Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Compucom Technology Pvt. Ltd. 5-A, Tilak Marg, C-Scheme,Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 234 / 2009 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Compucom Technology Pvt. Ltd. 5-A, Tilak Marg, C-Scheme,Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 86 / 2011 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Compucom Technologies Pvt. Ltd. 5-A, Fourth Floor, Tilak Bhawan, Tilak Marg, C-Scheme, Jaipur ----Respondent D.B. Income Tax Appeal No. 122 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Compucom Technology Pvt Ltd. 5-A, Fourth Floor, Tilak Bhawan, Tilak Marg, C-Scheme, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 01/08/2017 In these appeals identical questions of law and facts are involved, therefore, they are decided by this common judgment. By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal preferred by the assessee and dismissed theappeal of the department. This Court while admitting the matter framed the following questions of law:- “Whether in the facts and circumstances of the caseand in law the ITAT was justified in holding that theprofit earned from the transactions of shares andmutual funds as capital gain and not a businessincome without considering the volume andfrequency of the transaction.?” Counsel for the appellant has invited our attention to thejudgment of the CIT(A) in para 2.3 wherein it has been held asunder:- “2.3. I have considered facts of the case andarguments taken by Sh. Mishra quite carefully. Nowit is a settled legal position that in the assessmentthe income has to be assessed under correct andappropriate head of income irrespective of itsaccounting treatment shown in the balance sheetand P & L account of the company and thereforethe arguments taken by Sh. Mishra that since it hasbeen shown as investment in the balance sheet anygain on the sale of shares/units be treated ascapital gain only is not acceptable. Further it is alsosettled legal position that the principle of “res-judicata” is not applicable to the income taxproceedings which means that whatever treatmentgiven in one particular assessment year in respectof any particular income it is not necessary andmandatory to give same treatment in allsubsequent years to come. Depending on facts andcircumstances of the case as prevailing in theparticular assessment year such issue has to bedecided on its own merits in each of the A.Y.Therefore, the arguments taken by Sh. Mishra that department in past has always accepted the profitarisen on the sale of shares/units as shortterms/long term capital gain and not as a businessincome is not acceptable.” The Tribunal while considering the matter in para 10 hasobserved as under:- department in past has always accepted the profitarisen on the sale of shares/units as shortterms/long term capital gain and not as a businessincome is not acceptable.” The Tribunal while considering the matter in para 10 hasobserved as under:- “10. In view of CBDT Circular No. 4/2007 dated15.6.2007 and the above referred decisions, thebroad principle arises that where shares arerecorded in separate investment portfolio, it wouldgive rise to capital gain, merely becauseinvestment in shares was of large magnitudewould not make the assessee trader in shares,more so when past several years income has beenassessed as capital gains, where investment inshares is not converted into stock in trade, profiton sale of shares has to be assessed as capitalgain; the problem must have been approved in thelight of the intention of the assessee and intentionhas to be seen at the time of purchase of shareswhich is within the knowledge of the assessee andfor that he should produce the evidence that it hasmaintained distinction between the shares whichare stock in trade and which are held by way ofinvestment. We are of the view that volume ofinvestment is a relative term hence can not be adeciding factor to infer the intention of anassessee behind the share transaction. We alsoagree with the contention of the ld. D/R to someextent that regularity in transactions andfrequency in purchases and sales is also animportant factor to examine the very intention ofthe transactions. Thus in our view, guided by theabove discussion, it is ultimately the very intentionof the assessee at the time of purchase of sharewhich is the deciding factor as to whether thetransaction was for the purpose of investment.And to drawn an inference on the intention anassistance of regularity in transaction andfrequency in purchases in shares also can be takento some extent but not as an absolute factor.Because even an investor adjudging the currentcircumstance/development may decide to sellthose shares to product himself from expected lossin future instead of holding those share as initiallyintended to, and to invest in other shares. We,however, find from the facts of the present case that in comparison to the number of transactionshaving holding period six months to 3 years, suchtransaction are very few where holding period isless than six months. These few transactions thuscannot be a deciding factor in the present casethat the initiation was not to invest but to tradeespecially when the assessee had been earningdividends on those shares in earlier years. Underthese circumstances we are of the view that theassessee as an investor is very much entitled toclaim capital gains on the shares sold during theyear. We thus while setting aside the orders of thelower authorities in this regard, direct the AO toallow the claim of capital gain of assesseeaccordingly.” The finding which has been arrived by the AO reads asunder:- “In the submission field on 07.12.2006 the ld. ARof the assessee has contended that most of capitalgains on shares and mutual funds is long term andmost of these cases the holding period of shares isone year to 3-4 years. The contention is factuallyincorrect as is evident from the computation ofincome itself. In the said computation the shortterm capital gains on shares has been shown at Rs.23,12,502/- and long term capital gain on shareshas been shown at Rs. 17,73,373/-. the contentionis incorrect is also evident from the chart submittedon 26.09.2006.” Taking into consideration the frequency of transaction is nothing but capital gain in business, counsel for the appellant Mr.Mathur has relied upon the decision of Supreme Court in the caseof Dalhouse Investment Trust Co. Ltd. vs. Commissioner ofIncome Tax (Central), Calcutta reported in [1968] 68 ITR 486(SC) wherein it has been held as under:- Taking into consideration the frequency of transaction is nothing but capital gain in business, counsel for the appellant Mr.Mathur has relied upon the decision of Supreme Court in the caseof Dalhouse Investment Trust Co. Ltd. vs. Commissioner ofIncome Tax (Central), Calcutta reported in [1968] 68 ITR 486(SC) wherein it has been held as under:- “6. It appears to us that the facts andcircumstances in this case an lead to no otherconclusion except that these shares were purchased and sold by the assessee with themotive of earning a profit by such purchased andsales and not with the object of investing its capitalin these shares in order to derive income from thatinvestment. It is true that the principal business ofthe assessee was to invest capital and to deriveincome from dividends on shares and interest onother investments; but, at the same time, theobject contained in the memorandum of associationof the assessee company clearly showed that oneof the object was also to deal in shares, stocks,debentures, etc., by acquiring, holding, selling andtransferring them. In the years prior to theassessment year, the case put forward by theassessee that the various acquisitions and sales ofshares were in the nature of investments wasaccepted by the department, but such a decisiongiven in the earlier years is not binding in theproceedings for assessment during subsequentyears. The particular shares now in question, inappears, were purchased between 31st March,1948, and 31st March, 1952. The earliestpurchases in March, 1948, were at an averageprice of Rs. 267-13-0 per share. In the next twoyears ended 31 March, 1949, and 31st March,1950, the average purchase price was Rs. 201-8-0and Rs. 182-10-0, and the last purchase in theyear ended 31st March, 1952, was at the rate ofRs. 128-14-0. On 1st April, 1952, the assesseestotal holding of shares in McLeod and Co. Ltd. was6,977 at a total cost of Rs. 14,29,587-4-0 out ofthe total holding of shares, including shares inother companies, of the value of Rs. 17,58,741-4-0. Thus, on that date, the holding in McLeod andCo. Ltd. formed the major part of the shareholdingsof the assessee. It is significant that the shareswere purchased during a period when their marketprice was continuously falling. The earliestpurchases in the year ended 31st March, 1948,were at an average price of Rs. 267-13-0, while inthe last of these three years ended 31st March,1952, the average price was Rs. 128-14-0. Thelargest block of 4,757 shares was purchased in theyear ended 31st March, 1950, when the averageprice was Rs. 182-10-0. The assessment order ofthe Income-tax Officer also shows that the shareswere not only purchased in a rapidly falling market,but, in order to make these purchases, theassessee had taken loans amounting to about Rs. 8lakhs at interest varying from 3 1/2 per cent to 5per cent. The dividend being declared was at a verylow rate, so that the return on this investment, after taking into account the interest paid andsuper-tax to be paid, came to very smallpercentage, being less then 1 per cent. Thiscircumstances that the shares were purchased at atime when their prices were falling and the returnon investment was not at all substantial while loanshad been taken to purchase these shares stronglypoints to a conclusion that the shares could nothave been purchased as an investment to earnincome from dividends and that the purchases ofthese shares were with the object of selling themsubsequently at a profit. The shares were, in fact,sold at considerable profit subsequently and that ishow the question of charging that profits to tax asrevenue receipt has arisen. The explanation soughtto be given by the assessee that the shares were,in fact, being held as investment and were soldsimply because the control of McLeod & Co. Ltdwent out of the hand of the directors of theassessee has not been proved, according to thesupplementary statement of the case submitted bythe Tribunal. In fact, the Tribunal was not satisfiedthat even the purchasers, viz., the Bajoria group,on buying these shares from the assessee acquireda controlling interest in McLeod & Co. Ltd. or in thecompanies managed by that company. The objectof the sale as given by the assessee has, therefore,remained unproved, whereas the fact that thepurchases of the shares were made at a time whenthey not expected to give good return asinvestment and were actually sold at a very goodprofits leads to the reverse inference that thepurchases and sales of these shares were anadventure in the nature of trade. Even thesequence of events does not bear out thecontention of the assessee. Sri C. L. Kanoria firstresigned on 17th March, 1952, and he sold hisshares while his resignation was still pending forapproval by the Government. The sale took placeon 27th May, 1952, at a time when the resignationnot having received the approval of theGovernment, the control of McLeod & Co. Ltd.group of companies was still with the KanoriaGroup. The resignation was accepted on 16thOctober, 1952, about five months after the sale ofthe shares. There is no evidence to show that, as aresult of this sale, the control in the McLeod & Co.group of companies passed to the Bajoria group,though M/s. C. L. Bajoria and Baijnath Jalan didsubsequently join the directorate of McLeod & Co.Ltd. On these facts, it is not possible to hold thatthe Tribunal was incorrect in recording it conclusion that the sale of these shares by the assessee wasnot the result of control of the McLeod & Co. Ltd.passing from the hands of Kanoria group to theBajoria group. In fact, the Kanoria group washolding a majority of 21,046 shares out of 40,000shares in McLeod & Co. Ltd. even at the time whenthese shares were sold on 27th May, 1952. Theassessee thus having failed to prove the objects ofthe sale of these shares, the inference that theshares were sold with the sole objects of earningprofits is justified. that the sale of these shares by the assessee wasnot the result of control of the McLeod & Co. Ltd.passing from the hands of Kanoria group to theBajoria group. In fact, the Kanoria group washolding a majority of 21,046 shares out of 40,000shares in McLeod & Co. Ltd. even at the time whenthese shares were sold on 27th May, 1952. Theassessee thus having failed to prove the objects ofthe sale of these shares, the inference that theshares were sold with the sole objects of earningprofits is justified. 10. It was urged that, in this case, the Tribunal hasrecorded no finding at all that the shares in McLeod& Co. Ltd. which were sold by the assessee, wereconverted by it into stock-in-trade, nor has it beenheld that the variation of its investments by theassessee amounted to dealings in investments. Thefacts that we found above show that, so far as theshares of McLeod & Co. Ltd. and the alliedcompanies which were sold by the assessee andthe income from which has been taxed as revenueincome are concerned, the assessee, in fact, dealwith them as stock-in-trade. It is true that in theaccount books they were never shown as such; butwe have indicated how the evidence and thematerial in this case lead to the conclusion that theshares were in fact purchased even initially not asinvestments, but for the purpose of sale at profitsand that they were actually sold with the purposeof earning profits, so that the transactionamounted to an adventure in the nature of trade. 11. Learned counsel also referred to the decision ofthis court in Ramnarain Sons (Pr.) Ltd. v.Commissioner of Income-tax to urge that theprinciple consideration in determining whetherincome from sale of shares is revenue income orcapital gain is to find out what was the purpose ofpurchase of those shares, and, if the purpose wasinvestment, the fact that, in varying theinvestment, the sale of those shares resulted in aprofit will not make that profit revenue income. Theprinciple is perfectly correct, but is not applicable tothe case before us on the finding mentioned by usabove that even the initial purchase of these sharesby the assessee was not for the purpose ofinvestment for earning income from dividends, butwas with a view to earn profits by resale of thoseshares.” Counsel for the appellant contended that the view taken bythe Tribunal is required to be reversed as the transaction is to betaken as business transaction and not a capital gain and should betaxed as business transaction. Counsel for the respondent has relied upon Income TaxDepartment Circular dated 15[th] June, 2007 and the decision ofBombay High Court in the case of Commissioner of Income Tax vs.Gopal Purohit reported in 2011 (336) ITR 287 wherein it has beenheld as under:- “2. The Tribunal has entered a pure finding offact that the assessee was engaged in twodifferent types of transactions. The first set oftransactions involved investment in shares. Thesecond set of transactions involved dealing inshares for the purposes of business (described inparagraph 8.3 of the judgment of the Tribunal astransactions purely of jobbing without delivery).The Tribunal has correctly applied the principleof law in accepting the position that it is open toan assessee to maintain two separate port folios,one relating to investment in shares and anotherrelating to business activities involving dealing inshares. The Tribunal held that the delivery basedtransactions in the present case, should betreated as those in the nature of investmenttransactions and the profit received there fromshould be treated either as short term or, as thecase may be, long term capital gain, dependingupon the period of the holding. A finding of facthas been arrived at by the Tribunal as regardsthe existence of two distinct types oftransactions namely, those by way of investmenton one hand and those for the purposes ofbusiness on the other hand. Question (a) above,does not raise any substantial question of law. 3. In so far as Question (b) is concerned, theTribunal has observed in paragraph 8.1 of itsjudgment that the assessee has followed aconsistent practice in regard to the nature of theactivities, the manner of keeping records andthe presentation of shares as investment at theend of the year, in all the years. The revenue submitted that a different view should be takenfor the year under consideration, since theprinciple of res judicata is not applicable toassessment proceedings. The Tribunal correctlyaccepted the position, that the principle of resjudicata is not attracted since each assessmentyear is separate in itself. The Tribunal held thatthere ought to be uniformity in treatment andconsistency when the facts and circumstancesare identical, particularly in the case of theassessee. This approach of the Tribunal cannotbe faulted. The revenue did not furnish anyjustification for adopting a divergent approachfor the Assessment Year in question. Question(b), therefore, does not also raise anysubstantial question. 4. In so far as Question (c) is concerned, againthere cannot be any dispute about the basicproposition that entries in the books of accountalone are not conclusive in determining thenature of income. The Tribunal has applied thecorrect principle in arriving at the decision in thefacts of the present case. The finding of factdoes not call for interference in an appeal underSection 260A. No substantial question of law israised. The appeal is accordingly dismissed.” He has also relied upon the decision of Jammu and KashmirHigh Court in case of Commissioner of Income Tax vs. SMAAEnterprises P. Ltd. reported in [2016] 382 ITR 175 (J & K) whereinit has been held as under:- “The Tribunal by applying the Circular No. 4 of2007 : MANU/DTCR/0006/2007, dated June 15,2007 (see [2007] 291 ITR (St.) 384), acceptedthe plea of the assessee and relying upon thejudgment of the hon'ble Supreme Court in CIT v.OswalAgroMillsLtd.reportedinMANU/SC/8566/2008MANU/SC/8566/2008:[2009] 313 ITR 24 (SC) allowed the appeal bygiving a factual finding that the assessee hasdeclared purchases/holding of shares asinvestment for the past several years and surplushas been claimed as capital gains before theassessing authority and said facts are evidentfrom the reply of the assessee dated November21, 2008 and the appellate authority also hasmentioned about the claim of the assessee with “The Tribunal by applying the Circular No. 4 of2007 : MANU/DTCR/0006/2007, dated June 15,2007 (see [2007] 291 ITR (St.) 384), acceptedthe plea of the assessee and relying upon thejudgment of the hon'ble Supreme Court in CIT v.OswalAgroMillsLtd.reportedinMANU/SC/8566/2008MANU/SC/8566/2008:[2009] 313 ITR 24 (SC) allowed the appeal bygiving a factual finding that the assessee hasdeclared purchases/holding of shares asinvestment for the past several years and surplushas been claimed as capital gains before theassessing authority and said facts are evidentfrom the reply of the assessee dated November21, 2008 and the appellate authority also hasmentioned about the claim of the assessee with reference to purchases/holding of shares beingshown as investment in past, valuation beingdone at cost and the assessee has never treatedsuch holdings in the past as stock-in-trade. It isalso stated in the order that the claim of theRevenue that the assessee is doing stock-in-tradeis without any basis and no material was broughton record to show that the assessee had beenvaluing the holding of shares as at the end ofeach year on first-in, first-out (FIFO) method andthe assessee had valued investment at cost anddeclared the same as investment as per thebalance-sheet as on March 31, 2006. It is alsostated in the order that the shares have beenheld for more than 30 number of days which isevident from the holding period shown by theassessee in more than 92 per cent of thetransactions and the assessee retained theshares for appreciation in value and not with anintension of commercial motive. The assessee isnot registered with any authority or body such asthe Security Exchange Board of India (SEBI),etc., to do trading in shares. The entireinvestment has been made out of own funds andnot out of borrowed funds and no contra materialhas been placed on record by the Revenue tocome to a different conclusion. Thus, a factualfinding has been given by the Tribunal statingthat the Department cannot change the stand insubsequent years without any changing material.The said factual finding having been recordedbased on appreciation of documents, which werenot considered by the assessing authority as wellas the appellate authority, the contention of theRevenue that the assessee is doing stock-in-tradeand not investments cannot be accepted and nosubstantial question of law arises fordetermination in these income-tax appeals. Learned counsel appearing for the Revenueforcefully argued that the factual findingsrecorded by the Tribunal are without any basisand same can be interfered based on noevidence. We are unable to appreciate the saidcontention as the Tribunal has recorded reasonsand on perusing meticulously the materialsplaced before it and recorded the factual findings.The judgment of the Bombay High Court reportedinCITv.GopalPurohitMANU/MH/0026/2010MANU/MH/0026/2010:[2011] 336 ITR 287 (Bom) held that consistent Learned counsel appearing for the Revenueforcefully argued that the factual findingsrecorded by the Tribunal are without any basisand same can be interfered based on noevidence. We are unable to appreciate the saidcontention as the Tribunal has recorded reasonsand on perusing meticulously the materialsplaced before it and recorded the factual findings.The judgment of the Bombay High Court reportedinCITv.GopalPurohitMANU/MH/0026/2010MANU/MH/0026/2010:[2011] 336 ITR 287 (Bom) held that consistent practice of treating transactions in shares asinvestment, different view should not be takenfor year under consideration. Learned counselalso submitted that the special leave petition filedagainst the said judgment was also dismissed bythe hon'ble Supreme Court (see [2011] 334 ITR(St.) 308). The Bombay High Court held that theRevenue did not furnish any material to justify toadopt a divergent approach for the assessmentunder consideration, therefore, no substantialquestion of law arose for consideration and theappeal of the Revenue was dismissed. The DelhiHigh Court in its decision dated December 2,2009 made in I.T.A. No. 1271 of 2009 titled CITv. Jindal Photo Investment Ltd. also dismissedsimilar appeal and held that share sold by theassessee in the year under consideration hasbeen held by the assessee for a considerable longtime, which was shown as investment in thebooks of account and balance sheet for all theseyears and circumstances remained the same andhad remained unchallenged by the Department,it was erroneous to hold that the assessee keptthe shares for trading purposes. The Delhi HighCourt dismissed the appeal on the ground that noquestion of law arises. In the decision reported inCITv.JubilantSecuritiesP.Ltd.MANU/DE/1303/2011MANU/DE/1303/2011:[2011] 333 ITR 445 (Delhi), the Delhi High Courtagain held the same view and in the decisionreportedinCITv.AmitModiMANU/PH/4007/2010MANU/PH/4007/2010:[2011] 334 ITR 192 (P&H), the Punjab andHaryana High Court also held the same view.” We have heard counsel for both the sides. Taking into account, the Tribunal while considering thematter has rightly observed that the amount which has beenclaimed and investment is a capital gain in view of circular, theview taken by the Tribunal is correct. We are in complete agreement with the view taken by theTribunal. No interference is called for. The issue is answered in favour of the assessee against the department. The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/10-12