Ita/47/2014 Of Income Tax Ii v. Shri Anoop Karwa

Income Tax Appeals No.43, 44 and 47 to 58 of 201419.12.2014 Shri R.L. Jain, learned Senior Counsel with Ms. Veena Mandlik, advocate for the appellant. Heard on the question of admission. This order shall govern disposal of Income Tax Appeals No.43, 44 and 47 to 58 of 2014. For the sake of convenience, facts are taken from Income Tax Appeal No.47/2014. 2.These appeals under Section 260-A of the Income Tax Act, 1961 have been filed against the order dated 20[th ]December, 2013 passed by the Income Tax Appellate Tribunal, Indore in a bunch of appeals. 3.The main grievance of the respondent - assessee pertains to assessing the profit offered on sale of assets being STT paid on listed shares under the head “income from business” against “income from short term capital gains” under Section 111 (1) (I) of the Income Tax Act, 1961, on which tax is leviable at flat rate of 10%. 4.As the common grounds are involved in the present bunch of appeals, these fourteen appeals were heard together and are now being disposed of by this consolidated order. 5.The assessee filed his income tax return as an individual for the assessment order 2006-07 on 29.12.2006, declaring total income of Rs.89,33.560/-, claiming it as “Short Term Capital Gain”. The assessee showed it on sale of shares of Rs.88,35,689/-. During the year under consideration, the assessee had purchased the shares of Rs.5,19,98,510/- and sold the shares of Rs.6,15,06,055/- after making deduction from brokerage, SST, Service Tax, Turnover charges etc. amounting to Rs.6,71,860/- and remaining shares were shown as investment in the balance sheet. Looking into the volume and frequency of transactions, the Assessing Officer treated it as “Business Income” in place of “Short Term Capital Gain”. 6.The Assessing Officer found that the assessee could not produce any satisfactory reason in his favour. The assessee placed reliance on various case laws, but as per the Assessing Officer, they were distinguishable from the instant case and observed, as under: - “It is evident from the copies of bank statement submitted by assessee that assessee has not invested his saving or surplus fund in shares but he has borrowed funds from M/s. Krishidhan Seeds Limited and utilized these funds for his own benefit, as discussed above. He has carried out transactions of shares of more than 11 crore during the year under consideration. It proves that he is engaged in the business of trading of shares. The case laws relied upon by the assessee; the facts of them are distinguishable. Assessee has not invested his surplus funds or capital in the shares but he has utilized the funds borrowed from funds of the limited company in which he is having substantial interest.” 7.The Assessing Officer also took note of Circular No.4/2007 dated 15.06.2007 of the Central Board of Direct Taxes (CBDT), wherein the distinction has been clarified between shares held as 'Stock in Trade' and shares held as 'Investment'. 8.The Assessing Officer relying on the CBDT aforesaid circular, came to the conclusion that the profit derived from the sales of shares amounting to Rs.88,35,560/- was treated as “Business Profit” in place of “Short Term Capital Gain”, as shown by the assessee. 9.Being aggrieved by the order of the Assessing officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority confirmed the order of the Assessing Officer and observed that borrowed funds were used for investment in shares and not savings. Further retention time of shares before sale was very short. The Appellate Authority held that the respondent – assessee has been engaged in the 'trading of shares' as a 'business' and hence the profit earned on the sale of shares is chargeable as “profits & gains of business or profession” instead of “short term capital gain”. 9.Being aggrieved by the order of the Assessing officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority confirmed the order of the Assessing Officer and observed that borrowed funds were used for investment in shares and not savings. Further retention time of shares before sale was very short. The Appellate Authority held that the respondent – assessee has been engaged in the 'trading of shares' as a 'business' and hence the profit earned on the sale of shares is chargeable as “profits & gains of business or profession” instead of “short term capital gain”. 10.Being aggrieved by the aforesaid order passed by the Appellate Authority, the respondent – assessee filed further appeal before the Income Tax Appellate Tribunal, Bench at Indore. The Income Tax Appellate Tribunal, after considering the facts and circumstances of the case, allowed the appeal by impugned order dated 20[th] December, 2013 and deleted the addition due to following reasons: - “(i)The assessee held that the shares in his books as investor and was not having office or administrative set-up. (ii)The assessee did not pay any interest on the funds borrowed and there was not a single instance where the assessee squared up the transactions on the same without taking the delivery of shares. (iii)The ITAT held that the assessee made investment in shares only with the intention to earn dividend income on appreciation of price of shares. So, it cannot be said that the assessee was doing business. (iv)The ITAT observed that the assessee either utilized his own funds / family funds or did not pay any interest and depicted the transactions in shares under investment portfolio. (v)The ITAT emphasized that it is possible for a tax payer to have two portfolios namely, an “Investment Portfolio”, comprising of Securities, which are to be treated as capital assets and “Trading Portfolio” comprising of stock in trade which are to be treated as trade assets. No single principle would be decisive and the fact has to be considered in entirety. (vi)The ITAT observed that since the gain has been earned from the delivery based transactions,therefore,respectfully following the decision from Hon'ble Jurisdictional High Court in the case of Shri Om Prakash Suri (supra), there is no merit in the conclusion drawn by the lower authorities for treating the gains arising out of sale of shares as business income rather than capital gain.” 11.Learned Senior Counsel for the appellant has submitted that ITAT erred in ignoring the fact that shares were held for a very short period, when it is evident that the assessee had repeated the share transactions. He further submitted that the learned Tribunal also erred in treating the sale of shares as 'short term capital gain' rather than business income, ignoring the CBDT Circular No.4/2007 dated 15.06.2007. 12.The learned ITAT while deleting income observed: - “In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price shares. Therefore, it cannot be said that the assessee was doing business. More specifically when the assessee either utilized his own funds / family funds or did not pay any interest and depicted the transactions in shares under investment portfolio. During hearing, it was also explained by the learned counsel for the assessee that accounts were maintained by the assessee in two separate capacities i.e. trader and investment and never treated the same as holdings of shares as stock in trade which clarifies the intention of the assessee. This assertion was not controverted by the Revenue. “In the present appeal, we note that the assessee made investment in shares with intention to earn dividend income on appreciation of price shares. Therefore, it cannot be said that the assessee was doing business. More specifically when the assessee either utilized his own funds / family funds or did not pay any interest and depicted the transactions in shares under investment portfolio. During hearing, it was also explained by the learned counsel for the assessee that accounts were maintained by the assessee in two separate capacities i.e. trader and investment and never treated the same as holdings of shares as stock in trade which clarifies the intention of the assessee. This assertion was not controverted by the Revenue. 38.The learned Senior DR placed reliance upon the decision of this Tribunal in ACIT v. Shri Naveet Kumar (ITA No.346/IND/2013)orderdated 30.08.2013. We have perused this order and found that it has been clarified that “if the shares are shown as investment and not as stock in trade, profit arriving from such shares will be capital gains and not business profit”. The matter was restored to the Assessing Officer to examine the facts and then decide accordingly. Therefore, this judicial pronouncement may not help the Revenue. The other cases relied upon by the Revenue have also been perused and are of the view that the facts are not identical, therefore, these may no help the Revenue. The Board Circular No.4/2007 dated 15.06.2007 also emphasizes that it is possible for a tax payer to have two portfolios namely, an Investment Portfolio, comprising of Securities, which are to be treated as capital assets and “Trading Portfolio” comprising of stock in trade which are to be treated as trade assets. No single principle would be decisive and the fact has to be considered entirely. This proposition has been confirmed by the Hon'ble Jurisdictional High Court in the case of Shri Om Prakash Suri (supra). The totality of facts plainly indicate that the learned first appellate authority rightly directed the Assessing Officer to treat the short term capital gain as earned from investment in shares. Instruction No.1827 dated 31[st] August, 1989 was supplemented by CBDT Circular No.149/287/2005-TPL [reported in 210 CTR 29 (St.)] advising the Assessing Officers that the principles contained in the circular should guide them in determining whether, in given cases, the shares are held by the assessee as investment (and therefore, giving rise to capital gains) or stock-in-trade (and therefore, giving rise to business profit) by further opining that no single principle would be decisive and total effect of all the principles should be considered. If the number of transactions are analyzed, we note that, in a computer based trading system / e-filing, the figures, being split up, give misleading high figures, reflecting the individual component of the transaction but really, if these figures are synchronized then clear picture oozes out. Since the gain has been earned from the delivery based transactions,therefore,respectfully following the decision from Hon'ble Jurisdictional High Court in the case of Shri Om Prakash Suri (supra), we do not find any merit in the conclusion drawn by the lower authorities for treating the gains arising out of sale of shares as business income rather than capital gain. Accordingly, we direct the Assessing Officer to treat the gain arising out of sale of shares as capital gains. We direct accordingly.” 13.Learned Senior Counsel for the appellant, during the course of arguments, very fairly submitted that the issue involved in this appeal is squarely covered by the decision of this Court in the case of Commissioner of Income Tax v. OmPrakash Surireported in (2014) 23 ITJ 213 (MP) and in the case of Commissioner of Income Taxv. Om PrakashSurireported in (2012)19 ITJ 326 (MP). 13.Learned Senior Counsel for the appellant, during the course of arguments, very fairly submitted that the issue involved in this appeal is squarely covered by the decision of this Court in the case of Commissioner of Income Tax v. OmPrakash Surireported in (2014) 23 ITJ 213 (MP) and in the case of Commissioner of Income Taxv. Om PrakashSurireported in (2012)19 ITJ 326 (MP). 14.For these reasons and considering the facts and circumstances of the present case, we are of the view that the issue involved in this bunch of appeals is squarely covered by the decision in the case of Commissioner of Income Tax v. Om Prakash Suri(supra) and Commissioner of Income Taxv. Om Prakash Suri (supra). No substantial question of law is arising in these appeals nor there is any infirmity in the impugned order passed by the learned ITAT. 15.Accordingly, Income Tax Appeals No.43, 44 and 47 to Pithawe RC 58 of 2014 fail and are hereby dismissed. No costs. A copy of this order be retained in Income Tax Appeals No.43, 44 and 48 to 58 of 2014 . (P.K. Jaiswal) Judge (D.K. Paliwal) Judge