IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.10.2014 CORAM HON'BLE MR.JUSTICE R.SUDHAKAR AND HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).No.810 of 2014 Commissioner of Income Tax Chennai. .. Appellant Vs. R.F.Dadabhoy .. Respondent PRAYER: Appeal under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal 'C' Bench, Chennai, dated 7.2.2013 made in I.T.A.No.1029/Mds/2011 for assessment year 2006- 2007. For Appellant : Mr.T.Ravi Kumar Senior Standing Counsel JUDGMENT (Delivered by R.SUDHAKAR, J.) Revenue has filed this appeal calling in question order of Income Tax Appellate Tribunal 'C' Bench, Chennai, dated 7.2.2013 made in I.T.A.No.1029/Mds/2011 for assessment year 2006-2007, by raising following questions of law: Whether under facts and circumstances of case, Tribunal was right in holding that income of assessee from sale of shares should be (2) assessed under head capital gains and not under head business income as has been done by Assessing Officer? 2. In nutshell, department is aggrieved by order of Tribunal confirming order of Commissioner of Income Tax (Appeals), who held that income of respondent/assessee from sale of shares should be brought under head capital gains and not under head business . 3. There is not much of fact to be added than what has been recorded by Commissioner of Income Tax (Appeals) and extracted by Tribunal in paragraph (5) of its order. We set out same hereunder for better clarity: 5. We have heard both sides. Perused orders of authorities below. Commissioner of Income Tax (Appeals), in his order has dealt with this issue elaborately and came to conclusion that assessee who is working as Director in company is only investor and not trader. Commissioner of Income Tax (Appeals), while holding so, observed as under:- '5. I have carefully considered facts as well as arguments of learned Authorised Representative. have also given serious consideration to all precedents relied on by learned Authorised Representative. main thrust of argument is that appellant has been only investor all along and transactions in such (3) investments have been shown under capital gains in all earlier years magnitude of transactions are not voluminous and even if they are, same cannot be ground for treating activity as business in place of investment, transactions are delivery based transaction and no borrowed funds were used for making such investments and plethora of decisions quoted support his plea that income from Long Term Capital Gains/Short Term Capital Gains should be taxed under these heads only and not treated as business income. 5.1 There is no dispute about fact appellant is indeed dealing in investment in shares in past for many years and offered same under head Capital Gains. It is also true that Finance Act 2004 imposed Securities Transaction Tax on sale and purchase of shares whether assessee earns profit or not or suffers loss and simultaneously legislature exempted Long Term Capital Gains u/s 10(38) from levy of tax and subjected to tax @ 10% on Short Term Capital Gains provided Securities Transaction Tax has been passed on such transactions. In this context Hon'ble ITAT in case of Gopal Purohit Vs. JCIT 122 TTJ 87 held as under in para 8.1. 5.2. 'In our view, legislative change of this nature, whereby no change has been made in respect of nature and modus operandi of such (4) share transactions, resulting into any advantage cannot be taken away by Revenue Authorities in this manner and in these circumstances, we are of view that, principle of consistency, though it is exception to principle res judicata must be applied here. It is further so because payment of Securities Transaction Tax is mandatory i.e. whether assessee earns profit or not or suffers loss and by imposition of such tax, Legislature has not given any benefit to individual(s) entering into these transactions. Thus, in our view, in facts and circumstances of case, on basis of principle of consistency alone, action of Revenue Authorities is liable to be quashed'. Another important aspect to be considered here is that appellant is not share broker nor he is having registration with any Stock Exchange. More over some of scripts have been held for more than 5 years and it is not case of assessing officer that there were any derivative transactions by appellant nor it is case of assessing officer that there were transactions without any delivery. intention of appellant cannot be read from his mind but it reflects in his conduct, way he treats transactions. appellant has not borrowed any money for investing in shares and used his own surplus funds and these facts are borne out on record. Yet another aspect, as rightly stressed by learned (5) Authorised Representative is fact that appellant has received substantial dividend and that is also disclosed in return of income filed. After considering totality of facts, I hold that transaction of purchase and sale of shares by appellant cannot be treated in line of trading in shares nor can be treated as adventure in nature of trade. For reasons given above, I hold that entire income from sale and purchase of shares it to be assessed under head "Capital Gains" as rightly declared by appellant either as Long Term Capital Gains (LTCG) or Short Term Capital Gains (LTCG) depending upon period of holding. I therefore direct assessing officer to accept capital gain declared by appellant from sale of shares and delete addition made treating Long Term Capital Gains as business Income.' 4. We are in agreement with reasoning of Commissioner of Income Tax (Appeals), which found favour with Tribunal, that assessee is only investor in shares and he is not engaged in activity of trading in shares. Commissioner of Income Tax (Appeals) has gone at length into manner in which shares were held by assessee for long number of years and opined that there was no indication to show that he was engaged in activity of trading in shares as share broker or trader. Moreover, Department has not produced any material evidence (6) to rebut findings rendered by Commissioner of Income Tax (Appeals) and Tribunal. fact that there was no borrowal of funds by assessee and shares were purchased out of his own funds is borne out by records and, therefore, in our considered opinion, Commissioner of Income Tax (Appeals) and Tribunal were right in treating income from sale of shares as capital gains . We find, on facts, that there is no reason to interfere with order of Tribunal confirming order of Commissioner of Income Tax (Appeals). In such view of matter, we do not find any question of law, much less substantial question of law, for consideration in this appeal and accordingly, same is dismissed. No costs. (R.S.J.) (R.K.J.) 29.10.2014 Index : Yes Internet : Yes sasi To: 1. Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "C", Chennai. 2. Secretary, Central Board of Direct Taxes, New Delhi. 3. Commissioner of Income Tax (Appeals) - V Chennai. 4. Assistant Commissioner of Income Tax Company Circle VI(4), Chennai. (7) R.SUDHAKAR,J. and R.KARUPPIAH,J. (sasi) T.C.(A).No.810 of 2014 29.10.2014 Commissioner of Income-tax, Chennai v. R.F. Dadabhoy