Itta/26/2015 Of Prl. Commissioner Of Income Tax-3 v. M/S. Spectra Shares And Scripes Pvt. Ltd

THE HON’BLE SRI JUSTICE G. CHANDRAIAHAND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.T.A. Nos. 26, 29 and 32 of 2015 COMMON ORDER:- (per Hon’ble Sri Justice G. Chandraiah) These appeals, at the instance of Revenue, arise from theorder dated 05.11.2014 in ITA Nos.1059, 1060, 1061 & 1062/Hyd/2013,of Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad, forthe Assessment Years 2005-06, 2007-08, 2009-10 & 2010-11. 2. The order impugned in these appeals, so also the substantialquestion of law, being identical, the appeals are taken together fordisposal by this common order. The substantial question of law raisedreads as under: “In the facts and circumstances of the case, whether theHon’ble Tribunal (ITAT) is correct in law in holding thatthe income earned by the Respondent-assessee out ofsale and purchase of shares is income under the head‘Capital Gains’ as against ‘Business income’ adopted byth Assessing Officer, without appreciating that theRespondent-assessee has been buying and sellingshares and Units of Mutual Funds through out the yearcontinuously and regularly through and organized, fulltime and day-to-day activity as also through day tradingtransactions?” 3. The Tribunal, vide its order dated 05.11.2014, after discussingvarious issues, held as under: “12. So far as merits of the issue isconcerned, a perusal of the assessment order wouldclearly reveal the fact that AO has treated the transactionin shares and units as a trading activity only on theconsideration that they are very high in frequency andvolume. Though, AO has observed that assessee hasindulged in repetitive purchases and sales of the same scrip, but, he has not given a single instance where thesame share purchased by assessee was sold either onthe same day or within a short duration. Only, becauseassessee had frequently purchased and sold shares ofthe same company does not mean that the same sharewas sold. Further, the statement made in director’sreport in no way helps in coming to a conclusion that theshare transactions are in the nature of trading activityand not investment. It is further to be noted that AO hasalso observed that the very name of the assesseecompany indicates that the activity in share transaction isin the nature of business activity. In this context, herelied upon the order of the Tribunal in assessee’s owncase for AY 2006-07. Thus, from the aforesaid facts itbecomes clear that while coming to the conclusion thattransactions in shares and units are in the nature oftrading activity, AO more or less has adopted theobservation/finding of CIT and ITAT for AY 2006-07. However, the aforesaid finding of both CIT and ITAT werefound to be devoid of merit by the Hon’ble AP High Courtwhile deciding assessee’s appeal for AY 2006-07. TheHon’ble AP High Court after exhaustively dealing with thenature of transactions and examining in detail found thatthe transactions carried out by assessee in shares andunits of mutual funds are in the nature of investmentsonly for the following reasons: (a)investments are made with own funds andnot with borrowed funds (b)The closing stock was valued in the books ofaccounts consistently at cost and not at cost or marketprice whichever is lower. (c)It had earned substantial dividend income. (d)More than 99% of the total gains are long termcapital gains and less than 1% is short term capital gain,40% of the investments are in mutual fund. (e)The assessee never dealt in futures,derivatives and options. (f)All the transactions of purchases and saleswere delivery base excepting one solitary instance ofReliance Industries Ltd. (g)The assessee was registered as NBFC withRBI. (h)The assessee never claimed set off of thelossess arising from sale of investments against otherincome. (i)Merely because of large frequency of volume of transaction, a conclusion than an assessee is a tradercannot be drawn without considering the period ofholding of those shares by the assessee. (c)It had earned substantial dividend income. (d)More than 99% of the total gains are long termcapital gains and less than 1% is short term capital gain,40% of the investments are in mutual fund. (e)The assessee never dealt in futures,derivatives and options. (f)All the transactions of purchases and saleswere delivery base excepting one solitary instance ofReliance Industries Ltd. (g)The assessee was registered as NBFC withRBI. (h)The assessee never claimed set off of thelossess arising from sale of investments against otherincome. (i)Merely because of large frequency of volume of transaction, a conclusion than an assessee is a tradercannot be drawn without considering the period ofholding of those shares by the assessee. (j)A trader in shares normally holds them for ashort time only and is unlikely to invest in unquotedshares or in mutual funds he is likely to borrow funds forhis trading activity. (k)The fact that the assessee is monitoring thestock market and buying at dips and selling at highs withan intention to make profit from these transactions is notconclusive of the fact that the assessee is a traderbecause even an investor would not buy or sell blindlyand take the risk of suffering losses. (l)The fact that the assessee has aadministrative set up and incurs considerableadministrative costs is not a factor to hold that theassessee is a trader. (m)The fact that the assessee is making repetitivepurchases and sales of same shares is a factor in favourof holding that the assessee is an investor in view of theamendments to section 10(38) and section 115JB of theAct. (n)The revenue had accepted that the assesseewas an investor whose income is chargeable under thehead capital gains for a number of years. Accordingly, the Hon’ble Jurisdictional High Courtset aside the order of ITAT as well as that of CIT. It isvery much evident from the reasons recorded as well asassessment order that only on the basis of the orderpassed in case of assessee for AY 2006-07, AO hasconcluded that income derived from transactions inshares and units should be assessed as income frombusiness activity. As the Hon’ble High Court has upheldthe assessee’s claim for AY 2006-07 and facts obtainingin the impugned assessment year are different from thefacts considered by the Hon’ble AP High Court in AY2006-07 or for that matter, the parameters laid down bythe Hon’ble High Court in 2006-07 do not apply to the factof the present case, we do not find any reason tointerfere with the order of learned CIT(A). Accordingly,we dismiss the grounds raised by department.” 4. A reading of the extract would leave no manner of doubt thatthe Tribunal had followed well settled principles which were set out inthe judgment of this Court in the assessee’s own case in Spectra Shares and Scripts Pvt. Ltd. V. Commissioner of Income-Tax[[1]], for the Assessment Year 2006-07, and hence the question raised issquarely covered. It is also found that except for the year 2006-07, forearlier years, the assessee was assessed under the head “CapitalGains” and not under “Business Income”, notwithstanding the frequencyof transactions involved, inasmuch as, at all times, the assessee tookdelivery of the shares and, at appropriate time, had sold them. 5. Inasmuch as the substantial question of law raised in theseappeals is squarely covered by the judgment of this Court in SpectraShares (1 supra), we see no reason to take a different opinion. 6. The appeals are, accordingly, dismissed. No costs. Miscellaneous petitions, if any pending in these appeals, shall standclosed. ______________________ G. CHANDRAIAH, J 15[th] June, 2015 ksm _____________________________ CHALLA KODANDA RAM, J THE HON’BLE SRI JUSTICE G. CHANDRAIAH AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. Nos. 26, 29 and 32 of 2015 15[th] June, 2015 ksm [1][2013] 354 ITR 35 (AP)