Principal Commissioner Of Income Tax - 3 v. Rachna Yogeshchandra Parikh

C/TAXAP/204/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 204 of 2018 ==========================================================PRINCIPAL COMMISSIONER OF INCOME TAX - 3VersusRACHNA YOGESHCHANDRA PARIKH ==========================================================Appearance:MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHIandHONOURABLE MR.JUSTICE B.N. KARIA Date : 19/03/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 18.09.2017 raising following question for our consideration:Appellate Tribunal dated 18.09.2017 raising following question for our consideration: “Whether the Appellate Tribunal is right and on facts in holding that the income shown by the assessee on sale of shares of VEOL is to be treated as capital gain instead of business income?” 2. The question involved is whether the income generated through sale of shares should be taxed as capital gain or business income of the assessee. The Assessing Officer as well as the CIT (Appeals) treated it as business income as against the instance of the assessee that the same should be taxed as capital gain. This was basically on the premise that according to the said Revenue authorities, the assessee had tried to rig the through sale of shares should be taxed as capital gain or business income of the assessee. The Assessing Officer as well as the CIT (Appeals) treated it as business income as against the instance of the assessee that the same should be taxed as capital gain. This was basically on the premise that according to the said Revenue authorities, the assessee had tried to rig the prices of the shares in question and thereby generated inflated income. 3. The Tribunal, by the impugned judgement while overruling such orders of the Revenue authorities, placed heavy reliance on the CBDT circular No. 6 of 2016 dated 29.02.2016 in which, in the context of this ongoing controversy between the assessee and department regarding the treatment to be given to the income generated through sale of shares, certain directives have been issued.such orders of the Revenue authorities, placed heavy reliance on the CBDT circular No. 6 of 2016 dated 29.02.2016 in which, in the context of this ongoing controversy between the assessee and department regarding the treatment to be given to the income generated through sale of shares, certain directives have been issued. 4. Learned counsel for the Revenue mainly stressed on two aspects. Firstly, that the Tribunal did not give proper consideration to the facts on record which were minutely examined by the Assessing Officer and the CIT (Appeals) and secondly, that the circular would not apply looking to the exclusion clause contained in para 4 thereof.aspects. Firstly, that the Tribunal did not give proper consideration to the facts on record which were minutely examined by the Assessing Officer and the CIT (Appeals) and secondly, that the circular would not apply looking to the exclusion clause contained in para 4 thereof. 4. Learned counsel for the Revenue mainly stressed on two aspects. Firstly, that the Tribunal did not give proper consideration to the facts on record which were minutely examined by the Assessing Officer and the CIT (Appeals) and secondly, that the circular would not apply looking to the exclusion clause contained in para 4 thereof.aspects. Firstly, that the Tribunal did not give proper consideration to the facts on record which were minutely examined by the Assessing Officer and the CIT (Appeals) and secondly, that the circular would not apply looking to the exclusion clause contained in para 4 thereof. 5. The materials on record would suggest that the shares in question were of one Vishal Exports Overseas Ltd. [“VEOL” for short] which was a limited company. The assessee had been strenuously arguing that it was not possible to rig the prices of the shares through small trading. The Assessing Officer as well as the CIT (Appeals) both rejected such a contention mainly referring to the price fluctuations over a short span of time and its co-relation with pattern of the assessee's buying or selling of the shares.question were of one Vishal Exports Overseas Ltd. [“VEOL” for short] which was a limited company. The assessee had been strenuously arguing that it was not possible to rig the prices of the shares through small trading. The Assessing Officer as well as the CIT (Appeals) both rejected such a contention mainly referring to the price fluctuations over a short span of time and its co-relation with pattern of the assessee's buying or selling of the shares. 6. The CBDT circular in question lays down certain directives for limiting the disputes arising out of the issue at hand. In this context, in the said circular it is noted that despite earlier directions, disputes continued to exist on the application of the principles laid down in the said circulars and the individual tax buyers find it difficult to prove the intention in acquiring the shares and securities in question. There are no universal principles which could be applied uniformly. In order to reducethe litigation and uncertainty in the field, the directives were issued which provided as under: “a)Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income. b)In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment year, shall remain applicable in subsequent Assessment year also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. c)In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.” 7. These directions thus essentially recognize that the declaration made by an assessee with respect to its intention in buying and selling shares would be accepted. He was of course not allowed to change his position from time to time. Para 4 of the circular made certain exceptions and provided as under: “It is however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions.” 7. These directions thus essentially recognize that the declaration made by an assessee with respect to its intention in buying and selling shares would be accepted. He was of course not allowed to change his position from time to time. Para 4 of the circular made certain exceptions and provided as under: “It is however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions.” 8. This exclusion clause would apply where the genuineness of transaction itself is questionable. In other words, in cases such as bogus claims of long term capital gain or short term capital loss or sham transactions, the instructions of CBDT would not apply. It is not even the case of the Revenue that the transactions in question were sham. The observations of the Assessing Officer and CIT (Appeals) about the rigging of the shares could be at best seem to be more of suspicion than establishing the necessary conclusions.transaction itself is questionable. In other words, in cases such as bogus claims of long term capital gain or short term capital loss or sham transactions, the instructions of CBDT would not apply. It is not even the case of the Revenue that the transactions in question were sham. The observations of the Assessing Officer and CIT (Appeals) about the rigging of the shares could be at best seem to be more of suspicion than establishing the necessary conclusions. In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) JYOTI V. JANI (B.N. KARIA, J)