Investment made through portfolio management cannot be consider as business

Last updated: 22 March 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
The only issue that arises for adjudication is whether the assessee is a “Trader” or an “Investor”. The Assessing Officer held that the assessee is engaged in the business activity as far as share purchase and sale are concerned. The first appellate authority agreed with the assessee and held that the assessee is an “Investor”. Aggrieved, the Revenue is in appeal before the Tribunal.

Citation :
Asstt. Commissioner of Income Tax Circle-13(3), Aayakar Bhavan Dr. M.K. Road, Mumbai 400 020………….………. Appellant V/s Mr. Omprakash Kheta ¾, Kapadia Chambers 51, Broach Street Devi Ratanshey Marg Mumbai 400 009 PAN – AACPK8733G.…….………. Respondent

IN THE INCOME TAX APPELLATE TRIBUNAL

“C” BENCH, MUMBAI

BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, AND

SHRI R.S. PADVEKAR, JUDICIAL MEMBER

ITA no. 931/Mum./2010

(Assessment Year: 2006-07)

Asstt. Commissioner of Income Tax

Circle-13(3), Aayakar Bhavan

Dr. M.K. Road, Mumbai 400 020………….………. Appellant

V/s

Mr. Omprakash Kheta

¾, Kapadia Chambers

51, Broach Street

Devi Ratanshey Marg

Mumbai 400 009

PAN – AACPK8733G.…….………. Respondent

Revenue by: Mr. D.S. Sunder Singh

Assessee by: Mr. Hari S. Rajeja a/w

Mr. Deepak Sukhija

Date of Hearing – 22.02.2012

Date of Order – 14.03.2012

O R D E R

PER J. SUDHAKAR REDDY, A.M.

This appeal preferred by the Revenue, is directed against the impugned order dated 25th November 2009, passed by the Commissioner (Appeals)-XXIV, Mumbai, for assessment year 2006-07. The short issue that we need to adjudicate is, whether or not the first appellate authority was justified in deleting the addition of ` 26,61,002 made by the Assessing Officer as business income as against short term capital gain shown by the assessee.

2. The assessee is an individual and is a partner in a firm namely M/s. Metallica Chemicals, and is a director in the company M/s. Vishal Malleables Ltd. He filed a return of income on 29th September 2006, declaring total income of ` 35,07,774.

3. The only issue that arises for adjudication is whether the assessee is a “Trader” or an “Investor”. The Assessing Officer held that the assessee is engaged in the business activity as far as share purchase and sale are concerned. The first appellate authority agreed with the assessee and held that the assessee is an “Investor”. Aggrieved, the Revenue is in appeal before the Tribunal.

4. We have heard the learned Departmental Representative, Mr. D.S. Sunder Singh, representing the Revenue and the learned Counsel, Mr. Hari S. Raheja, representing the assessee. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, we hold as follows:-

5. The question as to whether the assessee is an “Investor” or is a “Trader” in shares is based on facts and circumstances of each case. The assessee relied on certain case laws and the Revenue also relied on certain case laws. We would refer to these case laws only to the extent they are relevant to the facts of the present case.

6. Learned Departmental Representative has furnished a paper book running into 19 pages. A perusal of the statement of purchase and sale of various shares, as submitted by the Department, indicates that that period of holding is between one month and eleven months. Only in stray cases, the period of holding is below one month. This is not, in our considered opinion, indicative of stock activity in trading. It is common knowledge that a trader purchases and sells shares every day or atleast at frequent intervals. This is not a case where there is intra-day trading. The principles laid down by the CBDT in its Circular no.4 of 2007, dated 15th June 2007, have not been followed by the Assessing Officer. The assessee had, in the past, filed his return of income as “Investor”. In fact, he is an “Investor” in shares since 1982, and has also paid wealth tax upto the assessment year 1992-93. He has made investments through Kotak Mahendra Investments Ltd. and Kotak Securities Ltd., as well as by way of direct investments. The amounts invested through portfolio management services by Kotak Mahendra Investments Ltd. and Kotal Securities Ltd., cannot be considered as business done by the assessee. The Assessing Officer, in this case, has accepted the fact that the assessee has long term capital gain. Only in the case of short term capital gain, a conclusion is drawn that this is “Trading”. In the past, similar activity has been accepted as capital gains. The Assessing Officer considered volume based on each purchase and sale as separate transactions, ignoring the fact that a single transaction can result in multiple transactions of purchase and sale of shares. The assessee has maintained separate portfolio in investment and trading and this is permitted, as held by the Hon'ble Jurisdictional High Court in CIT v/s Gopal Purohit, [2011] 336 ITR 0287 (Bom.) : 122 TTJ Mumbai 87 (Bom.). The assessee has declared in the balance sheet the value of these shares as “Investment” and not “Stockin- Trade” or net realisable value at cost or net realisable value whichever is less. In view of this factual findings and statement filed by the Revenue, disclosing the fact that the assessee has been holding shares for a period ranging between one and eleven months. We are inclined to agree with the findings of the first appellate authority and dismiss the ground raised by the Revenue.

7. In the result, Revenue’s appeal is dismissed.

Order pronounced in the open Court on 14th March 2012

Sd/- Sd/-

R.S. PADVEKAR J. SUDHAKAR REDDY

JUDICIAL MEMBER ACCOUNTANT MEMBER

MUMBAI, DATED: 14th March 2012

Copy to:

(1) The Assessee;

(2) The Respondent;

(3) The CIT (A), Mumbai, concerned;

(4) The CIT, Mumbai City concerned;

(5) The DR, “C” Bench, ITAT, Mumbai.