$ * IN HIGH COURT OF DELHI AT NEW DELHI 3. + ITA 277/2015 COMMISSIONER OF INCOME TAX-XVIII ..... Appellant Through: Mr Rohit Madan, Senior Standing Counsel. versus SHRI PRAGYA ARYA ..... Respondent Through: Mr Shashwat Bajpai, Advocate. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 16.11.2015 1. This appeal by Revenue is directed against order dated 30th October, 2014 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No.4139/Del/2011 for Assessment Year ( AY ) 2008-09. 2. Assessee filed original return of income for AY 2008-09 on 6th January, 2009 disclosing total income of Rs.29,17,060/-. Assessee had derived income from salary from M/s P. Aryan Art Gallery Pvt. Ltd. (in which Assessee has 25% shareholding), income from Short Term Capital ITA 277/2015 Page 1 of 6 Gains and income from Long Term Capital Gains on sale of paintings, besides income from Other Sources (interest income). Long Terms Capital Gains disclosed were on account of sale of four paintings of renowned artist Mr S. H. Raza. Two of paintings were sold to Auction House M/s Osian s Connoisseurs of Art Private Limited for total sum of Rs.2,39,20,000/. Two other paintings were sold for sum of Rs.15,00,000/- and Rs.5,00,000/- respectively to M/s P. Aryan Art Gallery Pvt. Ltd. As far as Short Term Capital Gain is concerned, it was on sale of one of paintings of Mr S. H. Raza to M/s P. Aryan on Art Gallery Pvt. Ltd. for sum of Rs.40,000/- 3. Assessing Officer (AO) by order dated 30th December, 2010 concluded that Assessee was in regular practice of selling paintings to M/s P. Aryan Art Gallery Pvt. Ltd. which was in turn selling these said paintings for profit. order of AO recounted that Assessee s grandfather had collected art works and after his death on 30th June 1996, Assessee s father handed over to him some of paintings including original art works of Mr H.S. Raza. In year 2006, Assessee sold one of paintings to M/s P. Aryan Art Gallery Pvt. Ltd. for sum of Rs. 81,50,000/- and one small painting for Rs.1,00,000/-. On 25th March, 2007 ITA 277/2015 Page 2 of 6 Assessee sold another painting of Mr S.H. Raza for Rs.1,90,00,000/- to M/s P. Aryan Art Gallery Pvt. Ltd. which in turn sold painting to M/s Pasco Automobiles in August 2007 for sum of Rs.2.81 crores. Two paintings of Mr Raza were sold for sum of Rs. 2.80 crores by Assessee through Art Auction House M/s Osian s Connoisseurs of Art Private Limited who paid assessee Rs. 2,39,20,000/- after deducting their commission. 4. By Finance Act, 2007, definition of expression personal effects in Section 2 (14) of Act was amended with effect from 1st April, 2008 to exclude paintings and works of art. As result, Assessee declared sum earned on sale of art work/paintings in AY 2008-09 as capital gains. AO after perusing statement of affairs of Assessee in years ending 31st March, 2007 and 31st March, 2008, noticed that Assessee continued to extend interest free loan out of sale proceeds of paintings to M/s P. Aryan Art Gallery Pvt. Ltd. (Rs.1.20 crores as on 31st March, 2007 and of Rs.1.84 crores as on 31 st March, 2008). AO did not accept explanation of Assessee that he had sold some of paintings to raise capital. statement of assets and liabilities showed that Assessee was high net worth individual. AO held that ITA 277/2015 Page 3 of 6 establishing of separate company (P. Aryan Art Gallery Pvt. Ltd. ) in December 2005 by Assessee and his brothers and sale of paintings to said company which in turn sold them to customers/auction houses showed that Assessee had adopted well crafted modus operandi to earn maximum profits. Since Assessee was habitually trading in paintings, and therefore paintings should be construed as his stock-in trade . earnings therefrom were his business income. Consequently, Long Term and Short Terms Capital Gains disclosed in sum of Rs.2,56,86,054/- was treated as business income of Assessee derived from trading of paintings. 5. Commissioner of Income Tax (Appeals) [CIT (A)] by order dated 17th June, 2011 accepted plea of Assessee that Assessee was not regularly engaged in business of trading in paintings. There were hardly 3 to 4 transactions of sale in year and there was no income declared by way of any commission earned on sale of such paintings. No expenses incurred for sale of paintings were also claimed. CIT(A) accepted explanation of Assessee that he had wrongly calculated indexed cost of paintings as of financial year 1997-98 and later re- worked it for FY 185-86, when he inherited them. CIT (A) accepted ITA 277/2015 Page 4 of 6 plea that all paintings were treated by Assessee for his personal use. 6. above view of CIT(A) has been concurred with by ITAT. 7. Learned counsel for Revenue referred to findings of AO to urge that transactions entered into by Assessee suggested he was habitually trading in paintings. Court finds that AO has referred to solitary transaction of purchase of painting on 5th April, 2007 which was then sold to M/s P. Aryan Art Gallery Pvt. Ltd. on 10th April, 2007. Barring said instance, all other instances cited concerned Assessee selling paintings to M/s P. Aryan Art Gallery Pvt. Ltd. which in turn sold them to customers and/or auction houses. It is not in dispute that company M/s P. Aryan Art Gallery Pvt. Ltd. itself is assessee and is being taxed on profits and gains from sale of paintings. 8. question is whether on above facts Assessee could be stated, to be trading in paintings in his individual capacity? That question has been answered in negative by both CIT (A) as well as ITAT. Their findings in that regard appear to have turned essentially on facts. view taken by both said authorities have not been shown by Revenue to be ITA 277/2015 Page 5 of 6 perverse. No substantial question of law arises. appeal is dismissed. S.MURALIDHAR, J VIBHU BAKHRU, J NOVEMBER 16, 2015 MK ITA 277/2015 Page 6 of 6 Commissioner of Income-tax-XVIII v. Shri Pragya Arya