M/s. Citiland Commercial Credits Ltd., New Delhi v. DCIT, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH B NEW DELHI BENCH B NEW DELHI BENCH B NEW DELHI BENCH B BEFORE SHRI A. D. JAIN JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 325 /DEL/2010 (ASSESSMENT YEAR 2005-06) M/S. CITILAND COMMERCIAL CREDITS LTD. VS. DCIT CI RCLE 3(1) 19 DDA COMMERCIAL COMPLEX NEW DELHI ZAMRUDPUR KAILASH COLONY EXTN. NEW DELHI-110 048 (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACC0251A APPELLANT BY: SHRI ANIL BHALLA CA RESPONDENT BY: SHRI H. K. LAL SR. DR ORDER ORDER ORDER ORDER PER K. D. RANJAN PER K. D. RANJAN PER K. D. RANJAN PER K. D. RANJAN AM: AM: AM: AM: 1. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT Y EAR 2005-06 ARISES OUT OF THE ORDER OF LD. CIT(A) VI NEW DELHI . THE GROUND OF APPEAL AS MENDED VIDE LETTER DATED 10.09.2010 ARE R EPRODUCED AS UNDER: 1) THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN L AW IN UPHOLDING THE ACTION OF THE LD. A.O. IN ASSESSING S HORT TERM CAPITAL GAINS AS BUSINESS INCOME. 2) THE LD. CIT(A) FURTHER ERRED IN HOLDING THAT THE ACTION OF THE A.O. IN ASSESSING THE NET CAPITAL GAINS AMOUNTI NG TO ` 35 75 002/- UNDER THE HEAD PROFITS AND GAINS OF BU SINESS INSTEAD OF CAPITAL GAINS AS DECLARED BY THE COMPA NY. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO TREA TING THE SHORT TERM CAPITAL GAIN OF ` 35 75 002/- AS BUSINESS INCO ME. THE A.O. IN VIEW OF THE CBDT CIRCULAR NO.4/2007 DATED 15.6.2007 REQUIRED THE ASSESSEE TO JUSTIFY ITS CLAIM FOR TREATING THE PROF IT ARISING OUT OF SALE OF SHARES AS CAPITAL GAIN AND NOT AS BUSINESS INCOM E. IT WAS SUBMITTED BY THE ASSESSEE THAT THE SHARES WERE HELD AS INVESTMENT AND THEREFORE THE PROFITS ARISING ON SALE OF SHARE S WILL BE TREATED AS 2 PROFIT UNDER THE HEAD CAPITAL GAINS. HOWEVER TH E A.O. RELIED ON THE CBDT CIRCULAR. HE OBSERVED THAT IN THE BOOKS O F ACCOUNTS THE TRANSACTION HAS BEEN RECORDED AS INVESTMENT. HOWEV ER NO DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE ON THE S HARES ON WHICH SHORT TERM CAPITAL GAIN HAS BEEN EARNED. THE PERIO D OF HOLDING RANGES FROM 7 DAYS TO 7 MONTHS. THEREFORE CONSIDE RING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE HE HELD THAT ASSESSE E WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES . THE SHARES WERE BOUGHT AND SOLD DURING THE PREVIOUS YEAR. HE FURTH ER NOTED THAT FROM FINANCIAL YEAR 2004-05 LONG TERM CAPITAL GAIN HAVE BEEN EXEMPT FROM TAX AND SHORT TERM CAPITAL GAIN IS TO B E TAXED AT 10% PROVIDED THE TRANSACTIONS ARE THROUGH RECOGNIZED ST OCK EXCHANGE AND STT HAS BEEN PAID ON THE SAME. THE A.O. THEREF ORE TREATED THE SALE OF SHARES AS SALE OF STOCK IN TRADE AND AS SUC H THE PROFIT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 3. ON APPEAL LD. CIT(A) OBSERVED THAT THE A.O. HAS NOT RAISED ANY OBJECTION AS FAR AS LONG TERM CAPITAL GAINS WERE CO NCERNED. HOWEVER THE A.O. RAISED QUERIES WITH REGARD TO SHO RTS TERM CAPITAL GAINS AND IN VIEW OF CBDT CIRCULAR NO.4/2007 DATED 15.6.2007 AND VARIOUS JUDICIAL PRONOUNCEMENTS HE CAME TO THE CON CLUSION THAT THE INCOME WAS ASSESSABLE UNDER THE HEAD BUSINESS. T HE LD. CIT(A) FURTHER NOTED THAT THE SHORT TERM CAPITAL GAIN HAD BEEN SHOWN ON SHARES WHICH WERE HELD FOR A SHORT DURATION. NO DI VIDEND WAS RECEIVED. THE CONTENTION OF THE ASSESSEE THAT ASSE SSEE WAS FOLLOWING ACCOUNTING POLICY CONSISTENTLY AND SHARES WERE SHOWN AS INVESTMENT IN THE BOOKS OF ACCOUNTS WAS REJECTED B Y THE LD. CIT(A) BY HOLDING THAT FOR INCOME TAX PROCEEDINGS EVERY A SSESSMENT YEAR IS A SEPARATE YEAR THE TRANSACTIONS HAVE TO BE ANA LYZED IN VIEW OF THE FACTS OF EACH CASE. SHE FURTHER NOTED THAT SI NCE ASSESSEE HAD NOT RECEIVED ANY DIVIDEND ON THESE SHARES THE INTE NTION BEHIND THE PURCHASE OF SHARES WAS NOT INVESTMENT BUT TO EARN P ROFIT ON SALE OF SHARES. SHE ACCORDINGLY UPHELD THE STAND OF THE A. O. 3 4. BEFORE US LD. A.R. SUBMITTED THAT MAIN OBJECT O F THE ASSESSEE WAS NOT TO TRADE IN SHARES. THE SHARES WERE HELD A S INVESTMENTS UNDER INCIDENTAL OBJECTS. THE ASSESSEE IS NO ENGAG ED IN THE BUSINESS ACTIVITY OF TRADING IN SHARES BUT THEY ARE HELD AS INVESTMENTS. IN THE BOOKS OF ACCOUNTS ASSESSEE HA D TREATED THE TRANSACTION AS INVESTMENT AND NOT IN STOCK IN TRADE . THEREFORE IT HAS BEEN SUBMITTED THAT THE PROFIT ON SALE OF SHARE S HAS TO BE TREATED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF LD. CIT(A) RELYING ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MALABAR INDUSTRIAL CO. LTD. 320 ITR 486. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE PARTIES. AS PER THE M EMORANDUM AND ARTICLES OF ASSOCIATION THE MAIN OBJECTS OF TH E ASSESSEE COMPANY ARE TO CARRY OUT AND UNDERTAKE THE BUSINESS OF FINANCE AND TRADING HIRE PURCHASE LEASING AND TO FINANCE LEAS E OPERATION OF ALL KINDS ETC. ETC. THE ANCILLARY OBJECT 10 PERMITS TH E ASSESSEE TO INVEST IN OTHER THAN INVESTMENTS IN COMPANY OWNED S HARES AND DEALS WITH THE MONEY OF THE COMPANY NOT IMMEDIATELY REQUIRED IN ANY MANNER AS MAY FROM TIME TO TIME DETERMINED BY T HE BOARD. THE ASSESSEE HAS TREATED THIS PURCHASE OF SECURITY AS INVESTMENT IN THE BOOKS OF ACCOUNTS. WE HAVE GONE THROUGH THE B ALANCE SHEET AND FIND THAT THE ASSESSEE HAS DECLARED THE INVESTM ENT IN SHARES UNDER THE HEAD INVESTMENTS. THE SHARES ARE NOT HEL D AS STOCK IN TRADE. THEREFORE THE PROFIT OF SALE AND SHARES HA S TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE CONTENTION O F THE REVENUE THAT DIVIDEND HAVE NOT BEEN EARNED BY THE ASSESSEE IS NO T OF MUCH HELP AS THERE ARE MANY CASES WHERE DIVIDEND IS NOT PAID THOUGH THE SHARES ARE HELD AS INVESTMENT FOR QUITE A LONG PERI OD. THE INTENTION HAS TO BE GATHERED FROM THE TRANSACTION CARRIED ON BY THE ASSESSEE. 4 SINCE THE ASSESSEE HAS TREATED THE PURCHASE OF SHAR ES IN THE BOOKS OF ACCOUNT AS INVESTMENT AND NOT AS STOCK IN TRADE IN OUR CONSIDERED OPINION THE PROFITS ARISING ON SALE OF SHARES / UNITS OF MUTUAL FUNDS WILL BE TAXABLE UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD PROFITS & GAINS OF BUSINESS AND PRO FESSION. THE DECISION RELIED BY THE SR. D.R. IN THE CASE OF MALA BAR INDUSTRIES CO. LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AS IN THAT CASE THE ASSESSEE TREATED THE PROFIT ON SALE O F SHARES UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION AND A.O. TREATED THE SAME UNDER THE HEAD CAPITAL GAINS. THE HONBLE KAR NATAKA HIGH COURT ON APPRECIATION OF FACTS HELD THAT SALE OF SH ARES WAS ASSESSABLE UNDER THE HEAD PROFITS & GAINS OF BUSINE SS OR PROFESSION. THE ASSESSEES CASE IS COVERED BY THE DECISION OF H ON'BLE HIGH COURT OF DELHI IN THE CASE OF ESS JAY ENTERPRISES ( P) LTD. 173 TAXMAN 1 (DEL.) WHEREIN IT HAS BEEN HELD THAT TREATMENT I N THE BOOKS OF ACCOUNTS IS OF IMPORTANCE. THERE IS NOTHING ON REC ORD TO SHOW THAT THE ASSESSEE HAS CONVERTED DURING THE YEAR THE INVE STMENTS INTO STOCK IN TRADE IN VIEW OF THE ABOVE WE ARE OF THE C ONSIDERED OPINION THAT PROFITS ARISING ON SALE OF SHARES/UNITS OF MUT UAL FUNDS IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. WE THEREFO RE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 7. PRONOUNCED IN THE OPEN COURT ON 25 TH FEB. 2011. SD./- SD./- (A. D. JAIN) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:25 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI