Commissioner of Income Tax vs Sonal Abhay Mehta

Vijay Bishnoi, J—This Income Tax Appeal has been preferred under section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ''the Act of 1961'') against the order dated 28.11.2013 passed by the Income Tax Appellate Tribunal, Jodhpur Bench Jodhpur (hereinafter referred to as ''the Tribunal'').

Brief facts, necessary for adjudication of the appeal, are that the income of the respondent-assessee was assessed by the assessing authority for the assessment year 2006-2007. The Return filed by the assessee was rejected and the Assessing Officer, while exercising powers under section 143(3) of the Act of 1961 has assessed Rs. 48,34,762/- as business income instead of short term capital gain. The Assessing Officer has held that it is established that assessee was dealing in shares as trader and shares were held by her as stock-in-trade. The Assessing Officer treated the amount of Rs. 48,34,762/- as trading income instead of short term capital gain and held that such trading income is liable to be taxed under the head "income from business and profession".

Being aggrieved with the decision of the Assessing Officer, the respondent-assessee had preferred an appeal before the Commissioner, Income Tax (Appeals), Udaipur (hereinafter referred to as ''the CIT(A)''), which was accepted vide order dated 13.05.2011. The CIT(A) has observed as under:

"From the submissions made by the appellant, it is seen that assessee was holding shares as investment from year to year which shows intention of the assessee i.e. to be of an investor. The securities transactions tax was paid and shares were received in the De-mat account & sold later on. In the earlier years also, the similar shares transactions have been accepted as an investment leading to short term capital gain and these shares were not treated as stock-in-trade. In fact, some of shares sold were purchased last year and shown as investment before selling them this year. These shares were never shown in the balance sheet as stock-in-trade nor valuation was made as a stock-in-trade. The dividends were received over the years which have been offered for the tax. It is not the case of the A.O. that shares shown as investment have been converted into stock-in-trade as per section 45(2) at any point of time. Assessee has pointed out that she has dealt in 42 cases and has not carried out activity continuously and he has made share transactions only on 47 days out of 261 working days that too to maintain diversified that portfolio so as to prevent loss depending upon market conditions. It is seen that assessee has been a regular investor and has remained invested over a long period of time and has received dividends continuously in from year to year. One of the significant points is that assessee has purchased shares out of his own funds and no funds were borrowed from commercial bank or institutions for purchasing shares. Further it is noted that assessee has been filing return from year to year and similar transaction of the sale and purchase have been accepted by the department treating the assessee as investor. The ratio of total purchase/sales is 0.55 and ratio of sales/stock is 3.10 only. The holding period on an average for the short term capital gain transaction has been more than six months and for the long term capital gain 2-3 years. The assessee has received dividends of Rs. 42,989/-. All these factors go to show that assessee is an investor."

The CIT(A) has decided that the addition made by the Assessing Officer treating the income of Rs. 48,34,762/- as business is liable to be deleted and the said income is liable to be held as short term capital gain.

The appeal preferred against the order passed by the CIT(A) dated 13.05.2011 came to be dismissed by the Tribunal vide order dated 28.11.2013 while observing as under:

"5. After considering the rival submissions, we have found that the intention of the assessee was to be investor from the beginning itself as the purchases were made through De-mat account from his own funds and the holding period of the shares and treatment given the books of account. Therefore, the finding of ld. CIT(A) cannot be faulted with. The only fact that the assessee has done voluminous activities of investing itself cannot be converted into business. Accordingly, by the supporting reasoning of the ld. CIT(A), we have found that the assessee is a regular investor and in the past whatever profit earned on purchase/sale were assessed, it was assessed under the head ''capital gain''. In the past any such STCG or LTCG were never treated as business income of the assessee. Accordingly, by following the rule of consistency laid down in the decision of Radha Swami Satsang v. CIT, 1993 ITR 321 (S.C.), we have to affirm the impugned finding. The ld. Authorised Representative has placed reliance on various other decisions including that of this very Bench in this regard and which we need not be repeated in view of the main decision of Hon''ble Supreme Court (supra). Accordingly, we do not find any merit in this appeal of the Revenue and dismiss the same."

Learned counsel for the appellant has argued that the learned Tribunal has grossly erred in dismissing the appeal of the department while ignoring the fact that during the year under consideration total purchase have been made to the extent of Rs. 69,90,137/- and total sale have been made to the extent of Rs. 1,27,62,936/-. It is contended that the purchases and sales of more than one crore itself speaks the volume and substantial nature of transaction and such transaction cannot be treated in the nature of investment. It is contended that the principle of res judicata is not applicable in the income as each assessment is separate year and even if in the previous years, such transaction has been treated as short term capital gain or long term capital gain, then also the same does not entitle the assessee to claim that the same yardstick be applied.

Heard learned counsel for the appellant.

It is not in dispute that in the previous years, the similar transaction were accepted as an investment leading to the short term capital gain by the department. As per the facts of the case, the respondent has dealt in 42 cases and has not carried out activity continuously and she has made share transactions only on 47 days out of 261 working days. It is also noticed that the assessee has been regular investor and has remained invested over a long period of time and has received dividends continuously in from year to year. The assessee has purchased shares out of her own funds and no funds were borrowed from commercial bank or institutions for purchasing shares.

Looking to the facts and circumstances of the case, we do not find any illegality in the findings arrived at by the Tribunal that the assessee was a regular investor and whatever profit, earned on purchase or sale of the shares, cannot be liable to be termed as business income and has rightly been treated as short term capital gain by the CIT(A) and the Tribunal.

In view of the above facts, we do not find any substantial question of law. Hence, the appeal fails and is hereby dismissed.