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TMI Blog2017 (2) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 - - - Dated:- 27-1-2017 - Shri M. Balaganesh, AM And Shri S. S. Viswanethra Ravi, JM For the Appellant : Shri Nicholas Murmu, JCIT, Sr.DR For the Respondent : Shri Vijay Shah, FCA ORDER Per Shri M.Balaganesh, AM These appeals of the revenue arise out of the orders of the Learned CIT(A)- XIX, Kolkata in Appeal Nos. 261 262/CIT(A)-XIX/ITO,Wd-31(3),Kol/11-12 dated 09.09.2013 for the Asst Years 2006-07 and 2009-10 respectively passed against the orders of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. There is a delay of about 13 days in filing appeals by the revenue. The same has been explained in an affidavit filed before us. After considering the reasons given in the affidavit, we are satisfied that the delay in filing the appeals was due to reasonable and sufficient cause. Accordingly the delay in filing the appeals is condoned. 3. The only issue to be decided in these appeals of the revenue is as to whether the ld CITA is justified in treating the assessee as an investor of shares as against trader of shares treated by the ld AO in the facts and circumstances of the case. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 15.6.2007 in this regard. The ld AO observed that the assessee had transacted in 44 numbers of companies which is substantially high from investors point of view. Similarly he observed that the assessee had transacted in 9 numbers of mutual fund schemes which is also again very high and does not give the impression of being an investor. The ld AO also observed that the assessee had earned total income amounting to ₹ 3,90,35,034/- out of which profit on sale of investment is ₹ 1,54,32,610/- and dividend income is ₹ 2,33,98,095/- , thereby resulting more than 99.47% of the income from dividend and dealing in shares and securities and mutual funds. According to him, this clearly showed that the assessee s main activity is dealing in shares only and just to have benefit of lower taxation, he had intelligently shown the income under the head income from capital gains . The ld AO also observed that the transactions are carried out regularly, quantities purchased and sold are very large and the assessee has contact, access to information and necessary qualification and competence to carry out the business of dealing in shares , securities and units of mutual funds. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years were under the head investments . The ld CITA by placing reliance on the decision of the Hon ble Supreme Court in the case of CIT vs H Holck Larsen reported in (1986) 160 ITR 67 (SC) and Rajputana Textiles (Agencies) Ltd vs CIT reported in (1961) 41 ITR 743 (SC) accepted the contentions of the assessee and treated the assessee as an investor of shares. Aggrieved, the revenue is in appeal before us on the following grounds :- Ground N0.1: That. on the facts and in the circumstances of the case, and in law, the Ld, CIT (A) erred in directing to compute the income of the appellant under the head Income from Capital Gains instead of Business Income as determined by the Assessing Officer Ground. N0.2: That. on the facts and in the circumstances of the case, the Ld, CIT(A) erred in overlooking CBDT Instruction No.4/2007 dated 15.06.2007, ignoring various decisions of higher courts and also ignoring the frequency of trade, limited holding period and huge volume of transactions undertaken by the assessee Ground No.3: That. the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and /or alter, modify, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book filed by the assessee. He brought the attention of the bench to the factual error committed by the ld AO in wrongly mentioning the period of holding to 110 days as the maximum period of holding when factually large volumes of shares were held for as long as 356 days which is quite evident from the details of short term capital gains together with the holding period in days submitted before the ld AO. He argued that the Hon ble Calcutta High Court in the case of CIT vs Merlin Holding P Ltd reported in (2015) 375 ITR 118 (Cal) for the Asst Years 2005-06 and 2006-07 had held that short term capital gains means shares held and sold within a period of 1 to 365 days. He placed reliance on the decision of the Hon ble Bombay High Court in the case of CIT vs Gopal Purohit reported in (2011) 336 ITr 287 (Bom) in support of his arguments apart from relying on the co-ordinate bench decision of this tribunal in the case of ITO vs Lyons Roses Pvt Ltd in ITA Nos. 1148 1437/Kol/2009 for Asst Years 2005-06 2006-07 dated 20.1.2016 in support of his arguments. 8. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the ld AO cannot take a different stand by treating the assessee as a trader in respect of short term capital gains alone. 8.2. We find that the assessee had earned dividend income to the tune of ₹ 2,33,98,095/- which is very substantial indicating the assessee s intention to always remain as an investor and not to exit the scrip with a short term profit motive. 8.3. We also find that the assessee had been consistently showing the amount invested in shares and mutual funds under the head investments in its books of accounts and there are no borrowings in the balance sheet filed by the assessee for the earlier years. These facts are not controverted by the revenue before us. We find that the revenue had already accepted the assessee to be an investor in the earlier years even in the scrutiny assessments framed u/s 143(3) of the Act for the Asst Years 2004-05 and 2005-06. Though the principle of resjudicata is not applicable in income tax proceedings, the principle of consistency cannot be given a goby in the absence of any changed circumstances. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of Radhasaomi Satsang report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in shares or whether the shares were purchased with a view to earn dividend income which is also profit. The gains arising in the former case would be in the nature of trade and hence business income and the latter would be for the purpose of investment and hence resultant gain would be capital gains. In the instant case, the assessee had reported both dividend income and offered short term and long term capital gains on the investment activities and business income for trading activities. 5.3.1 Whether introduction of concessional rate of tax on short term capital gains and exemption of long term capital gains pursuant to introduction of securities transaction tax (STT) would change the character of the transaction We find that the entire gamut of transactions are to be viewed in the context of dominant intention of the assessee whether to hold a particular scrip in investment portfolio or in trading portfolio. We find that the levy of securities transaction tax has been introduced in the statute with effect from 1st October 2004 relevant to Asst Year 2005-06, wherein if a sale of shares transaction is routed through a recognized stock exchange and securities transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital gains as the rate for business income and short term capital gains was at par. The assessee, however, was treating himself as an investor and keeping the delivery based shares as investments in his account irrespective of the probable tax implication as there were no such tax implications as discussed above. Thus, the intention of the assessee, while purchasing the share, is the important and guiding factor as to whether the same was purchased with an intention of investment or trading. 5.3.2 Dual portfolio - whether permitted We also find that nothing prohibits an assessee from holding dual portfolios i.e. (1) shares/units held for investment and (2) shares/units held for trading purposes. It is not in dispute that in the instant case, the assessee had maintained dual portfolios in its books of accounts and had reported capital gains and business income separately as per the consistent practice followed by the assessee over the years and accepted by the revenue in the earlier years. It is well settled that it is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee in the instant case is proved beyond doubt from the manner of maintaining two separate portfolios i.e. (1) for investment purposes and (2) for trading purposes. The Learned AR argued that in respect of shares retained under 'investment category' the assessee had taken due delivery of shares on its purchase and given due delivery of shares on its sale. The Learned AR further informed that the assessee had also kept separate records to record the transactions of each category i.e delivery based and non- delivery based. It is settled law that a particular income is from business or from investment must be decided according to the general common sense view of those who deal with those matters in the particular circumstances. The most excruciating factor to be looked into at this juncture is the conduct of the assessee. 5.3.4 Frequency of transactions The next point to be addressed in this issue is whether the frequency of transactions would alone indicate the trading activity. In this regard, we find the co-ordinate bench of Mumbai Tribunal had an occasion to consider the same in the case of Janak S. Rangwalla v. Asstt. CIT [2007] 11 SOT 627 (Mum), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt the short-term capital gains was incorrect. This was confirmed by the Tribunal. On appeal : Held, dismissing the appeal, that the assessee had adduced proof to show that some transactions were intended to be business transactions, some transactions were intended to be by way of investment and some transactions were by way of speculation. The Revenue had not been able to find fault from the evidence adduced. The mere fact that there were 1,000 transactions in a year or the mere fact that the majority of the income was from the share dealing or that the managing director of the assessee was also a managing director of a firm of share brokers could not have any decisive value. The Commissioner (Appeals) and the Tribunal had concurrently held against the views of the Assessing Officer. On the basis of the submissions made on behalf of the Revenue, it was not possible to say that the view entertained by the Commissioner (Appeals) or the Tribunal was not a possible view. Therefore, the decision of the Tribunal could not be said to be perverse. No fruitful purpose was likely to be served by remanding the matter. 5.3.4.2 We also find that the Hon'ble Calcutta High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the appeal does not appear to have been correctly formulated. The question could only be, whether the views expressed upon appreciating the facts and circumstances of the case were perverse. The question is now formulated and is answered in the negative. The appeal is thus dismissed.' 5.3.5 Existence of borrowed funds The next point to be addressed in this issue is the existence of borrowed funds and payment of interest thereon by the assessee. The Learned CIT(A) had given a factual finding that no nexus has been brought on record between the borrowed funds and the investments made. The Learned CIT(A) found that for the Asst Year 2005-06, the assessee had made short term borrowings from its director for a period of seven months only in order to meet its working capital requirements and the said loan was also squared up during the year. Similarly in Asst Year 2006-07, the assessee had made borrowings of ₹ 3 crores and utilized the same for investment as well as for trading activity. The Learned CIT(A) also found that the assessee has got a share capital of ₹ 10,00,000/- and reserves and surplus as on 31.3.2005 at ₹ 1,73,98,009/- in addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquire and sell shares as business has no relevance in view of the aforesaid resolution of the assessee and of the fact that it had been dealing in shares in a commercial spirit as is evident from its claim for loss in dealings in the shares of M/s. Titaghur Paper Mills Ltd. and devaluation of shares of M/s. Pilani Investment Corporation on the basis that they had fallen in value. Secondly, the Tribunal said that from 1947 to 1956, no dividend had been declared by the Rayon company and that the money which went into the purchase of these shares was borrowed by the assessee. In other words, the view of the Tribunal was, it was with borrowed funds that the assessee purchased the shares. It is no doubt true that there was no evidence to show that the money was specifically borrowed for the purpose of buying shares. But there was evidence before the Tribunal for its finding that the liabilities of the assessee exceeded its assets. The finding, therefore, that the shares were purchased with the borrowed funds on which the assessee was paying interest, was a finding supported by evidence. The reasoning of the Tribunal that it is most improbable that the assessee would be investing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill Lynch Ltd and Graphite India Ltd were sold within a month. Other than these two shares, the average period of 4 months has been maintained by the assessee from the date of purchase. We also find from the workings of long term capital gains for Asst year 2006-07, the shares were held for a period of 13 months. This shows that the assessee always intended these shares to be retained only under the investment category and it will be highly improper to state that these shares/units were held as stock in trade by the assessee. We find that this aspect has been considered by the co-ordinate bench of this tribunal in the case of Dy. CIT v. Reliance Trading Enterprises Ltd. in ITA No. 944/Kol/2008 dated 3.1.2008 wherein it was held that : We have heard both the parties and perused the records as well as the documents contained in the paper book filed before us. There is no denying the fact that as per the account maintained the assessee had acted both as a trader as well as investor in shares as per the Memorandum and Articles of Association. Accounts were maintained for trading/business shares which are held as stock in trade and separately for investment shares which are h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under appeal before us are Asst Years 2005-06 and 2006-07. We do not find any logical reason for the revenue to deviate from its consistent stand taken in the earlier years. It is also evident from the scrutiny assessment orders for Asst Years 2008-09 and 2010-11, the revenue had accepted the stand of the assessee having dual portfolio and offering income under capital gains and business income in subsequent years. 5.3.9 We find that the Hon'ble Bombay High Court in the case of Gopal Purohit (supra) had considered the issue under consideration and held as under:- '4.3. We have heard the rival submissions and perused the materials available on record including the paper book filed by the Learned AR before us. We find that the assessee has been engaging himself in the share transactions both as an investor and as well as trader. It is seen that the assessee had clearly bifurcated the investment and trading transactions including speculative share transactions in his books of accounts and it is also seen that the average period of holding of shares range from one month to more than one year and accordingly short term or long term capital gains are duly offered to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as business activities in current year? (c) Whether, on the facts and circumstances of the case and in law., the Hon'ble ITAT was justified in holding that presentation in the books of account is the most crucial source of gathering intention of the assessee as regards to the nature of transaction without appreciating that the entries in the books of accounts alone are not conclusive proof to decide the income? The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate port folios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in the present case, should be treated as those in the nature of investment tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween two types of holdings. This could have been done by showing that there is intermingling of shares and transactions and the distinction sought to be created between two types of portfolios is not real but only artificial and arbitrary. Therefore, in absence of any material to the contrary, and on appreciation of cumulative effect of several factors present as culled out above, we hold that the surplus is chargeable to capital gains only and assessee is not to be treated as trader in respect of sale and purchase of shares in investment portfolio. Accordingly, the ground no. 2 in ITA No. 1148/Kol/2009 for Asst Year 2005-06 and ground no. 1 in ITA No. 1437/Kol/2009 for Asst Year 2006-07 raised by the revenue are dismissed. 8.4. Respectfully following the aforesaid judicial precedents and in the aforesaid facts and circumstances of the case, we hold that the ld CITA had rightly classified the assessee as an investor and treated the gains received on sale of shares and mutual funds as short term capital gains as against business income and granted relief to the assessee. Accordingly, the grounds raised by the revenue are dismissed. 9. In the result, the appeals of the reven ..... 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