Profit arising from sale of shares to assessee was to be regarded as business income where more than 200 transactions of sale and purchase of shares took place throughout year through various share brokers

 951 total views

Profit arising from sale of shares to assessee was to be regarded as business income where more than 200 transactions of sale and purchase of shares took place throughout year through various share brokers

ection FACTS

 

For relevant year, assessee filed return wherein profit arising from sale of shares was treated as short-term capital gain.
The Assessing Officer having regard to large number of transactions, took a view that amount in question was liable to tax as business income.
The Tribunal confirmed order passed by Assessing Officer.
On appeal:

HELD

The Tribunal, keeping in view the number of frequency of transaction has rightly arrived at a conclusion that the Assessing Officer was justified in giving the benefit of exemption for long-term capital gain and was also justified in treating the income as business income in respect of purchase/sale of shares (short-term gain). The aforesaid findings of the Assessing Officer which have been affirmed by the Tribunal are purely the findings of facts. [Para 13]
The frequency of transaction carried out during the year shows that approximately 288 transactions took place for the purchase of equity shares throughout the year and about 162 transactions of sale were entered into with various share brokers and, therefore, as the assessee has entered into multiple transactions for various listed companies, it was a regular feature of the assessee to trade in shares to obtain short-term gain and, therefore, the short-term gain has rightly been included as business adventure and has rightly been included in the income of the assessee. It is purely a finding of fact arrived at by the Assessing Officer as well as by the Tribunal. No substantial question of law arises in the appeal. [Para 17]
Accordingly, the admission is declined.

CASE REVIEW

Pr.CIT v. Hiren M. Shah 

CASES REFERRED TO

CIT v. Om Prakash Suri [2012] 19 ITJ 326 (MP) (para 7), Deepaben Amitbhai Shah v. Dy.CIT 

ORDER

 

S. C. Sharma, J. – The present appeal has been filed u/S. 260A the Income Tax Act, 1961 against the order dated 10/01/2019 passed by the Income Tax Appellate Tribunal, Indore Bench, Indore in I.T.A.No. 293/Ind/2012 for the assessment year 2008-09.

2. Facts of the case as stated in the appeal reveal that the appellant is an Eye Surgeon and is running Centre in the name of Choudhary Eye & Retina Research Centre and is an Income Tax Payee. The appellant filed his Income Tax Return for the Assessment Year 2008-09 on 29/5/2008 declaring total income at Rs. 3,14,17,278/- which, inter-alia, included income from his profession as an Eye Surgeon, Long Term Capital Gain, derived as a result of equity share, as also short term capital at Rs. 1,18,57,282/- derived as a result of purchase and sale of shares. The case of the assessee was selected for scrutiny and the Assessing Officer completed the assessment u/S. 143(3) the Income Tax Act, 1961 vide assessment order dated 21/12/2010. It has been stated in the appeal that the Assessing Officer, while completing the assessment, accepted and assessed the long term capital gain derived as a result of sale of shares, but treated the short term capital gain derived from purchase and sale of shares, as income from business only on the ground that there were large number of transactions and ignoring the fact that the appellant is a regular investor in shares for past many years.

3. The assessing officer levied tax at higher rate of 30% on such income and against 10% leviable on short term gain which resulted in additional demand of Rs. 37,33,743/-.

4. Being aggrieved by the assessing order dated 21/12/2010, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals) on various grounds and the Commissioner of Income Tax (Appeals), as earlier similar orders were passed on 30/5/2011 in the case of the assessee for the assessment year 2004-05, has allowed the appeal by an by order dated 5/3/2012.

5. The Department being aggrieved by order dated 5/3/2012 passed by the Commissioner of Income Tax (Appeals) for the assessment year 2008-09, preferred an appeal before the Income Tax Appellate Tribunal and the matter was heard at length. The Income Tax Appellate Tribunal has allowed the appeal and has restored the order of the Assessing Officer treating short term capital gain as business income of the appellant.

6. Mr. P. M. Choudhary, learned senior counsel appearing with Mr. Anand Prabhawalkar, Advocate for the petitioner has vehemently argued before this Court that earlier also the Commissioner of Income Tax (Appeals) has passed an order on 30/5/2011 in respect of the financial year 2004-05 and a similar view was taken by the Commissioner of Income Tax (Appeals) by passing the subsequent order dated 5/3/2012 and, therefore, the Income Tax Appellate Tribunal should not have interfered with the order passed by the Commissioner of Income Tax (Appeals). It has been argued that once the issue was already decided in favour of the appellant which was consistently accepted and followed by the Department for various assessment years, non-acceptance of the same by the impugned order is unsustainable. The appellant has filed a chart in respect of the earlier assessment years and has stated that once in his own case the findings have been arrived at by the appellate authority, a different view could not have been taken in the manner and method it has been done.

7. Learned counsel for the petitioner has placed reliance upon the judgment delivered in the case of CIT v. Om Prakash Suri [2012] 19 ITJ 326 (MP); Deepaben Amitbhai Shah v. Dy. C IT 

8. Learned counsel for the respondent Department has vehemently opposed the prayer made by the petitioner and it has been argued that the assessee has not borrowed the money from investing into the business of shares and he was carrying out regular business of trading of shares. He has not kept designated employees/portfolio managers to take care of investment and as there were huge number of transactions of regular purchase/sale of equity shares of various listed Companies which were carried out by the assessee and the assessee has earned income from futures and option transaction of equity shares, the same has to be assessed as business of share trading. He has also argued that the frequency of transactions carried out during the year shows that approximately 288 transactions took place for the purchase of equity shares through out the year and about 162 transactions of sale have been entered with various share brokers including Arihant Capital; JM Finance P. Ltd., etc., and in those circumstances the assessee has entered into multiple transactions for various listed Companies and in those circumstances it was a regular feature of the assessee to trade in shares to obtain short term gain and, therefore, short term gain has rightly been included as business adventure and had rightly been included in the income of the assessee. It has been argued that the Assessing Officer and the Tribunal were justified in treating the income arrived at from the short term gain as income keeping in view the intention behind the gain and intention behind the sale. It has been stated that no question of law arise in the present appeal and as no question of law arise, the appeal deserves to be dismissed.

9. It has been further argued that only because the appellate authority, in case some other assessment order has granted relief, it does not mean that the assessee can escape from paying income tax for the financial year which is subject matter of the present appeal and the orders passed by the Commissioner (Appeals) are not at all binding upon the Income Tax Appellate Tribunal.

10. Learned counsel for the respondent – Department has placed reliance upon the following judgments :

1. Manoj Kumar Samdaria v. CIT 
2. P.V.S.Raju v. Addl. CIT 
3. CIT v. Associated Industrial Development Co. (P.) Ltd. MANU/SC/0268/1971;
4. P. M. Mohammad Meerakhan v. CITMANU/SC/0227/1969;
5. Khan Bahadur Ahmed Alladin & Sons v. CITMANU/SC/0161/1967;
6. G. Venkataswami Naidu & Co. v. CITMANU/SC/0065/1958;
7. Municipal Corporation of City of Thane v. Vidyut Metallics Ltd.MANU/SC/7899/2007; and,
8. Premji Bhimji v. CITMANU/WB/0144/1970

Heard learned counsel for the parties at length and perused the record.

11. The undisputed facts of the case reveal that for the assessment year 2008-09, the assessee has filed a return of income on 29/5/2008 declaring total income of Rs. 3,14,17,278/- which included income from his Eye profession as a Surgeon, long term capital gain derived as a result of capital equity as also the short term capital of Rs. 1,18,57,282/- derived as a result of purchase and sale of shares. The case of the assessee was selected for scrutiny and an order was passed u/S. 143(3) on 21/12/2010. The Assessing Officer while passing an order accepted the assessed long term capital gain derived as a result of sale of shares but treated the short term capital gain derived from purchase and sale of shares as income from business only. The assessing officer levied tax @ 30% on such income against 10% leviable on short term gain and the same has resulted in additional demand of Rs. 37,33,743/-. Against the order dated 21/12/2010 an appeal was preferred and the same was allowed against which the Department has preferred an appeal and the appeal preferred by the Department has been allowed by the Income Tax Appellate Tribunal.

12. The order passed by the Income Tax Appellate Tribunal, in paragraphs 10, 12, 16, 17, 18 and 19 reads as under:

12. It is an established fact that the issue relating to taxability of gain/loss from purchase/sale of equity shares is purely a matter of fact and the treatment of such gain/loss can be decided only on the basis of the facts of the particular assessee. Though the Ld. Counsel for the assessee has relied on many judgments but in our humble view the decision cannot be applied squrely on the facts of the Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012 assessee. Though the facts before the Hon’ble High Court of Bombay in the case of ITO vs. Gopal Purohit are similar to a considerable extent but the view cannot be applied on the facts of the assessee because it does not fulfill the rule of consistency. In the case of assessee in the preceding year there was meager income from purchase and sale of equity shares which considerably increased from year to year with the fact that the assessee also start share trading business as well as trading of future & options (F&O). For this very reason the rule of consistency cannot be applied. Even otherwise the case of assessee was never subject to scrutiny for examining this issue of purchase and sale of shares and it was only for A.Y. 2004-05 that the case was reopened and the assessing officer therein has decided that the gain from purchase and sale of shares held for less then one year is to be taxed as business income. Therefore, we are inclined to adjudicate the issue raised before us by the Revenue purely on the basis of the following facts of the instant appeal emerging from perusal of the records:- a. Paper book page 117 reveals that the assessee sold securities worth Rs. 12,41,10,593/- and claimed deduction for purchase valuing at Rs. 11,17,26,044/- and cost of transfer at Rs. 5,27,267/-. b. In the audited profit and loss account appearing at page 50 of the paper book dated 23.05.2018, equity shares held as on 1st April, 2007 have been shown under the head opening stock along with purchase of Rs. 12,02,54,265/-, sales at Rs. 14,20,85990/- and Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012 closing stock at Rs. 3,99,59,591/-. c. On the income side of the profit and loss account along with opening stock, purchases sales and closing stock of equity shares, income from dividend, assessee has also shown profit from share trading byway of profit and loss from future & option (F & O) transactions, Profit and loss account JMMSFS Ltd. F & O, shown under the head share trading, profit/loss. It shows that the assessee is suo moto accepting that regular business transactions of share trading are carried out by him. d. The profit and loss account has been audited by Chartered Accountant firm in order to certify the transactions shown under the head opening stock, purchase direct expenses, indirect income, share trading profit, F & O profit and closing stock. e. Moving on to the frequency of transactions carried out during the year ledger account of investment in shares purchases placed at pages 24 to 39 of the paper book dated 23.05.2018 shows that approx. 288 transactions took place for the purchase of equity shares which have been carried out throughout year. Similarly, around 162 transactions for sales have been entered with various share brokers including Arihant Capital Market Ltd., J.M. Finance P. Ltd. etc. Undisputedly the assessee had entered into multiple transactions for various listed companies however in the case of BOC India Ltd. around 70 transactions of sales took place during the year and the assessee purchased 1,07,640 equity share valuing at Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012 Rs. 1,58,73,054/- and sold the equity shares of the same quantity. In the case of Escorts Ltd. 253934 equity shares were purchased and sold during the year on 52 occasions. In case of Fortis Health Care Ltd. 1,88,690 equity shares were purchased and sold scattered over on 31 transactions.

16. Frequency of transactions also plays vital role in examining taxability of such transactions. Though it is pleaded that the assessee is a very busy Doctor engaged in the professional work but what transpires from the records is that the assessee is devoting his time and knowledge for regular purchase and sale of equity shares round the year. Even otherwise there is no Estoppel by law on the Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012 1 assessee to carry more than one business or profession. There are innumerable instances where a particular individual carries on multiple businesses from multiple locations then why cannot the assessee.

17. There seems to be a consistent touch of assessee with the equity market as frequent transactions of purchase and sale of the same script are done during the year which normally is not a practice of an investor because the investor usually invests and then wait for considerable time and the reason for such waiting is that the investor who is normally engaged in other business or profession make such investments to fetch some income without investing much time on trading such investments on regular basis. For this reason the investors invests the money in fixed deposits Public Provident funds as well as equity shares and other investments options.

18. But the situation in the case of assessee seems to be different because assessee is keeping continuous watch on the share market. He selects various scripts for regular purchase and sale and he is also engaged in the future and option market. Hundreds of transactions have been entered with the same brokers for purchase/sale. No separate demat account have been kept by the assessee relating to the alleged investment in equity shares and profit and sale from share trading and future and option. In these given facts it is hard to believe that such gain from such magnitude Rajeev Choudhary ITA Nos.293/Ind/2012& C.O.No.65/Ind/2012 2 of transactions can be taxed under the head of short term capital gain.

19. Ld. AO was fair enough to give the benefit of exemption for the long term capital gain but as regards the alleged income of Rs. 1,18,57,282/-, we find merit in the finding of Ld. AO and are inclined to hold that the alleged income of Rs. 1,18,57,282/- is purely income from business from purchase/sale of shares and therefore, is to be taxed as a business income. We, therefore, allow the grounds raised by the revenue and dismiss the ground no.1 raised in the cross objection filed by the assessee.

13. The Tribunal, thus, keeping in view the number of frequency of transaction has rightly arrived at a conclusion that the Assessing Officer was justified in giving the benefit of exemption for long term capital gain and was also justified in treating the income as business income in respect of purchase/sale of shares (short term gain). The aforesaid findings of the Assessing Officer which have been affirmed by the Income Tax Appellate Tribunal are purely the findings of facts.

14. Learned counsel for the appellant placed reliance upon the judgment delivered in the case of Hiren M. Shah (supra) and the facts of the case are distinguishable especially keeping in view the frequency of the transactions in respect of the short term gain as it was certainly a business adventure on the part of the assessee.

15. In the case of Gopal Purohit(supra), the frequency of purchase of share has not at all been considered. Similarly, in the case of Om Prakash Suri (supra) and in the case of Anoop Karwa (supra), decided by this Court, similar issue was not at all involved. The findings of fact in respect of the numerous transactions have not been touched in any of the judgment relied upon by the learned senior counsel for the appellant and, therefore, the judgment relied upon by the learned counsel for the petitioner are of no help to the petitioner.

16. On the other hand, learned counsel for the respondent – Department has placed reliance upon the judgment delivered in the case of Manoj Kumar Samdaria(supraP.V.S.Raju (supraAssociated Industrial Development Co. (P) Ltd. (supraP. M. Mohammad Meerakhan (supraKhan Bahadur Ahmed Alladin & Sons (supraG. Venkataswami Naidu & Co. (supraMunicipal Corporation of City of Thane (supra) and, Premji Bhimji (supra).

17. This Court has carefully gone through the aforesaid judgments and is of the considered opinion that no substantial question of law arises in the present appeal. The frequency of transaction carried out during the year shows that approximately 288 transactions took place for the purchase of equity shares through out the year and about 162 transactions of sale have been entered with various share brokers including Arihant Capital; JM Finance P. Ltd., etc., and, therefore, as the assessee has entered into multiple transactions for various listed Companies, it was a regular feature of the assessee to trade in shares to obtain short term gain and, therefore, the short term gain has rightly been included as business adventure and has rightly been included in the income of the assessee. It is purely a finding of fact arrived at by the Assessing Officer as well as by the Income Tax Appellate Tribunal. No substantial question of law arises in the present appeal.

Accordingly, the admission is declined.

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving