2009 (2) TMI 233 - AT - Income Tax

Claimed exemption u/s.10(38) - Sale and purchase of shares - Nature of Income - ''capital gains or nature of business income''- securities transactions tax - Non-delivery based transactions treated by the assessee as business activity - delivery based transactions treated as an investment activity - accordingly, the assessee has claimed himself both dealer as well as investor and has offered income for taxation -

HELD THAT:- Assessee has paid tax on short-term capital gains at normal rates on share transactions executed in the period prior to imposition of securities transactions tax. In our view, the legislative change of this nature, whereby no change has been made in respect of nature and modus operandi of such share transactions, resulting into any advantage cannot be taken away by the Revenue authorities in this manner and in these circumstances, we are of the view that, principle of consistency, though it is an exception to the principle of res judicata must be applied here.

It is further so because the payment of securities transactions tax is mandatory i.e., whether an assessee earns the profit or not or suffers a loss and by imposition of such tax, the legislature has not given any benefit to a class of transactions as a whole though it may result into an apparent benefit to individuals entering into those transactions. Thus, in our view, the basis of principle of consistency alone, the action of the Revenue authorities is liable to be quashed. We order accordingly and direct the AO to accept the claims of assessee in regard to short-term capital gain and long-term capital gain.

Assessee is maintaining separate records for both types of transactions. Further, it is important to notice that the assessee has entered into two different types of transactions where both activities are entirely different in nature i.e., one activity is of investment in nature on the basis of delivery and second activity is purely of jobbing (without delivery), which puts assessee's case on a more strong footing. Hence, in our view, the ratio of the decision in Sarnath Infrastructure (P) Ltd. vs. Asstt. CIT [2007 (12) TMI 261 - ITAT LUCKNOW-B], is squarely applies to the facts of the present case. Accordingly, we hold that the delivery based transaction should be treated as of the nature of investment transactions and profit therefrom should be treated as short-term capital gain or long-term capital gain depending upon the period of holding.

To conclude, we hold that, assessee's claim of short-term capital gain and long-term capital gain on share transactions where the delivery has been taken or given and securities transactions tax has been paid is liable to be accepted. Accordingly, we reverse the orders of Revenue authorities.

Appeal filed by the assessee stands allowed.