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Assistant Commissioner of Income-Tax Versus Dimension Consulting P. Ltd.

2016 (12) TMI 40 - ITAT DELHI

Income from sale of shares - busniss income or capital gain - Held that:- Once the assessee was holding the shares as investment since 1996-97 up to 2013-14, there was no reason to treat the income from sale of shares under the head "Business income" because the intention of assessee was manifested very clearly by its conduct. The assessee had primarily utilised its surplus funds for investing in shares and not borrowed funds. Moreover, the learned Commissioner of Income-tax (Appeals) has also o .....

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e ORDER S. V. Mehrotra (Accountant Member) 1. The Revenue is in appeal and the assessee has preferred cross-objections against the orders of the learned Commissioner of Income-tax (Appeals) relating to the assessment years 2006-07 and 2008-09. All these matters were heard together and are being disposed of by this consolidated order for the sake of convenience. I. T. A. No. 2321/Delhi/2010 and C. O. No. 224/Delhi/2010 (assessment year 2006-07) 2. Brief facts of the case are that during the year .....

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al gains on mutual funds at ₹ 5,63,033, long-term capital gain on shares at ₹ 19,33,968, long-term capital gains on mutual funds at ₹ 1,68,335. Since there were enormous transactions in sale/purchase of shares and volume of turnover was huge, he show caused the assessee as to why income from long-term capital gain and short-term capital gain should not be treated as business income. The assessee in its reply, inter alia, submitted as under : "(i) The company had no borrowi .....

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iod of time with the average holding on profit making transactions of 200 days. (v) In past also shares were shown as investment." 3. The Assessing Officer accepted the assessee's contention as regards mutual funds. However, as regards gain on shares, i.e., short-term and long-term, he did not accept the assessee's contention, keeping in view the volume of turnover. He observed as under : "During the year under consideration the assessee has traded in 325 scrips (for income dec .....

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considering the decision of the Authority for Advance Rulings in the case of Fidelity Northstar Fund, In re reported in [2007] 288 ITR 641 (AAR) and the guidelines laid down by the Central Board of Direct Taxes, the Assessing Officer held that short- term capital gain earned on entire sale/purchase of shares was business income. 5. The learned Commissioner of Income-tax (Appeals), while partly allowing the assessee's appeal, held that the gain earned by the company on sale of shares within .....

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referred to page 55 of the paper book wherein summary of capital gain and speculative income from shares has been shown as under : Asst. year Capital gains short-term Capital gains long-term Speculative profit/loss Consultancy receipts IT order 1996-97 0 0 0 23.26 143(3) 1997-98 -0.51 0 0 25.54 143(3) 1998-99 0 0 0 56.86 NA 1999-00 0.08 0 0 105 143(1) 2000-01 3.13 0 -22.88 344.4 143(1) 2001-02 -29.97 5.24 -10.41 265.2 143(1) 2002-03 -3.03 2.63 0.37 311.7 NA 2003-04 6.2 16.66 -1.57 243.8 NA 2004- .....

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. . 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/ securities. In this background, while recognising that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e., whether the same is in the nature of capital gain or business income), the Central Board of Direct Taxes .....

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s held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular assessment year, shall remain applicable in subsequent assessment years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years .....

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wherein after considering this circular and after taking note of the principle of consistency, the Tribunal dismissed the Department's appeal. 9. The learned counsel also referred to the order of the Income-tax Appellate Tribunal Jaipur Bench in the case of Deputy CIT v. Mahender Kumar Bader [2016] 48 ITR (Trib) 596 (Jaipur) (I. T. A. No. 605/JP/2013, dated March 18, 2016). 10. We have considered the submissions of both the parties and have perused the record of the case. We find that in pa .....

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r capital gain. It is correct that in the instant case the appellant has been making similar investments in the earlier years and has been showing the income as long-term as well as short-term capital gain and the position as such, was accepted in all the earlier years, including the assessment year 2005-06 for which the assessment was made under section 143(3) of the Act after going through the details of purchase and sale of shares. Further, it has also been noted from the memorandum of the ap .....

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duly transferred to its D-Mat account has also been found to be correct. Further, it is also a fact that the total number of sale transactions of 325 includes 126 transactions of sale on loss, in respect of which the company had claimed that it had to dispose of the shares with a view to safeguard the principal amount of investment in the circumstances when stock market index has been going down, and it has resulted in substantially a large number of transactions. There is also substance in the .....

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g the year but the total amount of investment in shares at the year end had been the same as in the last year, whereas the investment in mutual funds has substantially increased during the year from 0.32 crore last year to ₹ 2.19 crores at the end of the year under appeal. On the basis of the above facts the contention of the appellant that it had made investment in shares at the earlier stage but it had disposed of the same on account of fall in the market index and had subsequently made .....

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in this year only because of initial investment in shares and sale thereof subsequently with a view to avoid loss. It is also a matter of fact that provisions regarding taxability of capital gain had been amended with effect from October 1, 2004, on levy of STT and the intention of the Government had to collect the tax by way of STT and grant exemption/concession in rate of tax applicable to capital gain. Decisions relied upon by the appellant, particularly, the decision of the Mumbai Bench of t .....

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ions and volume and magnitude of purchase and sale of share and also of amount of capital gain has also been substantial in the facts of these cases also. 13. Considering the facts and the case law, in my view there can be no doubt as far as long-term capital gain of ₹ 19,33,946 earned on shares by the appellant-company. The holding period of these shares has been from 372 days to 1,867 days and sale of shares was only of nine companies. Further, the cost of acquisition of these shares was .....

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unting to ₹ 73,48,656 (excluding gain of sale of futures of ₹ 12,47,345) also considering the facts of the case of the appellant it cannot straightway be said that it was not in the nature of capital gain and was in the nature of business income. Facts analysed hereinabove by and large goes to support the contention of the appellant that income was in the nature of capital gain. It has been observed in the decisions that overall facts and circumstances have to be taken into considera .....

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ew of clear decisions in this regard particularly the decisions in the cases of Gopal Purohit v. Joint CIT [2009] 122 TTJ (Mum) 87 and Nirmal Kumar Jain v. Addl. CIT (supra). In fact in the case of Nirmal Kumar Jain the Income-tax Appellate Tribunal, Delhi Bench has specifically discussed this aspect of the matter and with reference to the earlier decision of the Mumbai Bench in the case of Janak S. Rangwala, it has been observed that merely on the basis of volume, magnitude and frequent transac .....

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curities and is also a dealer in shares/securities. The appellant-company is having only investment and, therefore, there cannot be requirement of keeping separate books of account. Accordingly, this contention of the Assessing Officer does not hold good. The Assessing Officer has also wrongly observed that the appellant-company has been showing gain on sale of shares as business income up to assessment year 2001-02. The appellant-company has submitted details in respect of earlier years along w .....

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appellant principally that purchases were made by way of investment and income on sale was in the nature of capital gain and not in the nature of business income. It is, however, noticed that in the case of the appellant on the basis of details called for in regard to period of holding of shares on which short-term capital gain of ₹ 73,48,656 has been earned, that there was sale of shares having cost of ₹ 1,25,08,047 within the period of 30 days of purchase of shares. In spite of th .....

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hin the period 30 days was in the nature of business income and not capital gain. I, accordingly, hold that gain of ₹ 1,76,361 earned by the company on sale of shares within a period of 30 days was in the nature of business income. Accordingly, I accept the contention of the appellant to the extent of short-term capital gain of ₹ 71,72,295 and hold that amount of ₹ 1,76,361 is in the nature of business income. This ground of appeal is partly allowed". 11. We do not find an .....

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