A.Y. : 2005-06. Dated : 10-2-2009
S. 45 read with S. 10(38) — Profit from delivery-based
transactions in shares treated as capital gains and not as business income.
The Assessing Officer, therefore, held that the entire
profit was to be assessed as income from business and profession.
Before the CIT(A) the assessee contended that in earlier
five assessment years on identical facts, the assessment had been completed
u/s.143(3) by accepting the assessee’s claim. Hence, on the basis of the
principle of consistency and in absence of any fresh material, the same
treatment should be given by the Revenue for this year also. The CIT(A) upheld
the Assessing Officer’s order.
The Tribunal, relying on the decision in the case of
Sarnath Infrastructure Pvt. Ltd. v. Asst. CIT, (2009) 120 TTJ 216 (Luck.),
held in favour of the assessee. The Tribunal noted as under :
1. The assessee had claimed himself both as a dealer as
well as an investor and offered income for taxation accordingly and he claimed
that such income had been accepted by the Revenue authorities in earlier
years. Hence, it becomes important to analyse the facts of earlier years. On
considering the facts of the earlier years, the following conclusions
emerged :
(i) The facts of the year under consideration with regard
to nature of income(s) earned by the assessee and the transactions were same
in all those years, except transactions in F & O segment in some of the
years, wherein this kind of activity was started by the stock exchange.
(ii) Interest on borrowed capital had been allowed as
business expenditure against the profit on jobbing activities shown by the
assessee as business profit.
(iii) The assessee had shown shares purchased on delivery
basis as investments at the end of the year and no stock-in-trade existed on
that date and the assessee had earned both long-term and short-term capital
gains which meant that the assessee had also held shares for the period of
more than 12 months.
Thus, the nature of activities, modus operandi of
the assessee, manner of keeping records and presentation of shares as
investments at the year end were the same in all the years and hence,
apparently, there appeared no reason as to why the claim made by the assessee
should not be accepted.
2. The Revenue authorities had taken a different view in
the year under consideration by holding that the principle of res judicata
was not applicable to the assessment proceedings. There could not be any
dispute on this aspect, but there is also another judicial thought that there
should be uniformity in treatment and consistency under the same facts and
circumstances and it was already found that facts and circumstances were
identical, even though a different stand had been taken by the Revenue
authorities.
3. On the facts and circumstances of the instant case, on
the basis of principle of consistency alone, the action of the Revenue
authorities was liable to be quashed.
4. On the basis of merits also, in view of the ratio of the
decision of Sarnath Infrastructure (P.) Ltd.’s case (supra), it was
held that the delivery-based transaction should be treated as of the nature of
investment transactions and profit therefrom should be treated as capital
gains.
5. The Revenue authorities had also held that borrowed
funds were utilised for making such investment. In earlier years, interest on
such loans had been allowed as business expenditure against profit on share
trading transaction shown as business income. In the year under consideration
also no nexus between the interest-bearing funds and investments had been
established and, hence, for this reason also, there was no merit in treating
the capital gains as business profit.
