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2016 (2) TMI 704 - ITAT MUMBAI

2016 (2) TMI 704 - ITAT MUMBAI - [2016] 46 ITR (Trib) 492 - Sale of shares - "Profits and Gains from Business or Profession" OR "Short Term Capital Gains" - Held that:- The transaction in the shares are also repetitive like in the shares of Zee Telefilms Limited, Garware Ship, Gammon,Carborundum Universal, Simbholi Sugar etc. whereby the assessee indulged in repetitive transactions and also sold the shares after holding for short period . Under these circumstances in order to do complete justice .....

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observed that in large number of transactions of purchase and sale of shares, period of holding is from 1 day to 30 days, the transactions of purchase and sale of shares being repetitive and the assessee has dealt in large number of companies, the prime objective of such transactions which are concluded within one month in our considered view is to earn and maximize profits in shortest period of time which is akin to intention of doing business by maximizing profits while dealing in sale and pur .....

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s duly included in the rent received by the assessee. In our considered view, this issue is squarely covered by the decisions of the Tribunal in the cases of Sharmila Tagore (2004 (6) TMI 591 - ITAT MUMBAI) and Bombay Oil Industries (2000 (11) TMI 1225 - ITAT MUMBAI). Respectfully following the decisions of the Tribunal in the cases cited (supra), we hold that assessee is entitled for deduction of ₹ 1,17,825/- u/s 23 of the Act apart from the standard deduction u/s 24(a) of the Act. We dir .....

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er) This appeal, filed by the assessee, being ITA No. 1810/Mum/2012, is directed against the order dated 02-12-2011 passed by the learned Commissioner of Income Tax (Appeals)- 35, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2006-07. 2. The grounds raised by the assessee in the memo of appeal filed with the Tribunal read as under:- 1. SHORT TERM CAPITAL GAINS ON SALE OF SHARES ASSESSED TO TAX UNDER THE HEAD "PROFITS AND GAINS FROM BUSINESS OR PROFESSION" 1.1 On the .....

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1.2.1 In not appreciating the fact that the appellant is an investor holding investment in shares and securities over a period of years as investment in capital assets and has consistently offered to tax profit on sale of shares under the head Capital Gains which is accepted by the department and not a trader in shares holding shares as stock in trade of business. 1.2.2 In not appreciating the fact that major portion of the shares sold during the year were held by the appellant for a period of 3 .....

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COMPUTING INCOME UNDER THE HEAD "INCOME FROM HOUSE PROPERTY" 2.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in upholding the action of the Income Tax Officer in restricting the deduction in respect of Society maintenance charges amounting to ₹ 62,175/- while computing income under the head "Income from House Property" 2.2 In doing so, the Commissioner of Income Tax (Appeals) erred in the following respect .....

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u/ s 24(a) of The Act. 3. The case of the assessee was selected for scrutiny u/s 143(3) of the Income Tax Act,1961(hereinafter called the Act ) read with Section 143(2) of the Act .During the previous year, the assessee has declared short term capital gains of ₹ 6,76,915/- from the sales of shares. The assessee was asked to furnish explanation by the learned assessing officer (Hereinafter called the AO ) as to why the profits out of such transactions of purchase and sale of shares should n .....

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itted that the assessee has been investing in shares and securities over a period of years and the same has been accepted by the Revenue in all the preceding years. The assessee is an investor with the main intention to earn capital gains on the sale of shares and to earn dividend income and not a trader in shares and hence the assessee requested that the profit on sale of the shares is in the nature of capital gains. The A.O., however, rejected the contentions of the assessee by relying upon th .....

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ciples emanate from the various judicial pronouncements and on the basis of the ratio laid down by the Hon'ble Supreme Court in the case of: 1. Commissioner of Income Tax (Central) Calcutta v. Associated Industrial Development Company (P) Ltd. (82 ITR 586) 2. CIT Bombay v. Hoick Larsen (160 ITR 67) and of the Authority for Advance Rulings (AAR) in the case of Fidelity Group. The broad principles can be summarized thus:- a. Whether or not there is frequency in the transactions and whether the .....

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n. Out of the total transactions, the period of holding in over 100 instances is less than three months, out of which in 65 instances the holding period is less than one month. From the above, the A.O. held that buying and selling of shares is done by the assessee with an motive to maximize profits. As the volume and frequency of the transactions is very high as indicated hereinabove, it can be presumed that the basic aim was to get the best profits from the money invested and there was no inten .....

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bility as the short term capital gains are taxable @ 10%, whereas the business income would be taxable @ 30%, hence, the profit of ₹ 6,76,915/- derived from buying and selling of shares was assessee by the AO under the head "Income from business" instead of short term capital gains as offered to taxation by the assessee, vide assessment orders dated 30.12.2008 passed u/s 143(3) of the Act . 4. The second issue in this appeal relates to the restriction of the deduction in respect .....

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against such rent, the assessee has claimed an amount of ₹ 1,80,000/- on account of society Maintenance & Other Charges and declared the net annual value at ₹ 12,60,000/-. The assessee was asked by the AO to furnish justification in this regard. In reply, the assessee stated that the maintenance & other charges comprised of municipal taxes of ₹ 62,175/- and other society charges of ₹ 1,17,825/-, which was claimed deduction u/s 23 of the Act. The assessee submitted .....

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ct of the property. The said proviso speaks specifically about taxes levied in respect of the property. It is not for anyone to stretch the meaning further and includes society charges in the ambit of the proviso. Hence, the A.O. made addition of ₹ 1,17,825/- and added the same to the income of the assessee under the head income from house property vide assessment orders dated 30.12.2008 passed by the AO u/s 143(3) of the Act. However, the AO allowed the standard deduction to the assessee .....

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year, the assessee has earned income from sale of shares amounting to ₹ 676,915/- which has been offered for taxation under the head short term capital gain. The assessee submitted that the assessee has duly submitted during the course of assessment proceedings , statement of short term capital gains on sale of shares with complete bifurcations along with sample copy of contract notes . The assessee also submitted that the detailed note on justification for treatment of the gain as short .....

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ng to ₹ 4,63,213/- pertains to sale of shares held for period exceeding one month and up-to 12 months. The CIT(A) held that the assessee entered into voluminous transaction of purchase and sale of shares during the previous year and the assessee took delivery of the shares purchased and then sold them. The CIT(A) observed that these shares were held by the assessee for a period of less than 12 months, the gain on sale of these shares were claimed as short term capital gain and offered to t .....

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hares in respect of delivery based transactions and the assessee is claiming that they were investments and profit on sale of such shares gave rise to capital gains only because of delivery based transactions. The assessee during the relevant previous year had entered into transactions of purchase of shares of about 200 companies. The transactions were effected by taking and giving delivery of shares at the time of purchase and sale. Besides such transactions , the assessee had also entered into .....

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he assessee to be short term capital gains. Such transactions were about 800 in number during the relevant previous year and the companies dealt with by the assessee whose shares were purchased or sold were 200 in number. The holding period was from 1 day to maximum 6 months. The conduct of the assessee in showing income from delivery based transactions as short term capital gains and non-delivery based transactions as business income only showed that but for actual delivery even income from tho .....

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. (a) the volume and frequency of the transactions which were about 800 in number where the holding period was between minimum of 1 day to maximum of 6 months, (b)Shares of more than 200 companies had been bought and sold by the assessee during the previous year, (c) the volume of purchase and sale (delivery based) of the assessee during the previous year was ₹ 1.01 crores and ₹ 1.10 crores respectively. The value of investment as on 31-3-2004 was only ₹ 11.14Iakhs, (d) the pur .....

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he Assessing Officer to the contrary should, therefore, prevail, (i) substantial time devoted by the assessee to the activity of purchase and sale of shares and all the shares sold and purchased were of listed companies (j) composition of the dividend income being meager which shows that the assessee has not locked its funds in the share investment. In the light of the above circumstances, it was held by the CIT(A) vide orders dated 02.12.2011 that the income from sale of shares declared by the .....

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tax is arrived at after taking into account the municipal taxes and society maintenance charges to be borne by the assessee. The assessee contended that the A.O. while passing the order u/s 143(3) of the Act has restricted the deduction claimed in respect of maintenance charges to the extent of only municipal taxes paid amounting to ₹ 62,175/- while computing income chargeable under the head income from house property . The assessee relied on the following decisions:- (i) Ms. Nandita Bane .....

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,80,000/- be allowed as deduction as claimed in the return of income filed with the Revenue. The CIT(A), however, vide orders dated 02.12.2011 rejected the contentions of the assessee by relying upon the decision of the Delhi Tribunal in the case of Piccadily Holiday Resort Ltd. v. DCIT (2005) 94 ITD 267 (Delhi) and upheld the orders of the AO. 9. Aggrieved by the orders dated 02.12.2011 of the CIT(A), the assessee is in appeal before the Tribunal. 10. The ld. Counsel for the assessee submitted .....

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ced at paper book page 2-5. The assessee submitted that the assessee has substantial holding of shares, details of which is placed at paper book page 9 &10. The ld. Counsel of the assessee submitted that in the earlier years, the Revenue has accepted similar transactions of short term capital gain vide intimation u/s 143(1) of the Act , for the assessment year 2005-06 is placed at paper book page No. 13 and for the assessment year 2003-04, is placed at paper book page 16 and principles of co .....

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capital gain and dividend. The assessee is dealing in shares based upon the delivery taken or given both at the time of purchase and sale of shares. The ld. Counsel made statement before us that own funds are utilized by the assessee for the purpose of making investments and stated that no borrowed funds were utilized for making investment in the shares. The assessee also submitted that in case the shares are sold without effecting delivery, then in that case the assessee has offered the gains .....

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Hon ble Bombay High Court in CIT v. Gopal Purohit (2010) 188 Taxman 140(Bombay). The ld. Counsel submitted that rule of consistency has to be followed as in the earlier years and also subsequent years, the Revenue has accepted the said income to be from capital gains and based on the rule of consistency the said income is to be treated as short term capital gains. 11. The ld. D.R., on the other hand, submitted that the assessee has entered into repetitive transactions of sale and purchase of sh .....

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.02.2006. The Ld. DR also pointed out that the period of holding of the shares in large number of cases is even less than 30 days and ld. DR pleaded that the AO has rightly treated the gains on sale of shares sold within period of 12 months as business income as the motive of the assessee is to make profits and not to earn dividend, period of holding is short, transactions are repetitive with an intent to make profits. The ld DR relied upon the order of the CIT(A). 12. We have considered the riv .....

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k filed by the assessee with the Tribunal at page number 9-10. The assessee has filed details of short term capital gains and long term capital gains earned on shares in the paper book, page 2-8. We have also observed that the assessee has classified the transactions in shares in various heads whereby in case the assessee is not effecting delivery of shares at the time of purchase or sale of shares, the same is categorized as speculative income and while where the delivery based transactions of .....

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tered into over 200 transactions of purchase and sale of shares in the previous year relevant to the assessment year. We have observed that the assessee is regularly dealing in shares whereby the period of holding in some cases is even one day. The A.O. observed that out of the total transactions, the period of holding in over 100 instances is less than three months and in 65 instances, the holding period is less than one month. The transaction in the shares are also repetitive like in the share .....

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hile the gains arising from sale of shares held for more than one month and up-to twelve months should be classified as short term capital gain. We have come to the above decision keeping in view the peculiar facts and circumstances of the instant case as we have observed that in large number of transactions of purchase and sale of shares, period of holding is from 1 day to 30 days, the transactions of purchase and sale of shares being repetitive and the assessee has dealt in large number of com .....

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