Wp(C)/9255/2021 Of Equity Intelligence India Private Limited v. Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN FRIDAY, THE 10 DAY OF DECEMBER 2021 / 19TH AGRAHAYANA, 1943 WP(C) NO.9255 OF 2021 PETITIONER: EQUITY INTELLIGENCE INDIA PRIVATE LIMITEDREPRESENTED BY ITS DIRECTOR, ABHILASH VARGHESE, 5TH FLOOR, AREEKAL MANSION, MANORAMA JUNCTION, MAIN AVENUE, PANAMPILLY NAGAR, COCHIN - 682 036. BY ADV SRI.P.K.RAVI SANKAR RESPONDENTS: 1DEPUTY COMMISSIONER OF INCOME TAXCORPORATE CIR 1(1), KOCHI, CENTRAL REVENUE BUILDING, I.S.ROAD, KOCHI - 682 018.2PRINCIPAL COMMISSIONER OF INCOME TAXKOCHI - 1, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, COCHIN - 682 018.3COMMISSIONER OF INCOME TAX (APPEALS)KOCHI, POORNIMA BUILDINGS, PANAMPILLY NAGAR, KOCHI - 682 036. SRI.P.K.RAVINDRANATHA MENON (SR.)SRI.JOSE JOSEPH, SC THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARDON 15.11.2021, THE COURT ON 10.12.2021 DELIVERED THEFOLLOWING: JUDGMENT The petitioner, a Company registered under theCompanies Act, is a “Portfolio Manager” as defined under theSecurities and Exchange Board of India (Portfolio Managers)Regulations, 1993. The petitioner Company invests surplusfunds from its principal business of Portfolio Management inequities of Indian Companies, apart from parking the funds inbank accounts.The 1[st] respondent issued a notice underSection 143(2) of the Income Tax Act, 1961 (for short, 'theAct') asking the petitioner Company to explain why profit onsale of shares should not be treated as business income. Inresponse to the said notice, the authorised representative ofthe petitioner Company appeared before the 1[st] respondentand relying on Circular Nos.4/2007 and 6/2016 dated29.02.2016 issued by the Central Board of Direct Taxes(CBDT) contended that the profit on sale of shares is capital gain. Clauses (a) and (b) of paragraph No.3 of CircularNo.6/2016 (Ext. P3) are extracted hereunder:- “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 incomearising from transfer of such shares/securities wouldbe treated as its business income. b) In respect of listed shares and securities held for a period of more than 12 monthsimmediately preceding the date of its transfer, if theassessee desires to treat the income arising from thetransfer thereof as Capital Gain, the same shall notbe put to dispute by the Assessing Officer. However,this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable insubsequent Assessment Years also and the taxpayersshall not be allowed to adopt a different/contrarystand in this regard in subsequent years;” 2. Relying on the said clauses, it was contended that the income sale of listed shares sold after holding them for more than 12 months amounting to Rs.3,08,67,375/- should beassessed as long term capital gains and should not be treatedas business profit. 3. The 1[st] respondent passed Ext.P2 assessment order wherein the 1[st] respondent took a stand that the short termcapital gains of Rs.1,43,14,697/- and long term capital gainsof Rs.3,08,67,375/- earned by the petitioner Company fromthe sale of listed equity shares of Indian Companies should betreated as Business Profit and not Capital Gain. 4. Challenging Ext.P2 order of assessment, thepetitioner Company preferred an appeal under Section 246 ofthe Act before the 3[rd] respondent and the same is pending. In the meanwhile, the petitioner Company preferred Ext.P6 rectification application before the 1[st] respondent underSection 154 of the Act. It was contended therein that the 1[st] respondent, while passing Ext.P2 order, went wrong indisregarding Ext.P3 Circular No.6/2016 of CBDT and treatedthe long term capital gain from sale of listed shares as taxableunder the head business and therefore, there is a mistakeapparent from the record which requires to be rectified. 4. Challenging Ext.P2 order of assessment, thepetitioner Company preferred an appeal under Section 246 ofthe Act before the 3[rd] respondent and the same is pending. In the meanwhile, the petitioner Company preferred Ext.P6 rectification application before the 1[st] respondent underSection 154 of the Act. It was contended therein that the 1[st] respondent, while passing Ext.P2 order, went wrong indisregarding Ext.P3 Circular No.6/2016 of CBDT and treatedthe long term capital gain from sale of listed shares as taxableunder the head business and therefore, there is a mistakeapparent from the record which requires to be rectified. 5. The 1[st] respondent, by Ext.P7 order, dismissed theapplication for rectification reiterating the reasons stated inthe assessment order. Against Ext.P7, the petitioner Companypreferred Ext.P8 revision petition before the 2[nd] respondentunder Section 264 of the Act contending that the assessingauthority, while passing the said order, did not advert to Ext.P3 Circular relied on by the petitioner. The 2[nd] respondentrejected the revision petition by Ext.P9 order. Exts.P7 and P9are impugned in this writ petition. 6. A statement has been filed on behalf of the respondents wherein it is stated that the petitioner Companyhas already instituted a Regular Statutory Appeal against Ext. P2 order of assessment and that Ext.P6 rectification application filed under Section 154 of the Act pertains to thesame issue. Being a parallel proceedings instituted by theassessee on the very same issue, Ext.P6 application forrectification is not maintainable.It is also statedthat thepetitioner Company, whose business is trading in shares, isnot covered by Ext.P3 circular and the scope of power underSection 154 is very limited. 7. Heard Sri.P.K.Ravi Sankar, learned Counsel for the petitioner and Sri.Jose Joseph, learned Standing Counsel forthe respondents. 8. Sri.Ravi Sankar, learned Counsel for the petitioner Company contended that Ext.P6 rectification applicationunder Section 154 of the Act is to correct mistake apparent on the face of record and notwithstanding the appeal filedagainst the order of assessment, the application forrectification of mistakes is independently maintainable. 9. According to Sri.Ravi Sankar, the Assessing Officerrefused to consider Ext.P3 Circular while issuing Ext.P2assessment order and the same is a mistake apparent fromthe record and the assessing authority is bound to rectify suchmistake and amend Ext.P2 assessment order when the sameis brought to the notice of the said authority by Ext.P6application. He also contends that Section 119 of the Actprovides for powers of the CBDT to issue Circulars and theassessing authority is bound to observe and follow suchcirculars and instructions. Sri.Ravi Sankar has also relied onv.the decision reported in Catholic Syrian Bank Ltd.Commissioner of Income Tax [2012 (3) SCC 784: 2012KHC 4121] wherein the Apex Court has held that thecirculars issued by the CBDT under Section 119 of the Act arebinding on the Income Tax Authorities and the same has to befollowed for a uniform and proper administration andapplication of the provisions of the Act. He also contends that the objection regarding parallel proceedingsis raised for the the objection regarding parallel proceedingsis raised for the first time by the respondents in the statement filed before thisCourt and there is no such objectionin Exts.P7 and P9 orders.Sri.Ravi Sankar further contends that, since the main factorfor consideration by the assessing authority is whether theprofit on sale of shares is capital gain or business income, fordetermining the said issue, Ext.P3 Circular is relevant and theassessment order passed without reference to such circularsuffers from mistake apparent from the record and the saidmistake is liable to be rectified by the 1[st] respondent inexercise of the powers under Section 154 of the Act. The 1[st]respondent has to exercise the powers under Section 154 ofthe Act even if an appeal is pending consideration before theappellate authority against the order of assessment or evenwhen the matter has been concluded by the appellateauthority. 10. Per contra, Sri. Jose Joseph would rely on the decision reported in T.S.Balaram, Income Tax Officer,v. Company Circle IVBombay Volkart Brothers andOthers [1971 (82) ITR 50 : 1971 KHC 576 : 1971 (2)SCC 526 : AIR 1971 SC 2204] wherein the Hon'bleSupreme Court held that it is not open to the assessingauthority to go into the true scope of the relevant provisionsof the Act in a proceedings under Section 154 of the Act andthat a mistake apparent on the record must be an obvious andpatent mistake and not something which can be establishedby a long drawn process of reasoning on points on whichthere may be conceivably two opinions. Sri.Jose Joseph alsomade available a copy of the appeal preferred by thepetitioner against Ext. P2 order of assessment and contendedthat the main issue raised therein is with regard to non-consideration of Ext.P3 Circular by the assessing authority.He submits that what has been raised in Ext.P6 rectificationapplication touches on the merits of the assessment order which can be considered only in appeal. Non-consideration of the circular being a matter pending consideration in appeal,the application for rectification amounts to institution ofparallel proceedings. 11. I do not find any merit in the contention of thepetitioner that the refusal to consider Ext.P3 Circularamounts to mistake apparent from the record which is to berectified in a proceedings under Section 154 of the Act. Assubmitted by the learned standing counsel for therespondents, the petitioner has raised the very same issue inthe rectification application as well in the appeal filed againstExt.P2 assessment order which is pending considerationbefore the appellate authority. The contention of the petitionerin Ext.P6 rectification application touches on the merits of thegrounds raised in the Regular Statutory Appeal filed againstExt.P2 assessment order. The applicability of the circular andwhether the assessing authority went wrong in disregarding the CBDT circular are grounds raised in the appeal by thepetitioner. This question requires an adjudication in theappeal by hearing parties on questions of facts and law.Therefore, the issue raised in Ext.P6 application is not amistake apparent from the record which is to be rectified in aproceedings under Section 154 of the Act. There is no merit inthe challenge against Exts.P7 and P9 orders. The writ petitionis dismissed. However, I make it clear that the statutoryappeal filed against Ext.P2 order shall be considered anddecided by the appellate authority in accordance with law,untrammeled by any observations in Exts.P7 and P9 orders.There will be no order as to costs. Sd/- MURALI PURUSHOTHAMAN JUDGE APPENDIX OF WP(C) 9255/2021 PETITIONER'S EXHIBITS EXHIBIT P1TRUE COPY OF THE ARTICLES OF ASSOCIATION OFTHE PETITIONER COMPANY DT. 7/12/2002.THE PETITIONER COMPANY DT. 7/12/2002. EXHIBIT P2TRUE COPY OF THE ORDER OF ASSESSMENT DATED27/12/2019 ISSUED BY THE 1ST RESPONDENT.27/12/2019 ISSUED BY THE 1ST RESPONDENT. Sd/- MURALI PURUSHOTHAMAN JUDGE APPENDIX OF WP(C) 9255/2021 PETITIONER'S EXHIBITS EXHIBIT P1TRUE COPY OF THE ARTICLES OF ASSOCIATION OFTHE PETITIONER COMPANY DT. 7/12/2002.THE PETITIONER COMPANY DT. 7/12/2002. EXHIBIT P2TRUE COPY OF THE ORDER OF ASSESSMENT DATED27/12/2019 ISSUED BY THE 1ST RESPONDENT.27/12/2019 ISSUED BY THE 1ST RESPONDENT. EXHIBIT P3TRUE COPY OF THE CIRCULAR NO.6 OF 2016DATED 29/2/2016 ISSUED BY THE CENTRAL BOARDOF DIRECT TAXES, DEPARTMENT OF REVENUE,MINISTRY OF FINANCE, GOVERNMENT OF INDIA.DATED 29/2/2016 ISSUED BY THE CENTRAL BOARDOF DIRECT TAXES, DEPARTMENT OF REVENUE,MINISTRY OF FINANCE, GOVERNMENT OF INDIA. EXHIBIT P4TRUE COPY OF THE JUDGMENT DATED 18/2/2020IN WP(C) NO.4618 OF 2020 OF THIS HONOURABLECOURT.IN WP(C) NO.4618 OF 2020 OF THIS HONOURABLECOURT. EXHIBIT P5TRUE COPY OF THE JUDGMENT DATED 29/6/2020IN WP(C) NO.10002 OF 2020 OF THISHONOURABLE COURT.IN WP(C) NO.10002 OF 2020 OF THISHONOURABLE COURT. EXHIBIT P6TRUE COPY OF THE RECTIFICATION PETITIONDATED 22/1/2020 SUBMITTED BY THE PETITIONERCOMPANY BEFORE THE 1ST RESPONDENT.DATED 22/1/2020 SUBMITTED BY THE PETITIONERCOMPANY BEFORE THE 1ST RESPONDENT. EXHIBIT P7TRUE COPY OF THE ORDER DATED 4/2/2020 OFTHE1STRESPONDENTREJECTINGTHERECTIFICATION PETITION.THE1STRESPONDENTREJECTINGTHERECTIFICATION PETITION. EXHIBIT P8TRUE COPY OF THE REVISION PETITION DATED10/2/2020 SUBMITTED BY THE PETITIONERCOMPANY BEFORE THE 2ND RESPONDENT.10/2/2020 SUBMITTED BY THE PETITIONERCOMPANY BEFORE THE 2ND RESPONDENT. EXHIBIT P9TRUE COPY OF THE ORDER DATED 29/3/2021ISSUED BY THE 2ND RESPONDENT.ISSUED BY THE 2ND RESPONDENT. spc/