TMI Blog2016 (11) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... ently without letting out the flat in question to which these are attached. Under these circumstances, we do not find any infirmity in the order of CIT(A) for treating the rental income in respect of these amenities as income from house property. - ITA No.3541/Mum/2012, ITA No.3542/Mum/2012, ITA No.3543/Mum/2012, ITA No.4571/Mum/2012 - - - Dated:- 30-9-2016 - SHRI R.C.SHARMA, AM AND SHRI SANDEEP GOSAIN, JM For The Assessee : Shri S.L.Tiwari and Ms. Rutuza N. Pawar For The Revenue : Neil Philip ORDER PER R.C.SHARMA (A.M) : These are the cross appeals filed by the assessee and revenue against the order of CIT(A) for the Assessment Year 2007-2008, 2008-2009 2009-2010. 2. Common grievance of assessee in all the years pertains to treatment of gains arising out of sale of shares, whether short term capital gains or business profit. 3. At the outset, learned AR placed on record the order of the tribunal for the assessment year 2006-2007 dated 21/02/2014 in assessee s own case wherein Tribunal observed as under:- 11. Rival contentions have been heard and record perused. We have also deliberated on the judicial pronouncements referred by the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment being made by the assessee. Had the assessee valued the shares at cost or market price whichever is lower, the gain arising out of sale of shares could easily be treated as business income. Assessee had not valued the shares as stock but valued the same as investment. Thus, what was a capital asset will remain a capital asset unless a person holding the asset himself changes the nature by a specific action like conversion of capital asset into stock in trade. In the instant cases before us, the assessee has not treated the investment in equity shares of Indian Companies as stock in trade. In view of the decision of Hon'ble Supreme Court in the case of Ram Kumar Agarwal Brothers, 205 ITR 251, the AO and the ld. CIT(A) 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares. The CIT(A) discussed various judicial pronouncements and the guidelines laid down therein with regard to treatment of gains arising out of sale of shares. The CIT(A) applied to the facts and circumstances as found during the year, the proposition laid down in various judicial pronouncements and reached to the conclusion that profit earned in respect of shares of the companies discussed above, amounting to ₹ 18,41,027/- were business income and liable to be taxed as such, in place of assessee‟s claim for treating the same as capital gains. The CIT(A) also discussed the amendment brought in by Finance Act, 2004, introduction of Security Transaction Tax(STT) on the sale purchase of shares and other derivative transactions. The CIT(A) also discussed the exemption brought in under Section 10(38) in respect of LTCG and levy of taxation on STCG at the concessional rate of tax of 10% by this Finance Act. The CIT(A) observed that along with these amendments, the Revenue has also Shri Mohan K.Jain, Mumbai 31 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 levied security transaction tax to the effect that only after a suffering the burden of security transaction tax, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an adventure in the nature of trade, giving rise to business profits, when all the surrounding circumstances, indicate otherwise. No where the AO has indicated any transaction of purchase of shares without taking delivery and making full payment of such investment. Even in the case of investment it is for the assessee to decide when to dispose them off so as to have a maximum return out of them. There is no theory that the shares held as investment should be disposed of only at the time of need or in emergency. The assessee had all the rights to dispose the investment to reap the maximum benefit when the prices of scripts are high so as to earn better gain. It is true that frequency and volume of transaction is one of a guiding factors to find out as to whether Shri Mohan K.Jain, Mumbai 33 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 assessee deal in shares as trading asset or hold shares as investor, but certainly not a criteria. A prudent investor always keeps a watch on the market trend and, therefore, not barred under law from liquidating his investment in shares. The law itself has recognized this fact by taxing these transactions under the head Short Term Capital gains being s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance (No.2) Bill, 2004, and came into effect from 01.10.2004.Further, clause (38) has been inserted in section 10 of the Shri Mohan K.Jain, Mumbai 35 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 Income-tax Act, so as to provide exemption from long-term capital gains arising out of securities sold on the stock exchange. A new section 111Ahas 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' c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be considered for arriving at a conclusion. Thus, it is a mixed question of law and fact to find out as to whether the assessee has earned capital gain or business income.The gain arising on delivery based share transaction are essentially in the nature of STCG and LTCG and not in the nature of business income, except where such gains or losses realized in respect of those transactions undertaken repeatedly and consistently for more than four times during the year, as discussed by the CIT(A). After discussing all the factors, the CIT(A) has recorded a categorical finding that in respect to number of transactions and frequently transaction in respect of shares of these four shares as per Annexure-A enclosed with his appellate order, which was directed to be assessed as business income. In respect of balance of gain arising on delivery based transactions were treated as STCG or LTCG depending on the period of holding. Even in respect of transaction in respect of these four companies, the CIT(A) given a specific direction for recomputing the profit or loss after revaluing the closing stock held therein at cost or market price, whichever is lower. If the conclusion drawn in the Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch can be relied upon to throw light on the object and purpose of the particular provisions introduction 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.‟‟ 13. 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. Shri Mohan K.Jain, Mumbai 40 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 14. The Indore Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive and as such the income therefrom was in the nature of short term capital gains whereas the income arose from F O transactions and daily trading in shares were with the business motive which were showed as business income only which 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 Shri Mohan K.Jain, Mumbai 41 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares under investment portfolio. During hearing, it was also explained by the learned Counsel for the assessee that accounts were maintained by the assessee in two separate capacities i.e. trader and investor and never treated the same as holdings of shares as stock in trade which clarifies the intention of the assessee. This assertion was not controverted by the Revenue. 16. The Board Circular No. 4.2007 dated 15-06-207 also emphasizes that it is possible for a tax payer to have two portfolios namely, an Shri Mohan K.Jain, Mumbai 43 I.T.A.No. 1033 748/Mum/2010 A.Y.2006-07 Investment Portfolio, comprising of Securities, which are to be treated as capital assets and Trading Portfolio‟ comprising of stock in trade which are to be treated as trade assets. No single principle would be decisive and the fact has to be considered in entirety. The totality of facts plainly indicate that the ld. first appellate authority rightly directed the Assessing Officer to treat the short term capital gain as earned from investment in shares. Instruction No.1827 dated 31st August, 1989 was supplemented by CBDT circular no. F.No.149/287/2005-TPL [reported in 210 CTR 29 (St.)], advi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income. As the facts and circumstances during the years under consideration are same, respectfully following the order of the Tribunal, we direct the AO to allow assessee s claim of capital gain in terms of observation given by the Tribunal in its order dated 21st February 2014. However, profit arising out of delivery based transactions are to be considered as capital gains as per the observation made by Tribunal in its order. 4. In all the years assessee is also aggrieved for disallowance made under Section 14A read with Rule 8D. In the assessment year 2007-2008 Rule 8D is not applicable, however, reasonable disallowance is required to be made. However, in the assessment year 2008-2009 Rule 8D is applicable. The main contention of the learned AR was that assessee was holding major shares as stock in trade, profit earned there on was offered for tax, therefore, no disallowance was warranted on the investment blocked in these shares. 5. Reliance was placed on the decision of the Co-ordinate Bench incase of Indian Advantage Securities Limited in ITA No.6711/MUM/2011 order dated 14/09/2012, wherein Tribunal relied on the order of Karnataka High Court in case of CCL Limited. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les for more than 4 times. He also directed the closing stock of shares in respect of the transactions which have been treated as business income to be worked out on the basis of cost or market price whichever is lower and also to allow the credit of STT paid in respect of such shares, the profit from which has been assessed as business income. 3.4. Since there a change in address of the appellant during the relevant assessment year 2009-10, the jurisdiction over the appellant was transferred from AO of range 20 to AO of range 21 and accordingly the appeal for AY 2009-10 came to be decided under the jurisdiction of CIT(A)-32, Mumbai. 3.5. For deciding the question whether the profit from sale of shares is capital gain or business income, no single thumb rule can be applied. Some of the general principles which are relevant to decide the issue are discussed as under:- The Courts as well as the CBDT in circular no. 4/2007, have held that an assessee can be investor as well as trader simultaneously. In the case of Raja Bahadur Wisheshwara Singh 41 ITR 685 (SC), it has been held that the magnitude, frequency, ratio of purchase sales and holding will indicate the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts before us . Similarly in case of PM Mohd Mirza Khan 73 ITR 735(SC) it has been held that the answer whether a transaction is adventure in nature of trade or not, must necessarily depend on each case on the total impression and the effect of the relevant factors and circumstances. In case of V Nagesh (ITA No5410/mum/2008) on page 5 of the order the Hon'ble ITAT while holding that sale and purchase of shares frequently would amount to trading, has observed that in case of Investment, a person usually watches a market over a longer period of time before selling the shares. The earning of dividend and appreciation of shares is primary concern . Though the nature of treatment given in books would be a guiding factor but the same cannot be applied as decisive factor alone ignoring the other relevant factors. Further, the mere fact that the assessee has been treated as investor in past may not by itself be enough to hold him as investor in subsequent year on rules of consistency but if there are no material change in facts / legal position to be demonstrated by the assessee, then the rules of consistency can be applied. There can be no dispute that a person can simultaneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions in the same scrips without taking delivery. Besides this, the appellant has also been done business activity of dealing in futures options till immediately preceding years though no F O activity has been done during current year. In all the decisions, the ITAT have held that no single factor is decisive to decide whether an assessee is trader or not and it is on analysis of the facts of those cases, the ITAT held that, assessee was an investor. There can be no dispute to this proposition. In fact these decisions support the view that mere absence of any borrowed funds as claimed by appellant alone will not be indicative of investment activity, if the cumulative effect of other factors as already discussed above indicates the appellant to be a trader. Under these circumstances, it is clear that the assessee has conducted like a trader in respect of the shares held for less than 12 months and hence the profit derived on the equity shares held for less than 12 months will have to be assessed as business income only. The action of the AO in treating the Short term capital loss of ₹ 1,67,02,188 as business loss is therefore confirmed. He shall however give deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, 04-05 and 05-06 has also accepted the LTCG offered by assessee u / s 143 (3). In fact CIT(A) 31 Mumbai also while passing order for AY 2006-07 to 2008-09 in case of appellant has also held the profit on shares held for more than 12 months to be assessable as LTCG 'with only exception made by him in respect of scrip where the appellant had made purchase and sales for more than 4 times in a year for any single scrip. With due respect to my colleague's findings, I am unable to agree with the exception made by Ld CIT(A)-31 in treating the profits on sale of long term shares where assessee had made purchase and sales for more than 4 times in a year as business income. The classification of business income or capital gain merely on number of sale transaction in particular scrip being more than 4 times, as sole criteria may give distorted picture. The long term shares sold are sold after holding for more than 12 months hence the same were not at all purchased during the year and hence such criteria cannot be applied for long term shares. If the share are held for more than 12 months than mere fact that an assessee sells the same in more than 4 lots also does not take away the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f computation of P L a/ c and corresponding income and expenditure were claimed. However, the income has been offered in the computation of income without claiming any expenditure whatsoever in respect of taxable income being reflected in the P L a/ c. To support his contention the appellant has furnished copy of the P L a/ c as well as statement of income. Going through the P L a/ c it is seen that the assessee has credited in the P L 8./ c taxable income in the nature of speculation profit of ₹ 6,50,574/-, bank interest of ₹ 98,786/-, commission of ₹ 4,OOO/-, rent of ₹ 27,20,000/- and profit on sale of property ₹ 51 ,00,000/ -. From perusal of the statement of income it is noted that the above income has been offered as it is in various heads without claiming any expenditure as appearing in the P L a/c. Regarding capital gain of ₹ 51 lakhs the appellant has that the same has been claimed as exempt u/s.54EC by investment in REC bonds. Once there is not expenditure claimed in the computation of income against any taxable income, there cannot be any disallowance of administrative expenditure also. This view is supported by the decision in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources. It was replied by the AR of the assessee that the letting out of amenities is inseparable to that of letting out of house property and hence the same has to be assessed under the head income from house property and not as income from other source.However, the AO did not agree with the assessee s contention and treated the income as income from other sources. 12. By the impugned Order CIT(A) allowed assessee s claim after observing as under:- I have considered the arguments of the Ld. AR and perused the assessment order. From the perusal of the nature of amenities provided it is seen that in respect of various fixtures and fittings which are either part of residential unit or attached to the house property. These fixtures arid fittings cannot be let out independently, without letting out the flat in question to which these are attached. Hence whatever amenities charges are received in respect of such fixtures though as per separate agreement, the same are required to be assessed as income from house property only as these fixtures are inseparable and appurtenant to the building itself.' . In the case of Shambhu Investments 263 ITR 147(SC) wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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