IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on : 09.01.2013
+ ITA No.703/2012
COMMISSIONER OF INCOME TAX-VII ..... Appellant
versus
AVINASH JAIN ..... Respondent
Advocates who appeared in this case :
For the Appellant : Mr Sanjeev Rajpal, Adv.
For the Respondent : None
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V. EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
This appeal has been filed by the revenue against the order dated
20.07.2012 passed by the Income Tax Appellate Tribunal in ITA
No.3379/Del./10. That appeal had also been filed by the revenue in
which the following ground was raised in relation to the assessment year
2007-08:-
"The Ld. CIT(A) erred in law and on the facts in holding that
the action of the Assessing Officer in holding short Term
capital gain and long term capital gain be treated as business
income has no substance and are without any cogent reason
and thereby deleting addition of `1,38,015/- and
ITA 703/2012 Page 1 of 5
`1,07,44,493/- made by the AO on account of Short Term
capital gain and Long Term capital gain respectively."
The assessee is engaged in sale and purchase of shares and maintains two
separate portfolios. One is an investment portfolio and the other is a
trading portfolio. This practice of the assessee has been going on for
earlier years also and this has been recognized by the revenue as also by
the Tribunal in the impugned order. It is only in this year that the
assessing officer made additions of `1,38,015/- and `1,07,44,493/- on
account of short term capital gains and long term capital gains
respectively in relation to the sale of shares out of the assessee's
investment portfolio. The assessing officer did so by treating both the
short term capital gain as well as the long term capital gain as business
income by construing the entire activity of the assessee as a business
activity.
2. The Commissioner of Income Tax (Appeals) by an order dated
24.06.2010 allowed the appeal of the assessee. Being aggrieved thereby
the revenue preferred the said ITA No.3379/Del./10 before the Tribunal
on the above mentioned ground.
ITA 703/2012 Page 2 of 5
3. The Tribunal noted that the Commissioner of Income Tax
(Appeals) had placed reliance, inter alia, on the CBDT circular No.4/2007
dated 15.06.2007 as also upon decisions of the Supreme Court in the
cases of CIT Vs. Associated Industrial Development Co. (P) Ltd. : 82
ITR 586 (SC) and CIT Vs. H.Holck Larsen : 160 ITR 67 (SC).
4. The said circular of the CBDT reads as under:-
"CBDT also wishes to emphasize it is possible for a tax
payer to have two portfolios i.e. an investment portfolio
comprising of securities which are to be treated as capital
assets and a trading portfolio comprising of stock in trade
which are to be treated as trading assets. Where an appellant
has two portfolios, the appellant may have income under
both heads i.e. capital gains as well as business income.
Assessing Officer are advised that the above principles
should guide them in determining whether, in a given case,
the shares are held by the appellant as investment (and
therefore giving rise to capital gains) or as stock-in-trade and
therefore giving rise to business profits). The Assessing
Officer is further advised that no single principle would be
decisive and the total effect of all the principles should be
considered to determine whether, in a given case, the shares
are held by the appellant as investment or stock-in-trade."
After concurring with the views expressed by the CIT(Appeals), the
Tribunal held as follows :-
ITA 703/2012 Page 3 of 5
"6. We have heard rival contentions and gone through the
relevant material available on record. CBDT by way of
above Circular has allowed the assessee to maintain two
types of portfolios in their books of accounts - one on
account of investment and the other on account of trading. It
is not the case that the assessee started these activities in the
year under consideration. The practice is supported by earlier
years also which is not disputed. The department has earlier
accepted the assessee's practice and treatment under heads of
capital gains and business. Assessee's separate activities in
share are further supported and endorsed by the fact that
separate de mat accounts, bank accounts are being
maintained and separate trading account and investment
accounts ae(sic) maintained in the books. Under these
circumstances it leaves no room for doubt that the assessee
was dealing in different activities of trading and investment.
In vie(sic) thereof we find no infirmity in the order of
CIT(A) which is upheld."
5. Before us the ld. Counsel for the revenue submitted that while the
CBDT circular only mentioned that it was "possible" for a tax payer to
have two portfolios, namely, an investment portfolio and a trading
portfolio, the Tribunal has misunderstood the said circular by holding that
the circular had "allowed" the assessee to maintain two types of
portfolios. Although technically the ld. Counsel for the revenue may be
right but that really does not make any difference when the entire circular
is considered. The intent and purport of the circular is to demonstrate that
a tax payer could have two portfolios, namely, an investment portfolio
ITA 703/2012 Page 4 of 5
and a trading portfolio. In other words, the assessee could own shares for
the purposes of investment and/or for the purposes of trading. In the
former case whenever the shares are sold and gains are made the gains
would be capital gains and not profits of any business venture. In the
latter case any gains would amount to profits in business. This has been
made clear by the CBDT circular in the remaining portion of the circular
itself.
6. On facts, the Commissioner of Income Tax (Appeals) and the
Income Tax Appellate Tribunal have held that the short term capital gains
and the long term capital gains in the present case were out of the
investment account and were not related to the trading account of the
assessee. That being the position, no interference with the decision of the
Tribunal is called for. No question of law arises for our consideration.
The appeal is dismissed.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
JANUARY 09, 2013
vld
ITA 703/2012 Page 5 of 5
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