Case Law Details

Case Name : Commissioner of Income Tax Vs Smt. Datta Mahendra Shah, (Bombay High Court)
Appeal Number : Income Tax Appeal no 1601 of 2013
Date of Judgement/Order : 09/09/2015
Related Assessment Year :
Courts : All High Courts (4157) Bombay High Court (747)

Brief of the case

In the case of CIT vs. Smt.Datta Mahendra Shah, Bombay High court held that once department has accepted decision of ITAT given in case of assessee’s son then decision given by ITAT on identical fact in assessee case has also to be accepted by department, since department works as a single unit and it cannot argue that different treatment is to be given merely because the officers dealing with the two files are different.

Facts of the case

1. Assessee is a senior citizen having income on account of capital gains, business income and income from other sources. The Assessing Officer was of the view that the amount claimed short term capital gains of Rs.9.25 crores was in fact business income and has to be taxed.

2. AO has held that taken this view based on the following point:

a) that the assessee dealt with the shares of more than 60 companies during the year;

b) Holding period of shares in 30% of the cases was less than 30;

c) There are five speculative transactions during the year; and

d) Dividend income received was meager compared to capital gains.

3. Accordingly, AO has assessed ‘short term capital gains’ under the head Business Income.

4. Aggrieved by the aforesaid order of A.O, Assessee has preferred an appeal before CIT(A), who has as under:

a) Assessee has been an investor in shares and has consistently treated its entire investment in shares as “investment in shares” & not “stock in trade”;

b) The income earned on sale of shares was offered as short term capital gains even when losses were suffered in a particular year;

c) Dealing in 35 scrips, involving 59 transactions for the entire year could not be considered for high volume so as to be classified as trading income;

d) The Assessee had earned 75% of the income as short term capital gains by holding shares for more than nine months;

e) No transfer in shares was done by the assessee for over 75% of working days during the year;

f) 56% of the Short term capital gains during the year resulted from the shares held during the earlier assessment year as a part of the opening investment on 1 April 2007.

g) The Assessee had not resorted to churning of shares or repetitive transactions in shares of the same company.

h) for the earlier Assessment Years i.e. AY 200506 and AY 200607, the Assessing Officer had, in the proceedings under Section 143(3) of the Act, accepted the stand of the respondent assessee and taxed the profit earned on purchase and sale of shares as short term capital gains

i) Dividend Income earned was over Rs 8.50 lakhs.

j) assessee had not borrowed any funds but has used her own funds for the purpose of investment in shares;

k) Besides all transactions were delivery based transactions; and

l) The speculation loss to which the Assessing Officer has made reference was in fact not so, but happened as a result of punching error.

On considering the above facts, and in terms of Instruction No.1827 dated 31 August 1989 issued by the Central Board of Direct Taxes laying down the tests for distinguishing the shares held in stock in trade and shares held as an investment, the shares held by the assessee was investment and held the income to be treated as short term capital gains.

5. Aggrieved by the said decision Revenue preferred an appeal before ITAT, who has dismissed the appeal of revenue by recording facts find by CIT(A), further, ITAT has held that the Coordinate Bench of the Tribunal in the case of the respondent assessee’s son one Jai Mahendra Shah had held the gain arising from purchase and sale of the shares is taxable under the head ‘short term capital gains’ and not as a ‘business income’. The impugned order further holds that the facts being identical in that case to one under consideration holding is now in appeal before ITAT.

Issue

Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the Commissioner of Income Tax (Appeal)’s order and treating the Gains from Share Transactions as Short Term Capital Gain whereas it was to be taxed under the head “Business Income” ?”

High Court decision / observations

1. Since ITAT has relied upon the decision given by coordinate bench in case of respondent assessee’s son one Jai Mahendra Shah, we have directed the Revenue to place on record whether or not any appeal has been preferred against the order of the Tribunal dated 31 August 2012 in the case of respondent assessee’s son.

2. In response DR has filed an affidavit of ACIT which states as under:

“7. I say that in the case of Shri.Jay Mahendra Shah for AY 200809, … …. …. …. …. I say that the then CIT11, Mumbai had not recommended appeal to the Honourable High Court and the then CCITI, Mumbai accepted the said recommendation and the said decision was accepted.

8. I say that the order dated 27/02/2013 of the Honourable Tribunal in the case of Smt.Datta Mahendra Shah for AY 200809 was perused by the then CIT16, Mumbai and the said CIT had recommended appeal to the Hon.High Court by holding that the Honourable Tribunal was bound to consider each case on its own merits and that the case of Shri.Jay Mahendra Shah and that of Smt.Datta Mahendra Shah were not identical and no due consideration of the appeal by revenue was given by the Honourable Tribunal. I say that the then CCITIX, Mumbai agreed with the recommendation of the then CIT16, Mumbai and the appeal to Hon. High Court was accordingly made.

9. I say that different officers at different times were concerned in taking decisions of filing of appeal to the Hon.High Court in the case of Shri.Jay Mahendra Shah and that of Smt.Datta Mahendra Shah and that the said officers held different jurisdictions.”

3. Revenue further submit that the impugned order by the Tribunal as well as the order of CIT (A) have viewed the facts from one perspective while the Assessing Officer on the same facts viewed them from a different perspective to conclude that the short term capital gains in respect of respondent assessee has to be taxed as business income. In these circumstances, this appeal ought to be admitted. He further relies upon the affidavit dated 8 September 2015 of the Assessing Officer to state that the decision of the Tribunal in the case of respondent’ assessee’s son dated 31 August 2012 from which no appeal has been preferred, should not in any way impact the decision taken in respect of the present appeal.

4. It points out that a decision was taken not to file an appeal from the order dated 31 August 2012 of the Tribunal in the case of the respondent assessee’s son but a decision was taken to file an appeal in case of the impugned order as the facts are not identical. However, no particulars have been set out as to what facts are different from the order which is passed in the case of respondent assessee’s son and the respondent assessee, particularly, when the Tribunal has observed that the facts in both the cases are identical. The decision taken on the basis that the facts are not identical must be after recording the circumstances which evidence the difference of facts in two cases and must be so mentioned in the affidavit.

5. The further contention that the officers of the Department who took the decision to file an appeal in this case were different from the officers who have taken decision not to file appeal in the case of respondent assessee’s son, is no reason not to adopt a consistent stand in identical matters. The Income Tax Department functions as one unit and its stand in identical matters cannot be different merely because the officers dealing with the two files are different. In any case, if there are substantive reasons in facts or in law to take a different view the same should be set out in the affidavit and the explanation that a different view was taken because the officers who took the two decisions were different, is no justification.

6. Accordingly, the appeal is dismissed.

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