ACIT 8(3), MUMBAI v. VIRSA INVESTMENTS P. LTD, MUMBAI

ITA 5347/MUM/2010 | 2007-2008
Pronouncement Date: 15-07-2011 | Result: Dismissed

Appeal Details

RSA Number 534719914 RSA 2010
Assessee PAN AABCV6346H
Bench Mumbai
Appeal Number ITA 5347/MUM/2010
Duration Of Justice 1 year(s) 15 day(s)
Appellant ACIT 8(3), MUMBAI
Respondent VIRSA INVESTMENTS P. LTD, MUMBAI
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
Assessment Year 2007-2008
Appeal Filed On 30-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B. RAMAKOTAI AH (A.M) ITA NO.5347/M/10(A.Y.2007-08) THE ACIT 8(3) ROOM NO.217 AAYKAR BHAVAN MK MARG MUMBAI 20. (APPELLANT) VS. VIRSA INVESTMENT PRIVATE LIMITED 15 DEV PARK JVPD SCHEME MUMBAI 49. PA: AABCV 6346H (RESPONDENT) APPELLANT BY : SHRI T.T.JACOB RESPONDENT BY : S/SHRI VIJAY MEHTA/GOVIND JA VERI ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 20/4/2010OF CIT(A)-18 MUMBAI RELATING TO ASSESSMENT YEAR 2007- 08. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT DELETING THE ACTION OF THE ASSE SSING OFFICER IN TREATING THE INCOME FROM SHARE TRANSACTION OF RS.2 50 71 337/- AS BUSINESS INCOME AGAINST THE CLAIM OF THE ASSESSEE A S CAPITAL GAIN WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAG ED IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES. IN THE RET URN OF INCOME FILED FOR AY 07-08 THE ASSESSEE DECLARED UNDER THE HEAD OF INCO ME SHORT TERM CAPITAL GAIN(STCG) FROM TRANSFER OF SHARES AND UNITS A SUM OF RS. 2 50 71 337/-. THE AO CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE STCG DECLARED ITA NO.5348/M/10(A.Y.2007-08) 2 BY THE ASSESSEE SHOULD NOT BE TREATED AS INCOME FRO M BUSINESS. IN REPLY THE ASSESSEE SUBMITTED THAT IT WAS AN INVESTMENT COMPA NY AND IN ASSESSMENT DONE UNDER SECTION 143(3) OF THE INCOME TAX ACT 19 61(THE ACT) FOR ASSESSMENT YEAR 2005-06 & 2006-07 GAIN ON SALE OF S HARES AND UNITS WERE DECLARED UNDER THE HEAD CAPITAL GAIN AND THE SAME W AS ACCEPTED BY THE AO. THE ASSESSEE ALSO POINTED OUT THAT IT CARRIES ON IT S INVESTMENT ACTIVITIES ONLY OUT OF ITS CAPITAL AND RESERVES. IT NEVER BORROWED ANY FUNDS FOR THE PURPOSE OF MAKING INVESTMENT. THE ASSESSEE ALSO POINTED OU T THAT IT WAS NOT CARRYING ON THE ACTIVITY OF PURCHASE AND SALE ON TH E DAILY BASIS. THERE WERE ONLY FEW TRANSACTIONS CARRIED OUT. THE ASSESSEE A LSO SUBMITTED THAT IT WAS HOLDING SHARES FOR FAIRLY LONG PERIOD. THE ASSESSE E THUS SUBMITTED THAT THE STCG DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. 3. THE AO HOWEVER HELD THAT THE ASSESSMENT DONE IN THE PAST WILL NOT BE A BAR FOR TAKING A DIFFERENT VIEW IN THE PRESENT AS SESSMENT YEAR. THEREAFTER THE AO REFERRED TO SEVERAL PRINCIPLES LAID DOWN IN JUDICIAL PRONOUNCEMENTS AS TO WHEN AN ACTIVITY CAN BE CONSIDERED AS BUSINES S. THE AO FINALLY CONCLUDED THAT THE ASSESSEE SATISFIED ALL TESTS SO AS TO CONSIDER THE ASSESSEE AS A TRADER IN SHARES RATHER THAN INVESTOR. ACCORD INGLY THE STCG DECLARED BY THE ASSESSEE WAS TREATED AS INCOME FROM BUSINESS . 4. ON APPEAL BY THE ASSESSEE THE CIT(A) FOUND THAT THE FOLLOWING WERE THE TRANSACTIONS OF PURCHASE AND SALE WHICH GAVE RISE T O THE STCG DECLARED BY THE ASSESSEE. COMPANY NAME ACQ. DT./YR. QTY. RATE ACQ. COST INFL. INDEX INDEXED ACQ. COST RELIANCE IND. 16.02.06 26070006.28 18363280 0 0 RELIANCE IND. 16.02.06 1007006.28 706280 0 0 RELIANCE IND. 16.02.06 9007006.28 6356520 0 0 RELIANCE IND. 16.02.06 9007006.28 6356520 0 0 TOTAL 317882600 ITA NO.5348/M/10(A.Y.2007-08) 3 SALE DATE SALES CONSIDERATION SELLING EXP. NET SALE CONSIDERATION CAPITAL GAINS STT PAID 19.01.07 36127918 0 36127918 17764638 YES 19.01.07 1398450 0 1398450 69 2170 YES 13.07.06 9663073 0 9663073 3306 553 YES 13.07.06 9664496 0 9664496 33079 76 YES 5685393 56853937 25071337 THE CIT(A) ALSO FOUND THAT STCG FROM SALE OF SHARE WAS ASSESSED UNDER THE HEAD CAPITAL GAIN IN A.Y 2006-07 AND 2005-06. THE CIT(A) ALSO FOUND THAT THE SHARES WERE REFLECTED AS INVESTMENT IN THE BAL ANCE SHEET. THE CIT(A) ALSO FOUND THAT THE ASSESSEE HAD DECLARED DIVIDEND ON SHARES OF RS. 15 00 000/- AND DIVIDEND ON MUTUAL FUNDS OF RS. 7 0 6 693/- FOR THE RELEVANT ASSESSMENT YEAR 2007-08. THE CIT(A) FOUND FROM THE PURCHASES AND SALES REFLECTED IN THE ABOVE TABLE THAT THE ENTIRE PURCH ASES WERE MADE ON A SINGLE DAY AND SALES WERE MADE ON TWO DAYS. THE TRANSACTI ON WAS IN ONLY ONE SHARE CARRIED OUT OVER A PERIOD OF OVER 5 MONTHS B ETWEEN THE DATE OF PURCHASE AND DATE OF SALE. KEEPING IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE CIT(A) HELD THAT THE INCOME IN Q UESTION CANNOT BE CONSIDERED AS BUSINESS INCOME. ACCORDINGLY THE AO WAS DIRECTED TO TREAT THE INCOME FROM SHARE TRANSACTION AS CAPITAL GAIN AND N OT AS BUSINESS INCOME. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R. I T WAS SUBMITTED BY HIM THAT THE AO HAS NOT CONSIDERED THE VARIOUS PRIN CIPLES AS LAID DOWN IN SEVERAL DECISIONS AND AS TO HOW THE SAME APPLIES TO THE FACT OF THE ASSESSEES CASE AND THEREFORE THE AO SHOULD BE DIRECTED TO E XAMINE THE ISSUE AFRESH. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE STA ND OF THE ASSESSEE AS PUT FORTH BEFORE THE REVENUE AUTHORITIES AND RELIED ON THE ORDER OF THE CIT(A). ITA NO.5348/M/10(A.Y.2007-08) 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERE NCE. THE ISSUE TO BE DECIDED IS AS TO WHETHER THE GAIN OF RS. 2 50 71 33 7/- ON TRANSACTION OF PURCHASE AND SALE OF SHARES UNDERTAKEN BY THE ASSES SEE DURING THE PREVIOUS YEAR IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY THE REVENUE OR INCOME UNDER THE HEAD CAPITAL GAIN AS CONTENDED BY THE ASSESSEE. BEFORE WE DEAL WITH THE FACTS OF THE CASE OF THE ASSESSEE WE WILL BRIEFLY NARRATE THE PRINCIPLES APPLICABLE IN DECIDI NG THE ABOVE ISSUE AS LAID DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS :- (A) WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHARE S WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NATURE OF INVESTMENTS IS MIXED QUESTION OF LAW AND FACT. LEARNED CIT(A) VS. HOLCK LARSEN 60 ITR 67 (SC). (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVEST OR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS B Y WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MA TTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM A S INVESTMENTS AND THOSE HOLD AS STOCK IN TRADE. (CIT VS. ASSOCIAT ED INDUSTRIAL DEVELOPMENT CO. LTD. 82 ITR 586 (SC). (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE C ONCLUSIVE. IF THE VOLUME FREQUENCY AND REGULARITY WITH WHICH TRANSAC TIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIV ITY WITH PROFIT MOTIVE THEN IT WOULD BE A CASE OF BUSINESS PROFITS AND NOT CAPITAL GAIN. CIT VS. MOTILAL HIRABHAI SPG. AND WVG. CO. L TD. 113 ITR 173 (GUJ); RAJA BAHADUR VISWSHWARA SINGH VS. CIT 41 IT R 685 (SC). (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE THEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPITAL GAINS. CIT V S. PKN 60 ITR 65 (SC). PURCHASE WITH AN INTENTION TO RESELL WOULD RENDER THE GAIN PROFIT ON SALE BUSINESS PROFIT DEPENDING ON THE CIR CUMSTANCES OF THE CASE LIKE NATURE AND QUANTITY OF ARTICLE PURCHASED NATURE OF THE OPERATION INVOLVED. SAROJ KUMAR MAZUMDAR VS. CIT 3 7 ITR 242 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND TH E QUESTION MUST DEPEND UPON THE COLLECTIVE EFFECT OF ALL THE RELEVA NT MATERIALS BROUGHT ON RECORD. JANKI RAM BAHADUR RAM VS. CIT 5 7 ITR 21 (SC). ITA NO.5348/M/10(A.Y.2007-08) 5 8. KEEPING IN MIND THE ABOVE PRINCIPLES WE NOTE T HAT THE FREQUENCY AND REGULARITY WITH WHICH TRANSACTIONS WERE CARRIED OUT BY THE ASSESSEE DOES NOT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WITH P ROFIT MOTIVE. APART FROM THE ABOVE THE TREATMENT GIVEN BY THE ASSESSEE IN TH E BOOKS OF ACCOUNTS IS TO CONSIDER THE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE. BORROWED FUNDS HAD NOT BEEN USED FOR THE PURPOSE OF MAKING I NVESTMENT. APART FROM THE ABOVE IN THE ASSESSMENT MADE UNDER SECTION 143( 3) OF THE ACT SIMILAR TRANSACTION WERE CONSIDERED AS GIVING RISE TO CAPIT AL GAIN IN ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT FOR A.Y 2 006-07 AND 2005-06. WE ALSO NOTICE THAT THE SCALE OF ACTIVITY IS NOT SUBST ANTIAL. THE PURCHASES AND SALES REFLECTED IN THE ABOVE TABLE SHOWS THAT THE E NTIRE PURCHASES WERE MADE ON A SINGLE DAY AND SALES WERE MADE ON TWO DAYS. T HE TRANSACTION WAS IN ONLY ONE SHARE CARRIED OUT OVER A PERIOD OF OVER 5 MONTHS BETWEEN THE DATE OF PURCHASE AND DATE OF SALE. THE TOTAL NUMBER OF TRANSACTIONS WERE JUST 8 TRANSACTIONS COMPRISING OF 4 TRANSACTIONS OF PURCHA SE AND 4 TRANSACTIONS OF SALES. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW T HAT CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ACCEPT THE INCOME UNDER THE HEA D STCG. WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE ORDER OF CIT(A). CONSEQUENTLY THE APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 15 TH DAY OF JULY 2011. SD/- SD/- (B.RAMAKOTAIAH ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 15 TH JULY.2011 ITA NO.5348/M/10(A.Y.2007-08) 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.5348/M/10(A.Y.2007-08) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 11/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12/7/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER