Ita/339/2013 Of Commissioner Of Income Tax (Central) v. Sonia Uppal

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.339 of 2013 (O&M)Date of decision: 21.02.2014 Commissioner of Income Tax (Central), Gurgaon 1!*%.% ..Appellant Smt.Sonia Uppal C/o Lakshami Energy & Foods LimitedSCO 18-19, Sector 9, Chandigarh PAN: ...Respondent CORAM:|HON'BLE MR.JUSTICK AJAY KUMAR MITTALHON'BLE MS. JUSTICE ANITA CHAUDHRY Present:Mr.Rajesh Sethi, Advocate for the appellant. Ajay Kumar Mittal,J 1]This appeal has been preferred by the revenue under section260A of the Income Tax Act, 1961 (in short, “the Act’) against the orderdated 11.4.2013, Annexure A.4 passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B' (in short, “the Tribunal’) in ITANo.175/Chd./2013, claiming following substantial question of law:- “Whether, on the facts and the circumstances of the case andin law, the Hon'ble [TAT was correct in treating the incomefrom adventure in the nature of trade as short term capitalgain?” 2.A few facts relevant for the decision of the controversy involved, as narrated in the appeal may be noticed. The assessee disclosedshort term capital gains at,=a67,41,488/- in her return of income which wastreated by the Assessing Officer as income from adventure in the nature of ITA No.339 of 2013 (O&M) trade as the income was treated as business income. The Assessing Officerdrew support from the CBDT's instruction No.1827 dated 31.8.1989 andcircular No.4 of 2007 dated 15.6.2007. Agegrieved by the order, the assesseefiled appeal before the Commissioner of Income Tax (Appeals) [CIT(A)],Vide order dated 18.12.2012, Annexure A.3, the appeal was partly allowed,deleting the addition ofa1 lac. Not satisfied, the assessee filed appealbefore the Tribunal. Vide order dated 11.4.2013, Annexure A.4, the appealwas allowed. Hence the instant appeal by the revenue. 3We have heard learned counsel for the appellant and perused the record. 4 The point for consideration in this appeal 1s whether the profitwhich was earned by the assessee from sale of shares was to be treated asincome from adventure in the nature of trade or as short term capital gain.According to the assessee, the same has resulted in short term capital gainwhereas the stand of the revenue 1s that 1t was income from adventure 1n thenature of trade. 5.There is no strait-jacket formula for concluding whether thetransaction would fall within the domain of ‘profits derived from anadventure in the nature of trade' or outside its ambit. The facts andcircumstances of each case would be determinative of the character of thereceipt. The primary consideration in such cases relates to examining thenature of the transaction. Where a person invests money in an asset withintention to hold it, enjoys its usufruct for some time and then sells it atenhanced price, it would be a case of capital accretion outside the scope ofprofits resulting from an adventure in the nature of trade. On the otherhand, where income accrues on realisation of investments consisting ofpurchase and resale, income accruing could be treated as adventure in the ITA No.339 of 2013 (O&M) nature of trade. The cardinal question which would require to be answeredwould be whether purchaser was a trader and had purchased the commoditywith the clear understanding that it was his usual trade or business orincidental to 1t. 6 Adverting to the factual matrix in the present case, it may benoticed that the assessee purchased some shares. When the rates of the saidshares had risen, the assessee decided to sell part of the shares with a viewto repay the loan already taken. According to the assessee, the investment inshares was made for capital only and not for resale thereof. Further, theTribunal vide order dated 11.4.2013, Annexure A.4 while accepting theplea of the assessee had recorded as under:- ITA No.339 of 2013 (O&M) nature of trade. The cardinal question which would require to be answeredwould be whether purchaser was a trader and had purchased the commoditywith the clear understanding that it was his usual trade or business orincidental to 1t. 6 Adverting to the factual matrix in the present case, it may benoticed that the assessee purchased some shares. When the rates of the saidshares had risen, the assessee decided to sell part of the shares with a viewto repay the loan already taken. According to the assessee, the investment inshares was made for capital only and not for resale thereof. Further, theTribunal vide order dated 11.4.2013, Annexure A.4 while accepting theplea of the assessee had recorded as under:- “4. We have heard rival submissions and have carefullyperused the entire record. We have considered variousreasons which have been given by learned AR, even givenbefore learned CIT(Appeals) and which are enumerated atpage No.3 of his order and the existence of which wouldprove that the impugned income cannot be treated asbusiness income. We find from the totality of facts andcircumstances of the case that this income cannot be treated!as assessee's business income from adventure in the natureof trade, because this 1s an investment 1n shares and sale ofsome of the shares in order to repay the loan in the conditionwhen the price of shares has quickly risen. Any incomederived from the sale of shares has to be treated either longterm capital gain or short term capital gain subject toholding of the shares. In this case, this income has to betreated as short term capital gain and not as a businessincome. The following reasons which we are extractingfrom page No.3 of ClIT(Appeals)'s order are also relevanfor this consideration. We extract these reasons verbatimhereinafter as under:- J. that the assessee is not a business person and she hardlever indulged in any purchase or sale of shares in the past, She has no knowledge of the share market or equities thatare traded 1n It.are traded 1n It. II. The majority of the shares purchased were of the groucompanies only, indicating the lack of intention to deal inthe shares.companies only, indicating the lack of intention to deal inthe shares. Ii].Out of the total shares purchased, only a part were soldbecause of an unexpected spurt in prices and the remainingwere retained.because of an unexpected spurt in prices and the remainingwere retained. IV.Part shares were sold to try and repay the loan at theearliest as the appellant was a person of limited means anddid not wish to carry a liability for long.earliest as the appellant was a person of limited means anddid not wish to carry a liability for long. V. Buying bulk shares for increasing stake 1n group companieby raising soft loans does not indicate intent to deal inshares.by raising soft loans does not indicate intent to deal inshares. VI.The shares were held for a sufficiently long period of timefor them to qualify as investments.for them to qualify as investments. VU.The shares purchased were only of one company whichwas predominantly family owned.was predominantly family owned. VUI.The profit earned on sale of part shares was onlyincidental.incidental. IX.Engaging a broker for purchase and sale of the sharescannot be vital for determining the nature of the receipt asfor making the investments, the services of brokers arealways availed.cannot be vital for determining the nature of the receipt asfor making the investments, the services of brokers arealways availed. VI.The shares were held for a sufficiently long period of timefor them to qualify as investments.for them to qualify as investments. VU.The shares purchased were only of one company whichwas predominantly family owned.was predominantly family owned. VUI.The profit earned on sale of part shares was onlyincidental.incidental. IX.Engaging a broker for purchase and sale of the sharescannot be vital for determining the nature of the receipt asfor making the investments, the services of brokers arealways availed.cannot be vital for determining the nature of the receipt asfor making the investments, the services of brokers arealways availed. xX Conduct of the assessee and her intention s1 also one of threlevant factors though not the sale test.'relevant factors though not the sale test.'5. Keeping in view all the above reasons and the others, whichwe have mentioned in the former part of this order, we cansafely conclude that this 1s not an income from adventure in thenature of trade but it 1s only a short term capital gain derived bythe assessee. Accordingly, we allow the appeal of the assesseeand order to delete the impugned addition.”we have mentioned in the former part of this order, we cansafely conclude that this 1s not an income from adventure in thenature of trade but it 1s only a short term capital gain derived bythe assessee. Accordingly, we allow the appeal of the assesseeand order to delete the impugned addition.” TLearned counsel for the revenue was unable to show that theactivity undertaken by the assessee was an adventure in the nature of trade,No error could be pointed out in the findings recorded by the Tribunal ITA No.339 of 2013 (O&M) watranting interference by this Court. & No question of law much less substantial question of law arises in the appeal and the same is, consequently, dismissed. (Ajay Kumar Mittal)Judge February 21, 2014</%< (Anita Chaudhry)Judge