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TMI Blog2017 (1) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... r And Shri Pradip Kumar Kedia, Accountant Member Appellant by : Shri James Kurian, Sr.DR Respondent by : Shri Jigar M. Patel, AR ORDER Per Pradip Kumar Kedia, AM This appeal by the Revenue is directed against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad [CIT(A) in short] dated 18/11/2010 for the Assessment Year(AY) 2008-09. 2. The Revenue has raised the following solitary ground in its appeal:- The Ld.Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to tax the short term capital gain (STGC) and long term capital gain (LTCG) as claimed by the assessee instead of business income. 3. Briefly stated, the assessee is a Director of Wealth First Portfolio Managers Pvt.Ltd. and has derived income from salary, business and capital gains. The assessee filed its return of income for the AY 2007-08 declaring a total income of ₹ 1,01,26,583/-. The case was selected for scrutiny and the assessment order under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was passed. In the assessment order, the Assessing Officer (AO) treated the income de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly R.s.4,46,578. 1 find force in the contention of the appellant that .it is but natural for any investor to earn a decent return-by way of capital gains through the churning of his portfolio. As contended by the appellant, he has churned his portfolio, adjusting it for the coming years and allocating moneys for mutual fund investments. (b) From the data submitted by the appellant before the A.O., I find that the appellant has earned substantial short term and long term gains right from A.Y.2000-01. This factual data has not been controverted by the A.O. During A.Y.2000-01 to A.Y.2002-03; the long term gain earned by the appellant ranged between Rs. l .1 to ₹ 2.7 crores per year. In the preceding A.Y.2005- 06 the short term gain earned by the appellant was ₹ 8.7 lakhs. I find that the status of the appellant has been accepted as an investor in shares all along these years, both in respect of his earning long term and short term capital gains and in none of the preceding years he has been treated as a trader in shares. In fact, even during the year under consideration the appellant has earned long term capital gains of ₹ 6,40,470/- which were claimed as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the ITAT, Mumbai in the case of Janak S. Rangwalla (Supra) is very pertinent and needs to be applied to decide the controversy under consideration. In the said case before the ITAT, Mumbai Bench, the assessee had earned short term capital gains amounting to ₹ 1.47 crores. The main thrust of the Department in contending that the said gain should be taxed as business income was based on the reasoning that the volume of transactions and the magnitude of the resulting gains were very large. After due consideration of the case, the ITAT held as under. 6. We have heard the rival submissions and perused the records. The facts of the present case are that the assessee had earned income from Short Term Capital Gains amounting to ₹ 1,47,15,196 on sale of shares in the year under consideration, which was claimed to be adjusted against Long Term Capital Loss. The assessee has also declared income from speculation gains/loss which are on account of sale and purchase of shares without delivery of the shares. During the year under consideration, the assessee had also claimed Long Term Capital Loss of ₹ 1,02,31,691 on sale of shares which were hold by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 in Indian companies as an investment and not as stock-in-trade. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as Income from Capital Gains in the past several years. (c) The ITAT decision in the .case of Purnima K. Shah (Supra) relied upon by the A.O. is also clearly distinguishable, since it was so rendered on the peculiar facts of the case. Intact, in this case the gains were derived by the assessed, through large borrowed funds on which heavy, interest was paid and the behaviour of the assessee clearly demonstrated that she was not an investor who had used her capita! for making any investment. (d) The ratio of the AAR ruling in the case of Fidelity Northstar Fund and Others reported in 288 ITR 641 which has been referred to in C.BDT Circular No.4 of 2007 can also be usefully relied upon. The said case relates to the income arising from the purchase and sale of securities by FII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of share bear trapping of business are adventure in the nature of trade or commerce etc. and thus gains arising therefrom is required to be taxed as business transaction as per section 2(13) of the Act. He therefore pleaded that order of the CIT(A) is required to be reversed and order of the AO is required to be restored. 7. The Ld.AR Mr.Jigar M. Patel, on the other hand, submitted that the order of the CIT(A) and submitted that the impugned shares resulting for Long Term Capital Gains (LTCGs) or Short Term Capital Gains (STCGs) have been declared as investment in its books of accounts. The gain arising in shares held as Long Term Capital Asset were carried forward from the earlier years and declared as investment . Similarly, as regards STCGs, the shares were also held for a fairly long time prior to its sale ranging between 90 days to 351 days baring very few instances where shares were held for less than one month. The Ld.AR thereafter submitted that the impugned treatment of capital gains have been accepted by the Revenue in the earlier year and LTCGs STCGs declared has been taxed as such and therefore no perceptible reason exists to take a different stand in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar giving rise to LTCGs. Similarly, the shares hold as Short Term Capital Asset were also held for fairly long time prior to its sale giving rise to STCGs. On the totality of these facts, we find no reason to disturb the conclusion reached by the CIT(A). Mere fact that the assessee has also quickly sold shares in some instances within short interval would not ipso facto lead to conclusion that the assessee was a trader in the shares. We find that the issue is squarely covered in favour of assessee by the decision of Pune Bench of Tribunal in the case of Suresh Babulal Shah (HUF)[supra]. The relevant portion of the impugned order is extracted hereunder:- 7. The Ld. Departmental Representative (DR) Shri Hitendra Ninawe, on the other hand, relied upon the order of the CIT(A) and submitted that in view of the regularity, frequency, volume of the transactions, these transactions of shares bears trappings of business or adventure in the nature of trade or commerce, etc. and thus gain arising therefore is required to be taxed as business transaction as per section 2(13) of the Act. He, therefore, pleaded that no interference with the order of the CIT(A) is called for. 8. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent here to note the reference made to CBDT Circular (supra) which reads as under :- Sub-section (14) of Section 2 of the Income-tax Act, 1961 ('Act') defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT) has also, through Instruction No. 1827, dated August 31, 1989 and Circular No.4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 12. With a view to dilute controversy continuously cropping up on the subject, the CBDT has unraveled the guidelines in this regard. The CBDT Circular (supra) clarifies that once a particular stands has been taken by the assessee to such purchases in a particular assessment year it shall remain applicable in subsequent assessment years also and the taxpayers shall not be allowed to adopt divergent stand in different assessment years. Clearly, the CBDT Circular (supra) attempts to tone down the ongoing controversy on the issue in favour of the assessee. We find on fact that the action of the assessee is consistent with the aforesaid CBDT Circular. Consequently, gains arising on sale is required to be taxed under the head 'capital gains' only. We also take note of the averments made on behalf of the assessee that several purchases made in the earlier year and declared as 'capital investment' in the Balance Sheet of the earlier year were also sold and gain arising therefrom formed part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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