ACIT , PALGHAR, MUMBAI v. VICKY HEMCHAND GALA, THANE

ITA 4529/MUM/2009 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Dismissed

Appeal Details

RSA Number 452919914 RSA 2009
Assessee PAN AFSPG2738J
Bench Mumbai
Appeal Number ITA 4529/MUM/2009
Duration Of Justice 1 year(s) 11 month(s) 11 day(s)
Appellant ACIT , PALGHAR, MUMBAI
Respondent VICKY HEMCHAND GALA, THANE
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 15-07-2011
Date Of Final Hearing 20-06-2011
Next Hearing Date 20-06-2011
Assessment Year 2006-2007
Appeal Filed On 03-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI P.M.JAGTAP ACCOUNTANT MEMBER & SMT. ASHA VIJAYRAGHAVAN JUDICIAL MEMBER. I.T.A. NO.4529/MUM/2009. ASSESS MENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX SH RI VICKY HEMCHAND GALA PALGHAR CIRCLE PALGHAR. V S. C/O BHARAT CHEMICALS L-30 MIDC TARAPUR BOISAR TAL DIST. THANE. PAN AFSPG2738J. APPELLANT. RESPONDENT. APPELLANT BY : SHRI T.T. JACOB. RESPON DENT BY : SHRI SANJAY R. PARIKH. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-II THANE DATED 04-05-2009 AND IN THE SOLITARY GROUND RAISED THEREIN THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNE D CIT(APPEALS) TREATING THE PROFIT ARISING FROM SALE OF SHARES TO THE ASSESSEE AS HIS SHORT TERM CAPITAL AND NOT BUSINESS INCOME. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30-10-20 06 DECLARING A TOTAL INCOME OF RS.15 57 810/-. IN THE SAID RETURN A SHORT TERM CA PITAL GAIN ON SALE OF SHARES WAS DECLARED BY THE ASSESSEE AT RS.18 98 073/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON BY THE AO TO EXPLAIN AS TO WHY THE 2 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. INCOME DECLARED UNDER THE HEAD SHORT TERM CAPITAL GAIN SHOULD NOT BE TAXED AS BUSINESS INCOME. IN REPLY IT WAS SUBMITTED ON BEHA LF OF THE ASSESSEE THAT HE HAS BEEN INVESTING IN SHARES SINCE LONG AND AS THE SHAR ES PURCHASED HAVE BEEN TREATED CONTINUOUSLY AS INVESTMENT THE PROFIT ON SALE OF THE SAID SHARES WAS RIGHTLY TREATED AS SHORT TERM CAPITAL GAINS. THIS SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO AND HE TREATED THE PROFIT EARN ED BY THE ASSESSEE FROM SALE OF SHARES AMOUNTING TO RS.18 98 073/- AS HIS BUSINESS INCOME FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.3 OF THE ASSESSMEN T ORDER : THE SUBMISSION OF A.R. OF THE ASSESSEE IS CONSIDE RED REGARDING SHORT TERM CAPITAL GAIN OF RS.18 98 073/- THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED FOR THE REASON THAT AS EVIDENT FROM THE DETAILS FURNISHED BY THE ASSESSEE IN RESPECT OF SHORT TERM CAPITAL GAIN. IT IS SEEN THAT THE ASSESSEE IS ENGAGED IN THIS ACTIVITY ON CONTINUOUS REGULAR & S UBSTANTIAL BASIS. IT IS A FACT THAT A BUSINESS CAN RUN ONLY ON CONTINUOUS AND REGU LAR BASIS IF CONTINUOUS ATTENTION AND LABOUR IS PROVIDED TO IT. HERE IN THI S CASE THE ASSESSEE IS ENGAGED IN THIS ACTIVITY AS STATED ABOVE ON CONTINU OUS REGULAR & SUBSTANTIAL BASIS AND MORE PARTICULARLY ON DAY-TO-DAY BASIS. AN INVESTOR ON THE CONTRARY DOES NOT CARRY OUT THIS ACTIVITY ON CONTINUOUS AND REGULAR BASIS. IT IS ALSO SEEN THAT THE ASSESSEE HAS MADE PURCHASES WITH THE SOLE MOTIVE OF EARNING PROFIT THROUGH SALES MADE PURCHASES OF SHARES EARN ED OVER THE YEARS SOLD OUT SHARES IN RESPECT OF THOSE SHARES WHERE CHANCES OF EARNING PROFIT WAS LESS BUT REINVESTED IN PURCHASES OF NEW SHARES OUT OF TH OSE SALES CONSIDERATION WITH A MOTIVE TO EARN MORE PROFIT. IN THE VIEW OF T HESE FACTS AND CIRCUMSTANCES OF THE CASE THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE NOTHING BUT AN ADVENTURE IN NATURE OF TRADE AND COM MERCE. THEREFORE IN VIEW OF THE HONBLE SUPREME COURT DECISION IN THE C ASE OF RAJPUTANA TEXTILES (AGENCIES) LTD. VS. CIT [1961] 42 ITR 743 (SC) (WHEREIN IT HAS BEEN HELD THAT FROM THE VERY BEGINNING PURCHASE OF SHARES MADE WITH THE INTENTION OF SELLING THEM AT A PROFIT IT AN ADVENT URE IN THE NATURE OF TRADE) AND BAHADUR VISHWESHWARA SINGH VS. CIT [1961] 41 IT R 685 (SC) (WHEREIN IT HAS BEEN HELD THAT PURCHASE AND SALE OF SHARES FOR SUBSTANTIAL AMOUNT AT FREQUENT INTERVALS CANNOT BE TREATED AS C HANGE IN INVESTMENTS BUT HAVE TO BE TREATED AS DEALING IN SHARES) THE SUBMI SSION OF THE ASSESSEE FOR TREATING THIS INCOME AS SHORT TERM CAPITAL GAIN CAN NOT BE ACCEPTED AND THE 3 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. AMOUNT OF RS.18 98 073/- AS PER PARA-4.2 ABOVE IS T REATED AND TAXED AS BUSINESS INCOME. 3. THE TREATMENT GIVEN BY THE AO TO THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM THE LEARNED CIT(APPEALS) DEALT WITH THI S ISSUE IN PARAGRAPH NO.4 OF HIS IMPUGNED ORDER : I HAVE CAREFULLY CONSIDERED BOTH THE ARGUMENTS. I T IS THE CASE OF THE LEARNED A.O. THAT THE APPELLANT HAD BEEN FREQUENTLY AND LARGELY HOLDING AND SELLING OF HARES FROM TIME TO TIME WHICH AMOUNTED T O ACTIVITIES IN THE NATURE OF TRADE AND HENCE TREATED THE INCOME AS BUSINESS P ROFIT. IT IS FURTHER CONTENDED THAT THE APPELLANT HAD ENGAGED THE SERVIC E OF F&O PROFIT MANIPUR INVESTMENT FOR THE PURPOSE OF HANDLING HIS SHARES W HEREAS THERE HAD BEEN A DEFINITE INTENTION ON THE PART OF THE APPELLANT TO EARN PROFIT CONSISTENTLY AND HENCE THE SAME WAS TREATED AS BUSINESS PROFIT. ON T HE OTHER HAND THE LEARNED A.R. VEHEMENTLY CONTENDED CITING VARIOUS JUDGEMENTS THAT THE APPELLANT BEING A TECHI A GRADUATE IN CHEMICAL ENGINEER ENGA GED IN THE BUSINESS OF MANUFACTURING OF CHEMICALS HAD ALSO DURING THE RELE VANT PERIOD UNDER CONSIDERATION AND SINCE 1985 ONWARDS BEEN BUYING AN D SELLING SHARES. IT IS STATED THAT THE APPELLANT BEING AN INDIVIDUAL HAD N OT BEEN ASSOCIATED WITH BUYING AND SELLING OF SHARES ALONE BUT AS MENTIONED ELSEWHERE BEEN IN THE BUSINESS OF MANUFACTURING OF CHEMICAL ENGINEERING. IN THIS CONTEXT WHAT IS TO BE OBSERVED IS THAT THE APPELLANT WAS NOT AN INV ESTMENT COMPANY DEALING WITH ENORMOUS AND FREQUENT PURCHASE AND SALES OF SH ARES KEEPING THEM IN THE FORM OF SECURITIES AS BUSINESS ASSETS AND SALES OF SHARES WERE OBTAINED IN THE NATURE OF BUSINESS VIDE THE DECISION IN THE CA SE OF FIDILITY ADVISOR SERVICES (2004) 271 ITR 1(A) NEW DELHI. THUS THE F INDING OF THE LEARNED A.O. THAT LARGE QUANTITY OF BUYING AND SELLING OF S HARES AMOUNTED TO ACTIVITIES IN THE NATURE OF TRADE IS NOT AN APPLICA BLE PREPOSITION IN THIS CASE. ALSO THE DECISION IN THE CASE OF M/S JANAK S RANVAL VS. ACIT (2007) 15(2) ITCL 33; 2007 11 SOT 627 MUMBAI BENCH H ALSO REL IED UPON. THIS ISSUE HAS ANOTHER INTERESTING ASPECT IN THAT WHETHER SHAR ES ARE HELD AS INVESTMENT OR MERELY STOCK IN TRADE. IF THE SHARES ARE HELD AS INVESTMENTS THE PROFIT ARISING THEREON IS TO BE ASSESSED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. VIDE CIT VS. DEWASHANKAR A KOTHARI (2006) 283 ITR 3 38 (GUJ.); (2006) 155 ITR 214 (GUJ.) 193 TAXMAN 583 (GUJ.); (2006) 20 1 CTR (GUJ.) 510. 4 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. FROM THE DETAILS PRODUCED BY THE LEARNED A.R . IT IS SEEN THAT THE APPELLANT HAD BEEN CONSISTENTLY RECEIVING THE DIVIDEND INCOM E LONG TERM CAPITAL GAIN OVER A PERIOD OF 15 YEARS. IT IS FURTHER CONTENDED THAT THERE HAD BEEN NO DISTINCTION WHATSOEVER BETWEEN THE INVESTMENT IN SH ARES AND STOCK-IN-TRADE SHARES IN THE BOOKS OF ACCOUNTS OF THE APPELLANT F ROM TIME TO TIME. THE APPELLANT HAS SHOWN THE PURCHASE OF SHARES AS INVES TMENT IN THE BOOKS OF ACCOUNT IN THE BALANCE SHEET SINCE 1995 AS UNDER. FOR INSTANCE FOR THE A.Y. 2006-07 THE PATTERN OF INCOME DECLARED BY THE APPEL LANT IS AS UNDER : DIVIDEND RS. 8 49 802/ LONG TERM CAPITAL GAIN RS. 1 08 29 256/- SHORT TERM CAPITAL GAIN RS. 15 57 813/- THE ABOVE PROPOSITION IS IN RELATION TO THE INVESTM ENT IN SHARES NOT TO SPEAK OF TERMS OF SHARES BEING HELD AS STOCK IN TRADE. TH IS HAS TO BE OBSERVED MORE SO IN VIEW OF THE DECISION IN THE CASE OF CIT VS. ESSJ ENTERPRISES LTD. (2007) 165 TAXMAN 465 (DEL.) WHEREIN IT IS HELD THA T THERE WAS NOTHING TO SHOW THAT THE INVESTMENT WAS CONVERTED INTO STOCK I N TRADE OF THE BUSINESS OF THE APPELLANT. IT IS FURTHER STATED THAT THE TERMS GIVEN TO THE TRANSACTION IN THE BOOKS OF ACCOUNT IS OF UTMOST OF IMPORTANCE. 4. FOR THE REASONS GIVEN ABOVE AND RELYING ON THE C BDT CIRCULAR NO. 4/2007 DATED 15-06-2007 THE LEARNED CIT(APPEALS) HELD THA T THE SHARES WERE TREATED BY THE ASSESSEE AS INVESTMENT IN HIS BOOKS OF ACCOUNT AND THE PROFIT ARISING FROM SALE THEREOF WAS CHARGEABLE TO TAX IN HIS HANDS AS SHORT TERM CAPITAL GAINS. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) THE REVENUE HAS PREFERRED THIS APPEAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE AS TO WHETHER THE PRO FIT ON SALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE ASSESSEE OR CAPITAL GAINS DE PENDS ON WHETHER THE SAID SHARES WERE PURCHASED AND HELD BY THE ASSESSEE AS INVESTME NT OR STOCK IN TRADE. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASED B Y THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE THE MOST RELEVANT ASPECT THAT IS TO BE SEEN IS THE INTENTION OF THE ASSESSEE TO PURCHASE AND HOLD THE SHARES AND SUCH INTENTION HAS TO BE GATHERED 5 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE. IN THE CASE OF SARNATH INFRASTRUCTURE (P).LTD. VS. ACIT REPORTED I N 120 TTJ (LUCKNOW) 216 THE COORDINATE BENCH OF THIS TRIBUNAL AFTER TAKING INTO CONSIDERATION THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE AS WELL AS TH E RELEVANT CIRCULAR ISSUED BY THE BOARD HAS LAID DOWN THE FOLLOWING PRINCIPLES/CRITE RIAS WHICH CAN BE APPLIED TO THE FACTS OF THE CASE TO FIND OUT WHETHER THE TRANSACTI ONS IN SHARES ARE IN THE NATURE OF TRADE OR ARE MERELY FOR THE INVESTMENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES FOR ANY OTHER ITEM. THIS CAN BE FOUND OUT FR OM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER I T IS TREATED AS STOCK-IN- TRADE OR INVESTMENT? WHETHER SHOWN IN OPENING/CLOSI NG STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET? (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREO N. NORMALLY MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY O F SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND S ALE ARE FREQUENT OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDI NGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACT IONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HO LDINGS INDICATE INVESTMENT): (4) WHETHER PURCHASE AND SALE IS FOR R EALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION I N ITS VALUE. FORMER WILL INDICATE INTENTION OF TRADE AND LATTER AN INVESTME NT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN E SSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKE N IN THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASS ESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLE OF ASSOCIATION? W HETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHET HER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESS EE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRA DING AND WHAT DISTINCTION 6 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. HE HAS KEPT IN THE RECORDS OR OTHERWISE BETWEEN TW O TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT FOR SAY STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT M ATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FR EQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES FOR THE ITEMS IN QUESTION) FOR INVESTMENT. ( 9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHE R IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUI REMENTS IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM SINCE BEGIN NING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDTS CIR CULAR NO. 4 OF 2007 OF 15 TH JUNE 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLI OS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT MAINTAINING SEPARA TE ACCOUNT FOR EACH TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONC LUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. 6. A PERUSAL OF THE ORDERS PASSED BY THE LOWER AUTH ORITIES IN THE PRESENT CASE SHOWS THAT NEITHER THE AO NOR THE LEARNED CIT(APPEA LS) HAS DONE THE EXERCISE TO FIND OUT THE EXACT NATURE OF SHARE TRANSACTIONS CAR RIED ON BY THE ASSESSEE IN A PROPER MANNER BY APPLYING THE RELEVANT CRITERIAS/PRINCIPLE S TO THE FACTS OF THE CASE. AS A MATTER OF FACT THE LEARNED CIT(APPEALS) HAS PASSED A VERY CRYPTIC ORDER WITHOUT EVEN DISCUSSING THE RELEVANT FACTS OF THE CASE IN T HE OPERATIVE PORTION. WE THEREFORE DEEM IT FIT AND PROPER AND IN THE INTERE ST OF JUSTICE TO SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER AP PLYING THE PRINCIPLES/CRITERIAS LAID DOWN BY THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CA SE OF SARNATH INFRASTRUCTURE (SUPRA) TO THE FACTS OF THE CASE. NEEDLESS TO OBSER VE THAT THE AO SHALL AFFORD PROPER AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 7 ITA NO.4529/MUM/2009 ASSTT. YEAR : 2006-07. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. . ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN) (P. M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI DATED: 15 TH JULY 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR F-BENCH. (TRUE COPY ) BY ORD ER ASSTT. R EGISTRAR ITAT MUMBAI BEN CHES MUMBA I. WAKODE