PVR 1 6itxa1754-13.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION rt INCOME TAX APPEAL NO.1754 OF 2013 ou Commissioner of Income Tax 2 Appellant. Vs. C IHP Finvest Ltd. ... Respondent. h Mr.Suresh Kumar, for Appellant Revenue. ig Mr.P .J.Pardiwalla, Senior Advocate with Mr.S.G.Dalal i/b. Mr.S.G.Lakhani, for Respondent. H CORAM : M.S.SANKLECHA & G.S. KULKARNI, JJ. y DATE : 21st September, 2015. ba P.C. : 1. This appeal under Section 260 of Income Tax Act,1961 om (the Act) by Revenue assails order dated 2 January 2013 passed by Income Tax Appellate Tribunal (the Tribunal). impugned order is B in respect of Assessment Year 2006 07. 2. Revenue has urged following questions of law for our consideration: ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 2 6itxa1754-13.doc (A) Whether on facts and in circumstances of case and in law, Tribunal was correct in holding that rt gains from purchase and sale of shares and mutual funds are to be treated as Long Term Capital gains, ignoring that ou volume and frequency of transactions and assessee's conduct in past indicates that assessee is engaged in business of sale and purchase of shares ? C (B) Whether on facts and in circumstances of case and in law, Tribunal was correct in setting aside h disallowance made by Assessing Officer under Section 14A of Income Tax Act 1961 r.w.r 8D of Income Tax Rules ig 1962 by relying on its decision in case of Godrej & Boyce Mfg. Co.Ltd., [2010][328 ITR 81], wherein it is held that Rule H 8D is prospective and applicable only from AY 2008 09 ? Re: Question y 3. respondent assessee is company which maintains two ba separate accounts in respect of its dealing in mutual funds and shares i.e. om one in respect of its trading and other in respect of its investment. During subject assessment year, respondent had declared long term capital gains of Rs.50.04 lakhs in its return of income. Assessing B Officer by its order dated 12 November 2008 passed under Section 143(3) of Act held that respondent assessee is trader in shares and, therefore, not entitled to benefit of lower tax under head long term capital gains . Thus added entire amount of Rs.50.04 lakhs to ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 3 6itxa1754-13.doc respondent assessee's business income to be taxed under head 'profits & gains of business'. rt ou 4. On appeal, Commissioner of Income Tax (Appeals) (CIT(A)) by order dated 23 November 2009 held that respondent C assessee was trader in shares and, therefore, entire income of Rs.50.04 lakhs offered as 'long term capital gain' is to be taxed as business h income. In above view, order dated 12 November 2008 of Assessing Officer was upheld. ig H 5. On further appeal, Tribunal by impugned order held that respondent assessee maintains two separate portfolios / accounts y in shares and particularly one held as stock in trade and other held as ba investment. CBDT circular No.4 /2007 dated 15 June 2007 permits assessee to maintain two portfolios of shares i.e. one comprising of om shares and securities in which assessee trades and other which is investment. It is also stated therein that any profit or gain arising out of shares held as investments would be subjected to tax as capital gains. B impugned order also notices fact that respondent assessee was valuing its shares held as stock in trade as per accepted principle of cost or market value of share/unit whichever is less, while those held as investments, were always valued at cost. Moreover, it noted ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 4 6itxa1754-13.doc fact that for earlier years claim of respondent assessee under head 'capital gains' was accepted. It held that on principle of consistency rt also same has to be accepted. Thus, impugned order allowed ou appeal of respondent assessee. 6. Revenue's grievance is that Tribunal was not justified C in placing reliance on assessment order passed in earlier assessment year as according to Revenue, rate of tax on income earned on h account of business activities as well as that earned on capital gains was ig same. Therefore, amount offered for capital gain was not subject H matter of inquiry during earlier assessment year. It was further submitted that respondent assessee was held to be trader by two y authorities under Act and, therefore, Tribunal ought not to have ba reversed finding of two authorities. Our attention is invited to relevant paragraphs of orders of Assessing Officer as well as om CIT(A) where assessee was held to be trader on account of following two considerations: (a) respondent assessee had scrips of same company B both in investment as well as in its trading account/portfolios, (b) respondent assessee has full discretion to decide to show particular scrip as investment and particular scrip as stock in trade. ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 5 6itxa1754-13.doc Thus, it is submitted by Mr.Suresh Kumar on behalf of Revenue that respondent assessee is trader of shares as found by concurrent rt findings of two authorities. Therefore, Tribunal ought not to have ou interfered with orders of CIT(A) and allow respondent assessee's appeal before it. C 7. We find that twin test applied by Assessing Officer and h CIT (A) to hold that respondent assessee is trader in shares and ig mutual funds is not correct. As pointed out above, as per CBDT circular No.4/2007 dated 15 June 2007 it is open to respondent assessee to H hold securities in two portfolios i.e. one investment portfolio and another trading portfolio. There is no bar under Act which prevents y assessee from investing partly as investment and partly for trading in ba same scrip. Besides, second test namely that it is at sole discretion of respondent to determine whether particular scrip is to om be treated as investment or scrip in which he trades, is permissible in terms of Circular No.4/2007 dated 15 June 2007. It is for B respondent assessee to determine how he seeks to treat particular scrip i.e. as investment or for trading. This intent would only be reflected in maintaining different accounts for two. There is no allegations of shifting of scrips from trading to investment or vice versa. Moreover, it is ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 6 6itxa1754-13.doc also pertinent to note that respondent assessee had shown all its scrips treated as investments at cost, while those held as stock in trade rt were shown at cost or market value whichever is low. This again is ou indication of fact that respondent assessee held scrips offered for tax under head 'long term capital gains' as investment. Further, C Mr.Pardiwalla, learned Senior Counsel for respondent assessee points out that so far as long term capital account is concerned, even h during preceding assessment year, percentage of tax charged on it ig was lower than that taxed on business income. This is not disputed by Mr.Suresh Kumar, learned Counsel for Revenue. Therefore, H issue arising in this Assessment Year should also have been subject of enquiry in assessment order passed in respect of preceding assessment y year. Therefore, even on principle of consistency no fault can be ba found with impugned order. For above reasons, we are of view that view of Tribunal is reasonable and possible view. om 8. Accordingly, question (A) does not give rise to any substantial B question of law and, therefore, not entertained. 9. So far as question (B) is concerned, impugned order of Tribunal has, merely followed binding decision of this Court in ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: PVR 7 6itxa1754-13.doc 'Godrej & Boyce Mfg. Co.Ltd. Vs. DCIT (328 ITR 81)'. Thus, Question (B) does not raise any substantial question of law and, therefore, not rt entertained. ou 10. appeal is accordingly dismissed. No order as to costs. C h (G.S.KULKARNI, J.) (M.S.SANKLECHA, J.) ig H y ba om B ::: Uploaded on - 30/09/2015 ::: Downloaded on - 24/12/2015 18:21:29 ::: Commissioner of Income-tax ­2 v. IHP Finvest Ltd