M/S.altius Securities Trading (P) Ltd., New v. The Deputy Commissioner Of Income-Tax, Company Circle I(1)

In the High Court of Judicature at Madras Dated: 22.07.2013 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMANandThe Honourable Ms.JUSTICE K.B.K.VASUKI M/s.Altius Securities Trading (P) Ltd.,New No.6 (Old No.29)CIT Colony, II Main Road,Mylapore, Chennai – 600 004. ....Appellant in T.C.(A)No.202 of 2012/RespondentShri C.SrikanthNew No.19/2 (Old No.11/3) 3[rd] AvenueBesant Nagar, Chennai – 600 090. ....Appellant in T.C.(A)No.203 of 2012/RespondentVs. The Deputy Commissioner of Income-tax,Company Circle I(1),121, Nungambakkam High Road,Chennai – 600 034. ....Respondent in both T.C.(A)s/Appellant in both TCAs. APPEALs under Section 260A of the Income Tax Act against theorder dated 10.2.2012 made in I.T.A.Nos.234/Mds/2010, 233/Mds/2010,respectively on the file of the Income Tax Appellate Tribunal, "B"Bench, Chennai for the assessment year 2005-06. 1.The Commissioner of Income Tax Appeals III, 121, Mahatma GandhiRoad, Chennai-34 in ITA.NO.238/07-08/A.111 Dated 27.11.2009 againstthe Order of The Asst.Commissioner of Income Tax Company Circle I(1)Chennai dated 31.10.2007 in AACCA4561D/Ax3-017 (in TCA.NO.202/2012) 2.The Commissioner of Income Tax (Appeals) III, Chennai Dated27.11.2009 & ITA.NO.208/07-08/A.III against the Order of The Asst.Commissioner of Income Tax Appeal Company Circle I (1) Chennai dated31.10.2007 in ABHPS 5947E/707-S(in TCA.NO.203/2012) https://hcservices.ecourts.gov.in/hcservices/ For Respondent: Mr.T.Ravikumar Standing Counsel for Income Tax------- C O M M O N J U D G M E N T (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) The above Tax Case (Appeals), filed at the instance of theassessee as against the order of the Income Tax Appellate Tribunalfor the assessment year 2005-06, was admitted by this Court on thefollowing common substantial question of law: "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal is right in law inholding that receipts from sale and purchase of variousshares/securities should be treated as business income andnot short term capital gains?" 2. T.C.(A)No.203 of 2012 relates to an individual and T.C.(A)No.202 of 2012 relates to a Private Limited Company, in which theassessee in T.C.(A)No.203 of 2012 is the Managing Director. Sincethe facts are common, it is suffice to refer to the facts as itexisted in T.C.(A)No.203 of 2012. The assessment year underconsideration is 2005-06. 3. It is seen from the facts herein that the assessee is a traderin shares. The assessee was trading in two segments in stockexchange viz., cash segment and Future and Options (F&O) segment.Admittedly, the assessee had two different portfolios – one asinvestment and another as stock-in-trade. While profits from tradingin cash market upto 30.9.2004 was offered to tax under the head'business', similar gains subsequent to that date was offered to taxunder the head 'short term capital gains'. The Assessing Officerviewed that considering the introduction of Section 111A of theIncome Tax Act, brought into the statute with effect from 01.10.2004offering concessional rates of tax at the rate of 10% on short termcapital gains arising out of sale of shares and securities throughstock exchange on which security transaction tax has been paid, theassessee had accounted all its profits trading in cash segment after01.10.2004 as short term capital gain and paid tax at concessionalrate of 10%. Thus, the question as to whether the profits made incash segment after 01.10.2004 was to be assessed under the head'business' income or under the head 'capital gains' arose forconsideration before the Assessing Officer. 4. Referring to the Board's circular No.4 of 2007 dated15.06.2007, the Assessing Officer viewed that the manner in whichthe trades had been executed, the volume of such trades, thefrequency on which they had been transacted, the period of holding ofsuch securities indicated that the assessee had executed such tradesonly with the intention of making profits in the normal course ofbusiness. The Assessing Officer pointed out that the assessee hadbought and sold shares in as many as 106 companies through stockexchange from 1.10.2004 to 31.3.2005 to an extent of 62,05,150shares; the total value of shares purchased was Rs.88,71,61,051/- andhad sold the same to the total value of Rs.79,70,31,405/- and therewere as many as 500 transactions of purchases and sales during theperiod. On going through the pattern, the Assessing Officer viewedthat on an average, the holding period of these shares ranged from 2to 45 days and in some cases, the shares were sold immediately. Theassessee had also taken funding from M/s.ILFS for trading insecurities and had shown the profits made through the fundingamounting to Rs.17,57,808/- as capital gains. Taking the view thatthe transactions made in cash segment from 01.10.2004 to 31.3.2005were all executed in the normal course of business and not asinvestments, assessment was sought to be made as business income. 5. This was countered by the assessee that he had held the sharesfor earning dividend income and capital appreciation and he had alsoborrowed capital for the purpose of business. The submission of theassessee was, however, negatived by the Assessing Officer holdingthat the transactions during the period 01.04.2004 to 30.9.2004 weretreated by the assessee as stock-in-trade and offered the gain orloss under the head 'business'. However, after 01.10.2004, theassessee had shifted his stand treating the trading of shares andsecurities as by way of investment. Thus the Assessing Officerrejected the assessee's stand to treat the transactions and theprofits arising therefrom as stock-in-trade and business income. 6. Aggrieved by this, the assessee went on appeal before theCommissioner of Income Tax (Appeals), who, after going through thefacts found, agreed with the assessee. For the completion ofnarration, it is suffice to point out that the Commissioner of IncomeTax (Appeals) found the reasoning of the Assessing Officer asincorrect factually and that contrary to the observation of theAssessing Officer that the shares were held between 2 and 45 days,the assessee had held many shares exceeding 45 days upto 12 months.The Commissioner of Income Tax (Appeals) also pointed out thatborrowing of funds was for the purpose of F & O business and not forthe purpose of investment. The shares purchased as investment hadalso been kept in the investment account and not in the stock-in-trade (inventory) account. Thus, on an analysis of facts, theCommissioner of Income Tax (Appeals) agreed with the assessee andallowed the appeal. 7. Aggrieved by this, the Revenue went on appeal before theIncome Tax Appellate Tribunal contending that the Commissioner ofIncome Tax (Appeals) had ignored the findings of the AssessingOfficer and that the assessee had sold shares in as many as 106companies, bought over 62 lakhs shares and sold them before the endof the financial year valuing more than Rs.77 corres. The Revenuefurther countered that the Commissioner of Income Tax (Appeals)ignored the fact that except for a very small portion of the sharespurchased during the fag end of the financial year, all the shareshad been sold before the end of the financial year and thatpercentage of purchase and sale of shares over the holdings exceeded98% for the said period. In the circumstances, the Revenue hadprayed for setting aside the order of the Commissioner of Income Tax(Appeals). 8. In considering the rival submissions, in paragraph 5 of theorder, the Tribunal held that a perusal of the assessment order, morespecifically para 5, clearly brought out the nature of thetransactions. It further observed that "These facts as brought outby the Assessing Officer remained undisputed". Thus holding, theTribunal held that the holding period of shares was very short, theconsistent practice of the assessee had been to treat thetransactions as business and the assessee had changed the consistentstand from business to investment without showing any valid cause.Thus holding, the Tribunal allowed the appeal filed by the Revenue.Hence, the present appeals have been preferred at the instance of theassessee. 9. It is a matter of record that after allowing the Revenue'sappeal, the assessee filed Rectification Petition before the Tribunalcontending that the assessee had not admitted the facts as had beenstated by the Assessing Officer to ultimately treat the income asbusiness income. Referring to the findings of the Commissioner ofIncome Tax (Appeals), the assessee pointed out that such observationby the Tribunal was a mistake apparent on the face of the recordrequiring rectification. It is also a matter of record that whilethe Accountant Member agreed with the assessee that the mistakepointed out by the assessee was an error apparent on the face of therecord and hence directed the hearing of the appeal in the usualcourse, the Judicial Member, however, took a different view thatunder the garb of rectification of mistake, it was not possible for aparty to take a further chance to reargue the appeal already decidedand rejected the rectification petition. In view of the differenceof opinion, the matter was referred to the third Member, who agreedwith the view of the Judicial Member and rejected the rectificationpetition. Admittedly, as against the order passed in themiscellaneous petition seeking rectification, the assessee did notfile any appeal before this Court. 10. Leaving that aside, the fact remains that the assessee hadchallenged the order of the Income Tax Appellate Tribunal passed inthe main appeal contending that when the Tribunal had sought torestore the assessment, it committed a serious error in taking theview that the facts as stated in the assessment order remainedundisputed. 11. Learned senior counsel appearing for the appellants pointedout that when the assessee had raised specific grounds before theCommissioner of Income Tax (Appeals), who found in favour of theassessee, it is totally incorrect on the part of the Tribunal to holdthat the assessee had not disputed the facts as found in theassessment order. Thus when the Revenue had gone on appeal beforethe Income Tax Appellate Tribunal, which is a final fact findingauthority, it ought to have decided the points raised by the assesseein the appeal filed before the Commissioner of Income Tax (Appeals),which was a subject matter of appeal before the Tribunal at theinstance of the Revenue. Thus when disputed questions of fact werebefore the Tribunal, in fairness to the claim of the Revenue as wellas of the assessee, the Tribunal should have considered therespective cases in a proper perspective to give a finding on facts.Without doing so, on a mistaken impression that the assessee hadadmitted the facts as projected by the Assessing Officer, theTribunal allowed the Revenue's appeal, which makes the finding aperverse one. 12. In this connection, he placed reliance on the decision of theApex Court reported in (1967) 66 ITR 462 (Udhavdas Kewalram V.Commissioner of Income-tax) as well as on the unreported judgment ofthis Court dated 13.2.2012 in T.C.(A)No.791 of 2004 (CIT V. GECAlsthom India Ltd.) that when the findings of fact by the Tribunalare unsupported by any material, the order of the Tribunal suffersfrom a manifest infirmity, requiring interference at the hands ofthis Court. 13. Countering the stand of the assessee, learned standingcounsel appearing for the Revenue, however, submitted that in face ofthe order rejecting the rectification petition remainingunchallenged, there is no gain saying on the part of the assessee tocontend that the observation of the Tribunal was wrong. In anyevent, when the Tribunal has given a factual finding as to the natureof transaction, the order does not call for any interference. 14. Heard learned Senior counsel appearing for the appellants andthe learned Standing counsel appearing for the respondent and perusedthe materials placed before this Court. 15. We do not agree with the line of submission by the learnedstanding counsel appearing for the Revenue that on the sole ground ofthe order in the rectification petition not being challenged in the https://hcservices.ecourts.gov.in/hcservices/ manner known to law, the order of the Tribunal would reach afinality. A reading of the order of the Tribunal clearly shows theperfunctory manner of the disposal of the appeal. This is more so inthe context of the findings rendered by the Commissioner of IncomeTax (Appeals) allowing the assessee's appeal on the findings of factarrived at by the Commissioner of Income Tax (Appeals), which was asubject matter of appeal before the Tribunal at the instance of theRevenue. 16. As rightly pointed out by the learned Senior counselappearing for the assessee that if the Tribunal decides that thefindings of the Commissioner of Income Tax (Appeals) was without anymaterial, nothing prevented the Tribunal from going into those factsand the findings to arrive at a finding based on the records. Butall that the Tribunal observed was as follows: "5. We have considered the rival submissions. Aperusal of the assessment order, more specifically para 5,clearly brings out the nature of transactions. Thesefacts as brought out by the Assessing Officer remainedundisputed." 17. As far as the observation of the Tribunal is concerned, theonly fact admitted by the assessee was that it had two differentportfolios, being trading in shares and investments. The disputeraised by the assessee related to the transactions falling under boththe heads. When the specific case of the assessee was that theincome arising from the sale of shares could not be treated as incomefrom business, in fairness to the claim of the assessee, the Tribunalought to have considered the same in detail to arrive at a factualfinding. 18. As far as the present case is concerned, the Tribunal has notadjudicated on the issue in the light of the materials projected bythe assessee in support of his case. 19. In similar situation, in the decision reported in (1967) 66ITR 462 (Udhavdas Kewalram V. Commissioner of Income-tax), the ApexCourt pointed out "the Tribunal was undoubtedly competent to disagreewith the view of the Appellate Assistant Commissioner. But inproceeding to do so, the Tribunal has to act judicially, i.e, toconsider all the evidence in favour of and against the assessee. Anorder recorded on a reivew of only a part of the evidence andignoring the remaining evidence could not be regarded as conclusivelydetermining the questions of fact raised before the Tribunal." 18. As far as the present case is concerned, the Tribunal has notadjudicated on the issue in the light of the materials projected bythe assessee in support of his case. 19. In similar situation, in the decision reported in (1967) 66ITR 462 (Udhavdas Kewalram V. Commissioner of Income-tax), the ApexCourt pointed out "the Tribunal was undoubtedly competent to disagreewith the view of the Appellate Assistant Commissioner. But inproceeding to do so, the Tribunal has to act judicially, i.e, toconsider all the evidence in favour of and against the assessee. Anorder recorded on a reivew of only a part of the evidence andignoring the remaining evidence could not be regarded as conclusivelydetermining the questions of fact raised before the Tribunal." 20. In the unreported decision of this Court dated 13.2.2012 inT.C.(A)No.791 of 2004 (CIT V. GEC Alsthom India Ltd.), this Courtreferred to the decision of the Apex Court reported in 2010 (9) Scale199 (M/s.Kranti Associates Pvt. Ltd. and another V. Sh.Masood Ahmed https://hcservices.ecourts.gov.in/hcservices/ Khan and others) and to the observation in paragraph 51. We need notreproduce the same, except to point out that recording of reasons ismeant to serve the wider principles of justice and the quasi-judicialauthority must record reasons in support of his conclusions and thedecision of the Apex Court pointing out that insistence on reason isa requirement for both judicial accountability and transparency, itgoes without saying that the order passed by the Tribunal on themistaken impression that the assessee had not raised any dispute onthe facts found by the Assessing Officer, calls for interference bythis Court. 21. Thus, without going into the merits of the contentions madeby the assessee, this Court has no hesitation to set aside the orderof the Tribunal, thereby direct the Tribunal to hear the appeal denovo and pass orders in accordance with law. 22. Since the Tribunal has passed a common order in respect ofthe same issue in the case of the company, wherein the assessee inT.C.(A)No.203 of 2012 is the Managing Director and the nature oftransactions and the applications made being similar, the orderpassed in T.C.(A)No.203 of 2012 would be applicable to the T.C.(A)No.202 of 2012. 23. In the circumstances, both the Tax Case (Appeals) are allowedand the matters are restored to the files of the Tribunal for freshconsideration. No costs. Consequently, M.P.Nos.1 and 1 of 2013are closed.slSd/Asst.Registrar //true copy// Sub Asst.Registrar To 1. The Asst.Registrar, Income Tax Appellate Tribunal, "B" Bench, A3-2nd floor, Rajaji Bhavan, Besant Nagar, Chennai-90.2. The Deputy Commissioner of Income Tax Company Circle 1 (1), Chennai-34. 3. The Commissioner of Income Tax (Appeals) III, 121, Mahatma Gandhi Road, Chennai-34. 4. The Assistant Commissioner of Income Tax Appeal Company Circle(1), Chennai. + 1 CC TO MR.T.RAVIKUMAR, ADVOCATE SR.37267. + 2 CCS TO Dr.ANITHA SUMANTH, ADVOCATE SR. 37450. T.C.(A)Nos.202 and 203 of 2012& M.P.Nos.1 and 1 of 2013 KR/02/08/2013