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TMI Blog2014 (1) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... price of shares - The assessee has been investing in shares since last 5-6 years and have been treating them as investment in its books of accounts - Following the Rule of consistency the income from shares shall be treated as capital gains and not business income - Decision in Commissioner of Income-Tax Versus NSS. Investments P. Ltd. [2005 (4) TMI 45 - MADRAS High Court] followed - Decided against Revenue. - I.T.A. No. 4785/Mum/2009 - - - Dated:- 15-1-2014 - Shri R. C. Sharma And Shri Sanjay Garg,JJ. For the Appellant : Shri O. P. Singh For the Respondent : Shri Rajan R. Vora ORDER Per R. C. Sharma, A. M. This is an appeal filed by the Revenue against the order by the ld. CIT(A)-XV, Mumbai dated 18.06.2009, in the matter of order passed u/s.143(3) of the Income Tax Act, 1961 for the assessment year (A.Y.) 2005-06. 2. Following grounds have been taken by the Revenue: "1. On the facts and in the circumstances of the case the ld. CIT(A) erred in law in deleting the addition regarding the treatment of business income at Rs.1,68,49,470/- shown as Long Term and Short Term Capital gains ignoring the facts available on record in favour trading the shares involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of the assessing officer that there was a series of transactions of shares vis purchase sales, which can be regarded as business activities as appellant is in this business right from its inception, but because of the decision of the Hon'ble ITAT in the appellant's own case, matter is required to be reviewed and considered with regard to the final decision. In this connection, the decision of Janak Rangwalla vs. CIT, ITAT Bench H, (supra) and Motilal Oswal vs. Addl. CIT, (supra) and J. M. Stock Brokers vs. JCIT (supra have been considered by the Hon'ble ITAT (supra) wherein the ITAT passed the orders in favour of the assessee on similar facts and circumstances of the case Hon'ble Mumbai Tribunal in the Appellant's own case (ITA No.5726/Mum/2007) for A.Y. 2004-05 has decided the issue after considering the findings of co-benches as under: "We are of the opinion that the facts in the given case are also squarely covered by the decision of J. M. Share and Stock Brokers (supra). Assessee having maintained its portfolio for trading and investment separately was very well within its rights to claim gains arisng out of sale of shares held as investment, to be short term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-in- trade amounting to Rs.1,59,38,969/-, whereas capital gain earned on investment was merely Rs.1,39,69,282/-. If we analyze the percentage of the shares held as stock-in-trade vis- -vis investments, we found that 97% was held as stock-in-trade, whereas in investment it was on 3%. The Hon'ble Supreme Court in the case of CIT vs. Associated Industrial Development Co. (P.) Ltd. [1971] 82 ITR 586 (SC) has observed as under: "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment." 8. We have deliberated upon various case laws cited by the ld. Authorized Representative and ld. CIT DR and in the context of factual matrix of the case. We had also deliberated on the case laws referred to by lower authorities in their respective orders. The question as to whether the assessee has earned capital gain or business profits on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of Hon'ble Supreme Court in the case of Ram Kumar Agarwal Brothers, 205 ITR 251, the AO was not justified in treating the capital gain earned from sale of these shares, as business profits, which were entered by the assessee as investment in books of account. There is also no dispute to the well settled legal proposition that res judicata do not strictly apply to the income tax proceedings, but at the very same time, it is well settled that principle of consistency under the same facts and circumstances is the fundamental of judicial principle, which cannot be brushed aside without proper reasoning. In this regard, reliance can be placed on the decision in case of S.M.K. Shares and Stock Broking Private Limited, I.T.A. No. 799/Mum/09 order dated 24.11.2010. In this proposition, the decision of Hon'ble Supreme Court in the case of Gopal Purohit, 228 CTR 582, is very much relevant and important. 9. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of securities sold on the stock exchange. A new section 111A has also been inserted and section l15AD is amended, so as to provide that short-term capital gains arising from sale of such securities to an investor including FIIs shall be charged at the rate of ten per cent. These amendments apply to assessment year 2005-2006 and subsequent years. Through Finance Act, 2008, sections 111A and 115AD have further been amended whereby the rate of tax on such short-term capital gain has been raised to fifteen percent. Thus, w.e.f. 01.10.2004; on the share transactions subjected to STT; concessional tax rate of 10% (which has been increased to 15% from AY 2009-10) are applicable in respect of STCG whereas no tax is chargeable in respect of LTCG. It is also noted that the CBDT vide its Circular no.4/2007, dated 15.06.2007 has also recognized possibility of two portfolios, i.e. one 'Investment portfolio' comprising of securities which are to be treated as capital assets and the other 'Trading portfolio' comprising of stock in trade which are to be treated as trading assets. In view of these facts, profit arose on shares in respect of delivery based transaction are liable to be taxed as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Finance Bill has been recognized by this Court in K.P. Verghese - vs ITO 1981), 131 ITR 597 (SC), at 609. Again in the case of R B Falcon (A) Pvt. Ltd vs CIT (2008) 301 ITR 309 (SC), it was held that (Page 323):- Rules of executive construction in a situation of this nature may also be applied. Where a representation is made by the makers of legislation at the time of introduction of Bill or construction thereupon is put by the executive upon its coming into force, the carries great weight.'' The Hon'ble Delhi High Court in ARJ Security Printers, 264 ITR 276 and Neo Pollypack Pvt Ltd. 245 ITR 492 (Del.) held that even when the doctrine of res judicata does not apply to income tax proceedings, where a issue has been decided consistently in earlier assessment years in particular manner, the same view should prevail in subsequent years unless there is a material change in facts, meaning thereby, there must be material change in the facts. The Indore Bench of the Tribunal in the case of ACIT vs Om Prakash Suri (supra) held as under:- "3. We have considered the submissions put forth by the learned Senior DR and also perused the material available on record. Brief facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was mainly through stock broker, Arihant Capital Markets Limited, registered with NSC, NSE and BSE. It is also seen that in the impugned order the board circular no. 4/2007 dated 15.6.2007 wherein it was emphasized that it is possible for a tax payer to have two port folios i.e. an investment port folio comprising of securities which are to be treated as capital asset and trading port folio comprising stock in trade which are to be treated as trading asset, was considered. The Board further clarifies that no single principle would be decisive and the total proposition needs to be considered. The assessee has maintained only one port folio and claimed that to be an investment folio. Undisputedly, the period of holding is less than one year, consequently, there is no infirmity in holding that these transactions would be treated as short term capital gain on which the applicable tax is @ 10% only. In view of this uncontroverted fact, there is no merit in the appeal of the revenue and the same is dismissed. Order pronounced in open Court on 4th August, 2010." 13. The aforesaid decision was affirmed by the Hon'ble Madhya Pradesh High Court reported in (2012) 19 ITJ 326 M.P. The Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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