Commissioner Of Income Tax v. Shri Santosh Kumar Gupta

THE HIGH COURT OF MADHYA PRADESHITA-54-2018 (COMMISSIONER OF INCOME TAX vs. SHRI SANTOSH KUMAR GUPTA) Gwalior, Dated 09.03.2018 Shri D.P.S. Bhadauria, learned counsel for the appellant. Heard on admission. This Appeal under Section 260 of the Income Tax Act, 1961takes exception to the order passed by the Income Tax AppellateTribunal in ITA No.272/Agra/2015 Assessment Year 2011-12;whereby the order dated 23/03/2015 by Commissioner IncomeTax(Appeal) holding that in the assessment year 2011-12 income ofRs.3,71,09,103/- earned by the assessee on purchase or sale ofshares is an income from capital and gain and not from business orprofession, has been upheld. The Assessing Officer: ACIT, Circle-2, Gwalior by his orderdated 15/03/2013 passed under Section 143(3) of the Income TaxAct, 1961 disallowed the assessee's claim of earning Short TermCapital Gain of Rs.14,56,200/- and Long Term Capital Gain ofRs.3,56,52,903/- on sale of shares by treating it to be an incomefrom business or profession, by observing that there is no riskinvolved and the purpose of investment is to earn safe income in theform of dividend/interest. The Assessing Officer further observedthat the Assessee is mainly dealing in shares in which there is anelement of risk or uncertainty involved which is a basic requisite toconsider an activity to be in the nature of trade/adventure; that, theholding period of most of the securities is usually very short and theratio of sales to purchase indicate that the assessee is engaged in thebusiness of sale and purchase of securities. These observations ledthe Assessing Officer to treat the income of Rs.3,71,09,103/- asincome from business and profession instead of income from capital gain. In Appeal, the finding by the Assessing Officer was reversedby the CIT (A) by relying on the decision of this Court in CIT vs.Omprakash Suri [359 ITR 39(M.P.)], wherein it is held: “Having heard the learned senior counsel forthe appellant, we find that the CIT(Appeal) as alsothe Tribunal, after due appreciating all the facts,have correctly recorded the finding that the deliverybased transactions were made with an investmentmotive and as such, the income therefrom was in thenature of Short Term Capital Gains whereas theincome from F & O transactions and dailytrading inshares were with the business motive, which wereshowed as business income only, which were mainlythrough stock broker Arihant Capital Market Limitedregistered with the NSC, NSE and BSE. TheCIT(Appeal) and the Tribunal have considered theBoard Circular No.4/2007 dated 15.06.2007,emphasizing that it is possible for a tax payer to havetwo portfolios; namely, an Investment Portfoliocomprising of the securities, which are to be treatedas capital assets and Trading Portfolio comprising ofstock in trade, which are to be treated as trade asset.The clarification issued by the Board was alsoconsidered, stating therein that no single principlewould be decisive and the total proposition is to beconsidered. The authorities below have taken intoconsideration that the respondent-assessee hadmaintained only Trade Portfolio and claimed that to be an Investment Portfolio and undisputedly, theperiod of holding is less than one year. Havingregard to the aforesaid, the CIT(Appeal) and theTribunal have held that there is no infirmity inholding that these transactions would be treated as Short Term Capital Gain.” The Appellate Authority also found that the provisions ofSection 10 (38) of 1961 Act, applicable w.e.f. 01/10/2004 isattracted which envisages:- “10(38). any income arising from the transferof a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where-(a) the transaction of sale of such equityshare or unit is entered into on or after the date onwhich Chapter VII of the Finance (No.2) Act, 2004comes into force; and (b) such transaction is chargeable tosecurities transaction tax under that Chapter: Short Term Capital Gain.” The Appellate Authority also found that the provisions ofSection 10 (38) of 1961 Act, applicable w.e.f. 01/10/2004 isattracted which envisages:- “10(38). any income arising from the transferof a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where-(a) the transaction of sale of such equityshare or unit is entered into on or after the date onwhich Chapter VII of the Finance (No.2) Act, 2004comes into force; and (b) such transaction is chargeable tosecurities transaction tax under that Chapter: [Provided that the income by way of long-termcapital gain of a company shall be taken into accountin computing the book profit and income-tax payableunder section 115-JB.] Explanation.- For the purposes of this clause,“equity oriented fund” means a fund (i) where the investible fund are investedby way of equity shares in domestic companies to theextent of more than [sixty-five percent.] of the totalproceeds of such fund; and (ii)which has been set up under ascheme of a Mutual Fund specified under clause (23- D): Provided that the percentage of equity shareholding of the fund shall be computed with referenceto the annual average of the monthly averages of theopening and closing figures;]” Furthermore, having found three elements being satisfied, viz., (i) that there is transfer of capital asset in the form of equityshares held for more than one year (ii) that transactions areenforced after commencement of Chapter VII of Finance Act(No.2) 2004 w.e.f. 01/10/2004 and (iii) that the transactions shouldbe chargeable to Securities Transaction Tax. The AppellateAuthority held the income to be capital gain. The Tribunal taking into consideration the fact and legalposition held: “24. There is no force in the AO's observationthat if the assessee does not earn substantialdividend income on shares held by him, the gainearned by the assessee on sale of such shares due toappreciation in the value thereof should be treated asbusiness income. In order that profit earned on saleof shares may be claimed as capital gain, it is not asine qua non that the assessee must earn specificdividend income on the shares held by him. Theshares sold by the present assessee were held by himas investment and not as stock-in-trade. It has everbeen the case of assessee that the transactions weredelivery based and that on all the transactions, STTwas paid and capital gain u/s. 10(38) or 111A wasclaimed. The assessee is not a registered broker orsub-broker or dealer in equity shares. As such, noneof the decisions relied on by the AO against theassessee, is applicable. In “Omprakash Suri”(supra) and “Bharukha Industries Pvt. Ltd.” (supra),besides in the other decisions relied on by theassessee, it has been held that the profit earned by the assessee on sale of shares has to be treated ascapital gain and not business income. Remarkably,“Omprakash Suri” (supra) has been rendered by theHon'ble M.P. High Court, which is the jurisdictionalHigh Court, so far as the assessee is concerned. It isclear that the provisions of Section 10(38) of the Actare applicable w.e.f. 01.10.2004 to the profit earnedon sale of shares held for a period of more than 12months and thus, section 111A is applicable w.e.f.01.04.2005, to the profit earned on sale of sharesheld for a period of not more than 12 months. STT,having been paid on the transactions, the provisionsof section 10(38) or Section 111A are applicable, asthe case may be, only to capital gains arising ontransfer of shares.” These findings by the CIT (A) and the Tribunal when testedon the anvil of the facts and law, warrant no indulgence. Consequently, as no substantial question of law arises forconsideration, Appeal is dismissed in limine. (Sanjay Yadav) Judge pwn* Digitally signed by PAWAN KUMAR Date: 2018.03.13 19:24:49 +05'30' (Ashok Kumar Joshi) Judge