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2016 DIGILAW 1298 (GUJ)

Mital C. Koticha v. Income Tax Officer Ward 5(2)

2016-07-12

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of this Appeal, the Appellant - assessee has challenged the judgment and order dated 31.03.2006 of the Income Tax Appellate Tribunal, Rajkot Bench in ITA No. 451/Ahd./2005 for the Assessment Year : 1993-1994, whereby the Tribunal reversed the decision of CIT (Appeals) and confirmed the order of the Assessing Officer. 2. While admitting the matter on 06.03.2007, the following substantial question of law was framed by the Court for consideration:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that all the shares sold by the assessee were held by him on business account and not on investment account?" 3. The facts of the case are as under:- "The appellant - assessee sold in the Assessment Year : 1993-1994, 600 TISCO shares which she had acquired in Financial Year : 1989-1990 and 1700 Essar Shipping shares which she had acquired on 09.07.1991. In her return, she showed a capital gain of Rs. 3,53,964/- by taking the index cost thereof as the cost price. The Assessing Officer found that upto the Assessment Year : 1992-1993, there was no borrowing by the appellant and the appellant was purchasing the shares from her own capital. In the Assessment Year : 1993-1994, the assessee borrowed from a Bank and purchased the shares, and therefore, came to a conclusion that she purchased the shares on business account. The appellant preferred an appeal before CIT (Appeals), wherein it was pointed out that upto the Assessment Year : 1992-1993, both in Income Tax and Wealth Tax, the appellant has been held to be an investor. The CIT (Appeals) held that in the Wealth Tax, the appellant's investments in shares were held to be capital assets and there was no evidence of the appellant converting them into stock in trade nor had the appellant borrowed from the Bank to purchase the shares. The appellant was an investor and not a dealer. The Tribunal reversed the order of the CIT (Appeals) and upheld the order of the Assessing Officer. Being aggrieved by the judgment and order of the Income Tax Appellate Tribunal as stated hereinabove, this Appeal has been preferred." 4. The appellant was an investor and not a dealer. The Tribunal reversed the order of the CIT (Appeals) and upheld the order of the Assessing Officer. Being aggrieved by the judgment and order of the Income Tax Appellate Tribunal as stated hereinabove, this Appeal has been preferred." 4. Learned Counsel for the appellant has submitted that the Tribunal has erred in holding that the income earned by the assessee on sale of shares is liable to be taxed as business profits and not as capital gain. It is further submitted that the Tribunal failed to appreciate that in all the Assessment Years upto 1992-93, both in Income Tax and Wealth Tax, the assessee was held to be an investor and there is no justification for holding her to be a trader without seeing the facts of the year in which she purchased the shares, sold in the Assessment Year : 1993-1994 and instead seeing the facts of the Assessment Year : 1993-1994, which also did not justify the finding of a trader. It is further submitted that the Tribunal failed to appreciate that in a case where the assessee is accepted to be an investor of shares for a long past, a heavy onus lies on the Department to prove that the shares so held on investment account were converted into stock-in-trade by the assessee, and that this onus was not discharged by the Department in the facts of the case. 5. On the other hand, learned Counsel for the respondent - Department has taken this Court to the findings of the CIT (Appeals) and paragraph 4 of the said findings reads as under:- "4. The submissions are carefully considered. It is seen that the appellant was treated as a Wealth-tax assessee and her investment in shares as capital assets. There is no evidence that this was converted into stock-in trade by the appellant during the relevant accounting period. The appellant did not borrow from the Bank and has paid no interest on the investments which are sold and the surplus from which disclosed as long term capital gain. Even if the appellant paid interest on borrowings for such investments, that by itself would not be decisive of the issue as to whether the assets acquired from borrowed funds would be investment or stock in trade. The appellant derived dividends from the investments. Even if the appellant paid interest on borrowings for such investments, that by itself would not be decisive of the issue as to whether the assets acquired from borrowed funds would be investment or stock in trade. The appellant derived dividends from the investments. The ITAT has also decided the case of the appellant and in related cases that the behaviour of the appellant is that of an investor and not a trader. Considering the totality of the circumstances, it is held that the appellant is wrongly treated as dealer in shares. Accordingly all the grounds of appeal are allowed and the appeal is allowed." Learned Counsel for the respondent has supported the findings of the Tribunal and has taken this Court to paragraph 6 of the findings as well as to ultimate decision of the Tribunal which reads as under:- "7. Considering all these facts as discussed above particularly considering the overall conduct of the assessee in dealing with the shares and debentures, we are of the view that the Assessing Officer was perfectly justified in holding the income from sale of shares/certificates is the "income from business" and not "capital gains", as claimed by the assessee. Therefore, we reverse the order of the CIT(A) and restore that of the Assessing Officer on the issue." 6. We have heard learned Counsel appearing for the respective parties and perused the records of the case. It is not in dispute that in the previous years, the assessee was held to be an investor. The loan availed by the assessee was a long term loan and at Paragraph 6, the Tribunal has right observed as under:- "6. The learned AR assessee also relied on the decision of the ITAT, Rajkot Bench in case of Pushpaben H. Koticha & Others (88 TTJ 384). In this case, the transactions in purchase and sale of shares is very few, most of the acquisition by the assessee during the year by being by way of right shares in respect of which original shares acquired long back, most of the acquisition during the year being retained by the assessee overall conduct of the assessee showed that transactions were not in the nature of trade hence income from sales of shares is capital gain and not business income. We find that the ITAT has reached to the conclusion that the income from sales of shares is capital gain and not business income, after considering the overall conduct of the assessee and held the transactions were not in the nature of trade. But in the present case, considering the overall conduct, we find that the income from sales of shares is business income and not capital gain. Therefore, this decision in case of Pushpaben H. Koticha & others is of no help to the assessee." 7. Hence, in the facts of the present case, we are of the view that the assessee should be termed as an investor and therefore, the issue raised in this Appeal is answered in favour of the assessee and against the Department.