9911796707
TMI Blog2012 (12) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer. 3. The learned Commissioner of Income-tax has selectively considered the facts and ignored the remaining factual position which supported the appellant's plea that the surplus realised on sale of shares is liable to tax as capital gain. 4. The CIT(A) erred in ignoring the basic submissions that where the appellant purchased the shares the intention was to hold them as investment. 5. It is contended that the conduct of the appellant, the treatment in accounts, the length of holding of the shares, the receipt of dividend along with other factors amply demonstrates that the appellant treated the shares as investment only and not for trading. 6. The appellant contends that she is entitled to depreciation on computer projection device and UPS @ 60% treating them as computers and not at 15% which is the general rate. The learned CIT(Appeals) erred in rejecting the appellants submission and upholding the rate of depreciation at 15%." From the above, it is evident that there are two issues for adjudication in these appeals. The first issue is with regard to the 'head of income' and application of tax rates u/s. 111A of the Act in respect of the sum of Rs.2,29,92,722 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummed up by saying that the overall intention of the assessee is to make business profits and she has no intention to hold the shares for longer period to earn dividends. Regarding Schedule 7 (Investments) to the Balance Sheet, the assessing officer held that only five shares were held as on 31.3.2007, although assessee purchased many scrips and sold during the year. Assessing officer considered and rejected the written submissions of the assessee vide letter dated 9.12.2009 wherein it was submitted as follows, i.e. '..... investments are long term, accordingly I have maintained the books of accounts. My intention of investments are long term investments. I am not doing business of securities.". 5. Facts relating to the second issue relating to the depreciation on the LCD and UPS are also narrated on page 4 of the impugned assessment order and briefly stated, assessee claimed depreciation on LCD projector and UPS at the rate of 60% as applicable to computers and computer software. The assessing officer held the above items as office equipment and allowed depreciation thereon at the rate of 15% only. In the process, the assessing officer relied on the order passed in the case of he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t many years at least from the assessment year 2004-05 onwards and this is for the first time that the assessing officer disturbed the claim of the assessee in the assessment year 2007-08, ignoring the fact that the Revenue accepted the claim of the assessee in the past and relied on the Mumbai Bench decision of the Tribunal in the case of Gopal Purohit V/s. JCIT(29 SOT 117), which was subsequently upheld by the Mumbai High Court and the Apex Court. Further, it was mentioned that the assessee never took loans for the purchase and sale of shares and therefore, there was no payment of interest by the assessee. In fact, all the shares were purchased out of own funds available for investment with the assessee. 8. It was further submtited before the CIT(A) that the facts are identical and therefore the assessing officer erred in disturbing the assessee's claim in the year under appeal. The CIT(A) remanded the above submissions to the assessing officer and the assessing officer submitted his report, relying on the Board Circular No.4 of 2007 to hold that the assessee carried on trading activity only. In the said remand report, the fact of high volume involving huge number of scrips and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to demonstrate that he is an investor, which he failed to do so. In the absence of any evidence in that behalf, the intention of the assessee has to be judged based on the volume, frequency and regularity of transactions and relied in this behalf on the decision of the Apex Court in the case of Saroj Kumar Majumdar V/s. CIT(37 ITR 242). For the proposition that even if a purchase is with an intention to resell for profit, it would amount to business profit, depending on the circumstances such as the nature quantity of purchase and nature of operation involved. Further, the CIT(A) analysed the scrips and found that the scrips cover 11 companies only, out of which nine companies were fully sold in subsequent years and at the end of the year, assessee held only shares of Karur Vysya Bank Ltd. and Hifco Marble Ltd. The other details summed up by the CIT(A) before holding the assessee as a trader are noted in para 6.5 to 6.7 of the impugned order, which read as under- "6.5 If we analyze the case of the appellant, it can be seen that the opening stock of shares as on 1.4.2006 consisted of scripts of 11 companies only. However, even out of the same, shares of 9 companies were full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the Assessing officer has rightly considered the appellant as a 'trader' in shares and not an 'investor', so as to give the benefit of the provisions of sec.111A in respect of the gains made by her on share transactions. The assessment of the gain of Rs.2,29,92,072/- as 'business income' and therefore upheld and ground No.s 2 & 3 are decided against the appellant." 11. Regarding depreciation on LCDs and UPS, the CIT(A) discussed the definition given to the computer system as provided in Explanation (a) to S.36(1)(iii) of the Act and mentioned that the computer system includes devices including input and output devices and came to the conclusion that LCD projectors are only of additional utilities and not output device in itself, and therefore, he confirmed the applicability of depreciation rate of 15%. Similarly, regarding UPS, the CIT(A) came to the conclusion that the UPS are not like printers or scanners and accordingly confirmed the disallowance made by the CIT(A) out of depreciation claimed by the assessee on these items. 12. Aggrieved by the orders of the CIT(A), assessee preferred the present appeal before us. 13. In the other appeal, ITA No.333/Hyd/2011 of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual matrix of each of the two cases ie existence of entries in the books of account as investment and not as stock in trade, earning of dividend income out of the said investments or effecting purchases out of the own funds and not out of the borrowed funds. Further, she submitted that there is also no dispute about the delivery based investments made by the assessee. However, the Ld DR submitted that the frequency of the transactions of purchase and sale, high volume of turnover, magnitude of the transactions etc definitely have to be considered while deciding the issue and the assessee's intention based arguments in deciding the nature of the impugned transactions and concluding on the proper head of income. She submitted that only on appreciation of the totality of the facts and circumstances of the each of the case, one has to arrive at appropriate conclusion in each case. In this behalf, she relied on the decision of Mumbai Bench of the Tribunal in the case of Harsh Mehta dated 16.7.2010, Spectra shares and scrips (P) Ltd ITA No 748/Hyd/2011 and PVS Raju 340 ITR 75 for the proposition that the short term capital gains disclosed must be assessable as business income. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be a business asset in the hands of the assessee, and hence the assessee rightly offered the resultant gain on sale under the head 'capital gains'. In the case of Janak S.Rangwalla Vs/ ACIT(11 SOT 627), Mumbai Bench of the Tribunal held that mere magnitude of the transaction does not change the nature of transaction, which is being assessed as income from capital gains in the past several years. On the facts of the disclosure of profits partly as business income and partly as short term capital gains, Hon ble AP High Court held in the case of PVS Raju 340 ITR 75 that the impugned short term capital gains are assassable as business profits. Said High Court observed that when the frequency of transactions are high and the dominant intention in purchase of share is resale and not for earning of the dividend and of course, the figures relating to the frequency or volume are not mentioned in the said judgment. Similarly, the coordinate bench decision in the case of a Spectra shares and scrips (P) Ltd vide ITA No 748/Hyd/2011 has been explained by the assessee as distinguishable on facts from that of the assessee in view of the extremely high frequency of shares transaction. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide the issue on hand and there is need for considering the various facets and weigh all of them before deciding the grounds. Apex Court decision in the case of Associated Industrial Development Co. P. Ltd. (82 ITR 586); in the case of Holck Larsen (168 ITR 67); AAR decision in the case of 288 ITR 641 and CBDT circular No.4 of 2007 dated 15.6.2007 are helpful for relevant guidelines for deciding whether a particular transaction resulted in capital gains or otherwise. Given the peculiar facts of the cases, in our opinion, all the available facets can be summarized under the following headings for the purpose of the analysis and adjudication and they are: (a) Treatment as given in the books of account in respect of the impugned transactions. (b) Frequency, magnitude and regularity of the impugned transactions; (c) Other issues such as whether the dividend is earned or whether the transactions are delivery based or otherwise; the conduct of the assessee; (d) Original and Dominant intention; and (e) Consistency of the revenue approach in accepting the claim of the assessee despite the applicability of the principle of res judicata - role of Judgment of the Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs etc. It is a well established legal principle that the entries in the books of account are not decisive but it is equally a settled legal principle vide the judgment in the case of PVS Raju, supra that certainly it is one of the criteria which must be considered for deciding the nature of the transactions. In the said judgment, Honble AP High Court commented that no single criterion is decisive in determining the question whether a particular receipt is capital or revenue. The answer to the question must ultimately depend on the facts of each particular case as held by the Supreme Court in the case of Saurashtra Cement Ltd 325 ITR 422. Therefore, considering the entries in the books of the assessees, the original intention is displayed and on this score, the assessee claim gets strength. (b) Frequency, magnitude and regularity of the transactions: We have noted hereinabove, the number of transactions, frequency, volume and regularity of the impugned transactions relating to shares held for period less than 12 months. Para 6.2 of the CIT(A) orders in both the cases provides numerical of the transactions and accordingly, the Rs 29.55 crores is the total turnover and it includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the assessee which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceding years have been held to be income from Capital Gains both on Long Term and Short Term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as Short Term Capital Gains. There is no basis for treating the assessee as a Trader in shares, when his intention was to hold the shares of Indian companies as an investment and not as stock in trade. The mere magnitude of the transactions does not change the nature of transaction, which are being assessed as Income from Capital Gains in the past several years. The Assessing officer is directed to set off the Long Term Capital Gains against the Short Term Capital Gains of the year under consideration. The grounds of appeal raised by the assessee are allowed." Thus, merely 158 scrips were transacted as in the case of Nagindas P.Sheth (supra), the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the claims of the assessee so long as the material facts of issue over the AYs are identical. The case of the assessees before us is that the decision of Bombay High Court and Apex Court in the case of Gopal Purohit (supra) applies. On the other hand, the case of the revenue is entirely opposite. In this context, we have examined the facts of the case of sobha Rani and considered the assessees argument that the assessees have been consistently purchasing the shares and selling the same, and the claim of the assessees was accepted over the years by the assessing officer and with the exception of the current AY and subsequent ones. In this year and that too only in the segment of short term capital gains, the assessing officer has not accepted the claim of the assessee in respect of shares held for less than one year. This kind of inconsistency from the point of view of the Revenue is not appreciated in view of the decision of the Apex Court in the case of Gopal Purohit (supra). It is so held by the Court despite the settled position in law that the principle of res judicata does not apply to the income-tax proceedings. 21. We have examined the above legal principle to the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto 10s or 100s or 1000s of transactions each and every day. Therefore, the one transaction every alternate day should by no means be considered high. At the maximum, in the scale of low, middle, high and very high, the aforementioned transactional frequencies of the present assessees may fall some where in the categories of low and the middle levels and certainly not in 'high' as held by the revenue authorities. However, our observation is subjected to outcome of the exercise of delving of any comparable cases by the CIT(A) in the remand proceedings. 24. Regarding volume/turnover, around 25 crores in the case of Sobha Rani and Rs 70 crores of purchases + Rs 88 crores of sales in the case of Tejeswy, in our opinion, we need to examine if it constitutes very high or otherwise. It is a fact that the size of the transactional volume and the turnovers are dependent on type shares too. The orders of the CIT(A) does not discuss the type of shares and if the high value scrips are involved. 25. It is also relevant to mention here that the mere high frequency does not decide the nature of the transaction as mere book entries does not do so. Regarding turnover, volume and frequency, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee enter into the transaction of purchase of the share on a particular day/time and the assessee or his accountant has to pass entry of such transaction in the books of accounts, he has to take a conscious decision to treat the same either as investment or trading transaction and this conscious decision refers to the initial intention mentioned above and assume very significant for deciding the transactional nature, whether investment or trading one. In the instant case, the undisputedly, the assessee is engaged in investment portfolio as accepted by the revenue with regard to the Long term held scrips. We also find the revenue artificially divided the same bundle of scrips of the same company into long term capital ones and the stock in trade solely based on the holding period. In the process, the AO and the CIT(A) gave a slip to the set principle that no one facet or criterion like 'holding period' shall decide the nature of the transaction. Revenue ought to considered all the above mentioned facets cumulatively of the impugned transaction and weigh the same before opining that the share held for less than 12 months constitutes 'stock in trade' of the assessee and not the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . V/s. Addl. CIT(118 TTJ(Del) 652)= (2010)2 ITR 153 and CIT V/s. Orient Ceramics & Industries Ltd. (2010) 3 ITR (Trib) 246(Del) vide order dated 11.2.2010, Omni Globe Information Technologies India P Ltd. 31. Learned Departmental Representative on the other hand, strongly supported the orders of the assessing officer and the CIT(A) and submitted that no interference on this issue is called for. 32. We heard both the parties on this issue and perused the orders of the lower authorities and other material available on record, including the written submissions filed and the decisions relied upon by the parties. We find that as against the claim of the assessee for depreciation at 60%, the assessing officer adopted only a rate of 15% stating that UPS can perform other functions also and hence need not be part of computer and hence not eligible for depreciation at the rate of 60%. We find that this issue is covered in favour of the assessee by the decisions relied upon by the learned counsel this behalf. In the case of Expeditors International (India) (P) Ltd. (supra), the Delhi Bench of the Tribunal, following its own decision in the case of that very assessee, held that peripherals ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
