing Officer And The Appellate Authorities To Decide The Present Appeals The Tribu Nal Will Be At Liberty To Decide The Issue Without Being Influenced By The Observations Made In Favour Or Against Any Party In The Present Order Or The Impugned Order Passed By The Tribunal 5 At The Outset The Ld Dr Submitted That The Honble High Co Urt Has Remanded Back The Issue To The Tribunal For Fresh Adjudication And Further Submitted That The Assessee Sold The Shares In A Short Period And Sometimes In Two Three Days And Even On The Same Day He Quoted 5 From Aos Order For A Y 2006 07 That Share S Of M S Lml Ltd Were Sold 8 Times And M S Oswal Chemical Were Sold 14 Times Which Pointed To Trading Transactions And Not Investment Activity He Also Submitted That The Assessee Received Very Little Dividend On The Investments Held By It He Referred To The Aos Order For A Y 2006 07 That Earning Dividend Was Sine Qu A Non Of Investment Activity He Argued That Separate Demat Accounts Maintained For The Shares Held As Stock In Trade And Shares Held As Investment And Keeping Accounting And Showing In Bala Nce Sheet Under Specific Head For Investment And Stock In Trade Do Not Throw Any Light On The Intention Of The Assessee Regarding The Treatment To Be Give N To Transactions He Stated That There Are Three Types Of Incomes Viz Trading Income Business Lon G Term Capital Gain And Short Term Capital Gain And Each Type Of Income Has To Be Verified By Using Th E Principles Mentioned In Cbdt C Ircular No 4 Of 2007 Dated 15th June 2007 He State D That The Moa Specifies That A Ssessee Carries Business Of Investme Nt And Hence Not Entitled For Income As Investor He Also Submitt E D That Consistency Does Not Apply In I Ncome Tax Every Year Is A Different Year And That And The Assessee Has Dealt In 55 Securities And Only 10 Scrips Were In Closing Stock And 45 Were Sol D In Same Year 6 6 On The Other Hand The Ld Counsel For The A Ssessee Submitted That While Remanding The Matter To The Tribunal The Honble High Court Has Clarified That The Tribunal Shall Be At Liberty To Decide The Issue Afresh Without Being Uninfluenc Ed By The Observations Made In The Order His Main Arguments Are Summarized As Under I It Has Been Accepted By The Ao Also That The Respondent Company Is Also Into Investment Of Shares And Stocks T He Ao Has Himself Accepted The L Ong Ter M Capital Gain Declared By The A Ssessee For These Years And It I S Only With Respect To S Hort Term Capital Gain That The Ao Has Not Accepted He Further Stated That Moa Of The Assess E E Authorizes It To Make Investments In Stocks And Shares The Assessee Has Been Making Su Ch Investments For Last 10 Years And The Same Is Accepted As Long Term Or Short Terms Capital Gains Even Under 143 3 Assessments Ii It Is Denied That Any Share Which Was Treated As Investments Was Sold On Same Day Of Purchase In Fact All The Shares W Hich Were Treated As Investment Were Sold On Delivery Basis Only I E Delivery Of Scrips Purchases Were Taken And Delivery Given When Such Investment Was Sold In Due Course He Submitted Charts For Both 7 Asstt Years Fy 2005 06 And 2006 07 Showing Scrip Nam Es Dates Of Purchase And Sale And Capital Gain Loss Thereon To Buttress His Claim Further As Against Alleged By Dr The Specific Transactions Of Sale Of M S Lml Ltd And M S Oswal Chemicals Were In Fact Coming From Investments Made In Earlier Year As S Uch Accepted By The Ld Ao In Its Scrutiny Assessment For Ay 2005 06 He Again Referred To The Charts Submitted By Him And Submitted That The Shares Of M S Lml Ltd Were Held For More Than 260 Days And On Average For 277 Days And That Shares Of M S Oswal Chem Icals Were Held For Period Ranging From 55 Days To 259 Days Before Being Sold He Submitted That The Sale Were Effected In Tranches And In Fact Constituted Single Transaction There Was Not Frequency Buying Or Selling The Same Iii He Submitted That The Quantum Of Dividend Income On The Shares Claimed As Investment Is Not Relevant Factor For Determining As To Whether Those Shares Have Been Purchased As Investment Or Stock In Trade Wh En The Shares Are Purchased It Cannot Be Said With Certainty Whether Th E Company Will Declare Dividend And At The Same Time The Decision To Classify The Share As Investment Stock In Trade Is Taken By The Assessee At The Time Of Purchase Of Share 8 Further Average Dividend Yield On Bse Benchmark Sensex 30 Shares Varies From 0 9 To Only 1 5 Clearly No Prudent Investor Would Invest In Share Only For Earning Of Dividend If Earning Of Dividend Was An Essential Condition Of Investment Activity No One Would Buy Gold Or House Or Paintings As Investment Therefore It Cannot Be A Yardstick For Classification Of Share As Alleged By The Assessing Officer Iv He Further Stated That There Is Separate Demat For Investments He Submitted That The Fact Remains That The Books Of Accounts Were Accepted By The Ao In Both Fy 2005 06 And Fy 2006 07 V He Further Submitted That The Assessee Has Been Maintaining Separate Depository Account For The Shares Held As Investment And Separate Depository Account For The Shares Required As For Stock In Trade At The Time For Purchasing Th E Shares The Assessee Clearly Identifies As To Whether It Is For Investment Or As Stock In Trade And Accordingly These Shares Gets Credited Directly To The Concerned Depository Account He Submitted That The Intention Becomes Clear From The Conscious Act Of The Assessee At The Time Of Purchase Itself He Stated That The Demat Accounts Are Maintained By Nsdl And Assessee Has No Control Over It He Pointed Out That The Demat 9 Account Maintained For Investment Has It S Title As Investment While For The Demat Account Maintained For Stock In Trade There Is No Such Remarks He Submitted That Ao In His Assessment Order For Ay 2005 06 Has Noted That The Said Investment Demat Account Was Opened On 07 01 2004 Much Before The Commencement Of Assessment Year Under C Onsideration And Not On Any Advantage Of Hindsight Vi The Ld Counsel For The Assessee Further Submitted That That Any Transfer From One Demat A C To Another Demat A C Can Be Made Only By Officially Transferring The Scrips At Prevailing Market Price A Nd By Following The Prescribed Procedure Vii He Further Submitted That The Categorization Of Incomes Into Three Categories Is Not Correct There Are Only Two Types Of Incomes Envisaged I E Trading Income And Capital Gains Capital Gain Is Assessed As Long Term Or Short Term Depending On Period Of Holding The Ao Himself Accepts That Asses S Ee Had Made Investments And Income From Which Is To Be Assessed As Capital Gain As He Has Accepted Long Term Capital Gain Merely Some 10 Investments Are Sold Before 36 5 Days That Itself Will Not Make It Business Income Viii He Submitted That Assessee Company Is A Share Broker And At The Same Time It Is Doing Investment And Declaring Long Term And Short Term Capital Gains Which Has Been Accepted In 2002 03 To 2004 05 Ld Ar Further Submitted That One Of The Objects Read With Ancillary Object Is To Carry On The Business Of An Investment Company Thus The Company Is Authorized For Investment Ix He Submitted That The Ao Has Accepted The Share Transactions As For Investment Where The Holding Period Is 365 Days Or More And Has Treated The Same As Ltcg However Wherever The Holding Period Is Less Than 365 Days Even The Shares Were Distinctively Held In The Same Demat Account Ma R Ked As Investment A C He Has Treate D The Same As For Business Purposes X Ld Ar Submitted That In Financial Books Of A C These Purchases Have Been Shown Under The Head Investment In Contrast To 11 Other Shares Which Have Been Shown As Purchases Stock In Trade This Itself Proves The Nature And The Intention Of The Assessee At The Time Of Purchase Xi Ld Ar Submitted That I N The Balance Sheet These Shares Held As On The Closing Date Have Been Shown Under The Head Investment In Contrast To Stock In Trade For Other Shares And Boo Ks Of Account Have Been Accepted By The Ao Then How The Sale Of These Investments Can Be Treated As Business Income Xii He Fu R Ther Submitted That T He Valuation Of The Shares Held As Stock In Trade Is At Cost Or Market Value Whichever Is Lower However For Shares Held As Investment They Are Valued At Cost This Method Of Valuation Stands Disclosed In The Audited Balance Sheet And Accepted He Filed A Chart Showing Valuation Of Shares Held Under The Head Investments As On 31 03 2005 And Submitted Tha T There Was A Valuation Loss Of Rs 36 16 094 On These Shares Which Is Not Claimed As These Shares Are Held As Investments And Not As Stock In Trade As Per The Consistent Practice The Shares Once Treated As For Investment Stock Their Nomenclature And Tax Treatment Remains Under The Same 12 Nomenclature Till Its Disposal Irrespective Of The Tax Liability On Account Of Said Treatment This Shows That The Assessee Has Been Showing And Claiming The Investment Corresponding Stcg Ltcg On Such Investments Unde R A Properly Consistent Method Xiii He Submitted That Security Transaction Tax Stt Paid On The Scripts Held As Investment Has Not Been Claimed As Pre Paid Tax Or As Expenditure In The Books Of Accounts Which Is Otherwise Allowed As Expense In The Ca Se Of Stock In Trade Xiv He Submitted That Assessee Is A Share Broker And At The Same Time Has Been Making Investments In Shares Which Have Been Declared As Long Term Or Short Term Capital Gains Even In The Past Several Years He Submitted Copies Of As Sessment Orders For Ay 2002 03 2003 04 2004 05 2007 08 And 2008 09 For The Same This Contention Of The Appellant Has Been Accepted By The Assessing Officer For Various Assessment Years From 2002 03 To 2004 05 Xv He Submitted That For Making Investm Ents No Funds Have Been Borrowed The Payments Have Been Made Simultaneous On 13 Delivery To Put It In Different Way No Script Has Been Treated As Investment Where Payments Have Not Been Made And Or Delivery Has Not Been Taken He Also Relied On The Deci Sion Of Janak Rangwala V S Acit 11 Sot 627 Mum In Support Of His Argument That Magnitude Of Investment Is Not The Deciding Factor Of Na Ture Of Investment 7 We Have Heard Both Sides And Gone Through The Relevant Material Available On Record The Ao Has Observed That The A Ssessee Is Into Stock Broking Business As Well As Investor In Shares And Stocks The Ao Has Accepted The Long Term Capital Gains Declared By The A Sses S Ee In Respect Of Shares Which Are Held For More Than 365 Days This Fact Is Not Denie D By The Dr The Asse S See Is Having Two Different D E Mat Accounts And The Investment Account Is Marked As D E Mat Investment Account The Other D E Mat Account Is For Shares Held As Stock In Trade It I S At The Time Of Purchase Of Share That The Assessee Has To Decide If It Is For Investment Or Its Stock In Trade And Is Credited In The Required D E Mat Ac C Ount It Has Been Investing In Shares For The Last Years And Its Accepted By The Department In Some Cases The Assessment Is Order Made U S 143 3 There No Borr Owed Funds Used By The Assessee For Purchase Of These Investments All The Transactions Are Actual Delivery 14 The Stt Paid Is N Ot Claimed As Deduction By The A Ssessee Moreover The Balance Investments In The Balance Sheet As On The Last Day Of The Years Ar E Taken At Cost And Not At Market Value Or Cost Whichever Is Less Chart Filed By The Assessee Shows That Valuation Loss Is Not Claimed And This Fact Is Not Denied By The Dr 8 The Ld Cit A Elaborately Considered The Issue And Held As Under For Asse Ssment Year 2005 06 I Have Considered The Submissions Of The Appellant It Is Seen That The Appellant Has Maintained Two Separate Accounts For The Share Dealings One In Respect Of Shares Held As Stock In Trade And The Other In Respect Of Investment A S Pointed Out By The A R Of The Appellant Under The Sebi Rules One Cannot Transfer The Shares From One Account To Another According To Ones Own Whims And Pleasure But Only At The Prevailing Market Price As On That Date The Assessing Officer Never Went Into This Basic Fact That Once The Shares Are Kept As Stock In Trade Investments Dmat Account Any Transfer Is Possible Only At The Prevailing Market Price Hence There Is No Scope Of Any Tax Evasion By Changing The Nature Of Share By Transferring It From One Account To Another Further The Ratio Of The Decision Of Honble Itat Mumbai J Bench In The Case Of J M Share And Stock Brokers Ltd And Other Cases Relied Upon By The Appellant Squarely Applies To The Facts 15 Of The Appellants Case Moreover The Department In The Past Has Already Accepted The System Followed By The Appellant And There Is No Change In The System Of Accounting Adopted By The Appellant From Year To Year And No New Facts Evidence Has Been Brought On Record To Support The Contention Of The Assessing Officer The Contention Of The Assessing Officer Cannot Be Accepted The Assessing Officer Is Therefore Directed To Accept The Capital Gain Declared By The Appellant And Tax It At The Rate Applicable To Capital Gain Instead Of Treating I T As Business Income 9 Furthermore Ld Commissioner Of Income Tax Appeals For The Assessment Year 2006 07 Has Held As Under I Have Gone Through The Facts And Circumstances Of The Case Submissions Of The A R Of The Appellant Observations Of Th E Assessing Officer Cbdt Circulars On The Issue And Various Judicial Pronouncements As Well As The Decision Of Ld Commissioner Of Income Tax Appeals In The Appellants Own Case For The Assessment Year 2005 06 This Ground Of The Appellant Is Being Fina Lized After Making The Following Observations A From The Facts It Is Observed That The Appellant Is A Share Broker And At The Same Time Has Been Making Investments In Shares Which Have Been Declared As Long Term Or Short Term Capital Gains Even In The Past Years This Contention Of The Appellant Has Been Accepted By The Assessing Officer For Various 16 Assessment Years From 2002 03 To 2004 05 Further For The Assessment Year 2005 06 The Ld Commissioner Of Income Tax Appeals Had Decided The Issue In Fa Vour Of The Appellant The Facts Of The Case In This Year Also Are Similar As To Those In The Earlier Years B From The Facts It Is Also Clear That The Assessing Officer Has Accepted That The Assessee Had Accepted The Claim Of All The Share Transaction S Which Have Been Shown As Long Term Capital Gain However The Assessing Officer Has Not Accepted The Claim Of Short Term Capital Gains Even Though These Shares Had Been Shown As Investment In The Balance Sheet The Ld Authorised Representative Has Stro Ngly Contended That The Valuation Of These Shares Had Been Shown In The Balance Sheet By Treating This As Investment And A Consistent Policy With Regard To Such Shares Have Been Followed By The Appellant For The Past Several Years Accordingly It Is Also Observed That The Assessing Officer Has Not Brought Out Any Differentiating Facts As To How And Why Under Similar Circumstances Though The Claim Of The Appellant Had Been Accepted In The Earlier Years While In This Year This Should Be Treated Differently C The A R Has Also Highlighted Various Facts Including Maintenance Of Separate D Mat Accounts For Investments In Shares The Clear Intention Of The Assessee By Not Claiming Any Stt Deduction On The Shares Claimed As Investment And The Losses On 17 The S Ale Of Shares Being Set Off Against Gains On Sale Of Shares Even Though Setting It Off Against Business Income Would Have Been More Profitable These Specific Facts Have Not Been Controverted By The Assessing Officer And The Intention Of The Appellant Wit H Regard To Holding These Shares For The Purpose Of Investment Could Not Be Doubted The Reliance Placed Upon The Ld Authorised Representative Of The Appellant On The Decision Of Gopal Purohit Supra Mumbai High Court Is Also Supporting The Claim Of The A R Of The Appellant That The Assessee Has Right To Engaged In Two Different Type Of Transactions After Considering The Various Judicial Pronouncements As Well As The Specific Facts Relating To The Appellant I Am Inclined To Follow The Findings Of The Ld Commissioner Of Income Tax Appeals For Assessment Year 2005 06 Vide Order Dated 16 5 2008 Wherein This Issue Has Been Decided In Favour Of The Appellant The Assessing Officer Had Also Accepted The Claim Of The Appellant On Similar Facts For Various Earlier Assessment Years As A Result The Assessing Officer Is Directed To Delete This Addition This Ground Is Decided In Favour Of The Appellant 10 After Considering The Submissions Of The Rival Representatives We Find That The M Ere Fact That Divid End Received Is Nominal Cannot Be The Deciding Factor As To Whether Income From Sale Of Investment Is To Be Assessed As Business Income Or Capital Gain Particularly When Long Term Capital Gain Is Accepted By The Ao In Respect Of Sale Of Shares Of 18 Lml Lt D And Oswal Chemicals It Can Been Seen That Sale Is Made On Various Dates As The Sale Order Sometimes Takes Days To Be Fully Executed It I S Not The Case That On So Me Days Sales Are Being Purchased And Sold Just Because Assessee Has Purchased And Sold Nu Mber Of Shares Does Not By Itself Make It Business Income When The Ao Has Accepted The Scripts As Investment In The Balance Sheet And Books Of Account Are Accepted In View Of The Above Discussion We Are Of The Considered View That The Cit A Has Rightly Treated The Gain On Sale Of Share S As S Hort Term Capital Gain Accordingly We Find No Infirmity In The Order Of The Ld Cit A Thus The Grounds Raised By The Revenue In Are Dismissed Ita No 3897 Del 2010 A Y 2006 07 11 The Grounds Of Appeals Raised By The Revenue Are As Under The Grounds Of Appeals Raised By The Revenue Are As Under 1 On The Facts And Circumstances Of The Case And In Law The Order Of The Ld Cit A Is Wrong Perverse Illegal And Against T He Provisions Of Law Which Is Li Able To Be Set Aside 2 The Ld Cit A Erred In Law And Facts In Directing The Assessing Officer To Treat The Short Term Capital Gains Shown By The Assessee As Business Income Ignoring The Fact That During 19 The Year Under Consideration The Assessee Had Sold Shares And Securities Which Were Purchased Primarily During The Year Itself 12 T He Issues Raised In This Appeal Are Identical To The Issues Involved In The Assessment Year 2005 06 In Ita No 2727 Del 20 08 Decided By Us Hereinabove Accordingly Our Order Hereinabove On These Issues Shall Be Identically Applicable In This Year Also Grounds Raised By The Revenue Stand Dismissed 13 In The Result The Appeal S Of The Revenue In Ita No S 2727 Del 2008 3 89 7 Del 201 0 Are Dismissed The Order Is Pro Nounced In The Open Court On 21 1 2 2017 Sd Sd Sudhanshu Srivastava B P Jain Judicial Member Accountant Member Dated 21 St Dece Mber 2017 Vl Copy Forwarded To 1 Appellant 2 Respondent 3 Cit 4 Cit A Asst Registrar 5 Dr Itat New Delhi